What’s the deal with DIY investing?

2020 was defined by the start of the COVID-19 pandemic. For many, the year also marked the beginning of a retail investing career. In fact, a Deloitte study found over 10 million Americans opened a brokerage account, and in 2021, as the retail trading boom continued, more than 6 million Americans downloaded a retail brokerage trading app.

According to a FINRA study, almost 80 percent of new and experienced investors who opened accounts in early 2020 were still in the market.

Now, four years after the start of the pandemic and the rise of retail investing, more and more solo investors are looking to transition to a more structured, formal way of getting advice. For advisors, this presents prime opportunity to expand their clientele and support those DIY investors looking to level up their investing and overall financial plan.

Kelly Regan, vice president and wealth advisor at Girard, a Univest Wealth Division, says there’s a purpose around retail investing and is great way for prospective – and current clients – to get started and build up assets “until they feel ready to receive professional advice and when their portfolio is getting larger.”

“Just like just like anything else DIY, people have hobbies,” she says. “People want to learn how to fix their computer rather than get a new one or fix their microwave watching YouTube. There are people who are passionate about it and whenever you're passionate about it, it's going to remain for the masses.”

Despite this, she remarks the trend is more around having a holistic financial advisor that can help clients with their investments, but also a lot of other financial decisions in their life. “It's a profession, so I think that people will continue to seek help in that way,” she said.

Retail investing has seen an increase in the number of investors because put simply, “it's easy to do and anyone can do it,” said Mark Weiskind, founding partner and senior wealth manager at Fairway Wealth.

“With 2022 being the exception, we've been in an environment where markets have been trending higher coming out of COVID so there's a bit of a tendency for people to think ‘I can just do this myself, and it's fun to do this myself because I'm making a lot of money.’ The younger generation are just getting into investing and are more apt to want to do things themselves in general,” he said.

Unsurprisingly, the hot “fads” or stocks everyone seems to be investing in right now are in AI or Nvidia, despite a few other stocks that are driving the broader market, like Google, Amazon and Meta platforms.

However, as advisors also say, it’s all fun and games for the DIY investors until they realize it’s a bit harder than they thought. For those who really want to work at it, Weiskind advises clients to use ETFs or index funds.

“We think it's a tough bogey to beat especially on an after-tax basis. My smart counsel to folks doing things on the retail side is to put most of your money in an index fund. Take a chunk of money and play with stocks but have that be a small percentage of the total.

“Also, try to understand how you're doing because that's the other trick with most retail investors is, if you ask them how they actually performed, they I have no idea,” Weiskind said.

At the end of the day, the way advisors should be operating is having a fiduciary responsibility on behalf of their clients, says Melissa Bouchillon, president at Sound View Wealth Advisors. She says advisors should have a plan in place and be prepared in case things go wrong in an unanticipated fashion.

She noted there should also be leverage to get through 3 to 5 bad years in the market without being forced to liquidate stocks or bonds.

“It’s not focusing on what the retail trends are, it's really about developing a plan, figuring out what our clients are trying to accomplish and helping them identify the pros and cons of any investment, because there’s always something that's good and negative about an investment and it’s making sure that they have a good understanding of both sides,” she says.

“Whether you're a retail investor doing it yourself or working with an advisory team, nobody really knows what's going to happen. I always tell my clients, we're gonna go up together, and we're gonna go down together, and I'm not sure in which order, because you can't predict exactly when the great financial crisis is going to happen.”