DIY is for Cheap Furniture; Not Investing

By Greg Fields

“He’s a little Scotch with the roll”. That was Maltese Falcon author Dashiell Hammett’s literary allusion slapped on a character who was notoriously cheap. As a descendant of Scottish clans on both sides of my family, I have to agree with his observation that my people are unapologetically, uh, frugal. My grandfather – who lived to 102 – had calculators in every room in his house. He wore his TJ Maxx-bought baby blue Levi’s for decades until they were practically in shreds. He’d crawl under his house at 95 years old to fix his water heater instead of calling a repairman. And he was not poor. Far from it.

Sounds silly, right? It would be like cutting your own hair. Trust me: I’ve tried, but I always end up impaling my forehead with scissors due to that whole opposite direction thing that comes with looking in the mirror. But like many things in life, just because you can do something doesn’t mean you should do it. If you want to save some cash by assembling dropped-shipped Swedish furniture with a hex wrench, have at it. But if you’re looking to save money on investing: I have three words of wisdom for you: Don’t. Do. It. Do not go, rogue,/Do It Yourself with your retirement savings.

Listen; I get it (I’m Scottish remember?). The phrase “entry level” is music to my ears. I can’t wait for the next iPhone to drop because that means the previous generation will go on sale. And then the TD Ameritrade guy on TV explains to me how investing is as easy as ordering pizza: choose you “pie” size (asset allocation), pick a few “toppings” (mutual funds) and take “advice” from some faceless call center person you’ve never met (the GrubHub delivery guy). Seriously? Another company touts bargain basement “trading fees” to encourage you to, you know, go all Vegas and attempt and time the market. There are likely tombstones for options traders with thirty years Wall Street experience that read: “He tried to catch a falling knife…and got cut”. Does that sound like a good idea, or does it sound suspiciously like bait for ingenues begging to be separated from their hard-earned cash?

Do It Yourself investing – better known in my world as Donuts to Inferior Yields - is the poster child for penny wise, pound foolish thinking. The stock market is an extraordinarily complex global network of savvy institutional traders, hard-bitten brokers and Ivy League trained economists. What do you think your chances are of outsmarting them while noshing on Hot Pockets and punching a trade into your iPad? Does that even sound realistic? We’re talking about your life savings here; not Applebees money. Would you drive around with your baby clinging to the roof of your car? “Hang on little Joey; they’ll put Graco car seats on sale eventually!”

But DIY investors take these absurdly unnecessary risks because they fixate on advisor fees – even though these fees are currently at historic lows. While financial advisors are required to spell out the minutia of their revenue streams in buzz-killing detail, the fees lumped into many DIY investment platforms and their funds are harder to discern. I’ve also been shocked to discover that many DIY investors don’t know what they’re actually invested in, what their exact returns are or even why they’re investing in the first place. Pass me the Scotch.

Studies have shown how self-directed investors underperform the S&P index by up to 6-7%. In that scenario, a 1% advisory fee sounds like a bargain. Would you give up $1 to earn an extra $5? Sign me up! Besides that, don’t you have a job? Can you really navigate a short straddle options strategy while presenting a PowerPoint or driving your kids to school? Are you disciplined enough to resist selling and making your losses permanent when there’s a market correction? Guess what. Unless you’re the Oracle of Omaha, I’m wagering the answer is “no”.

Let’s venture back into the land of common sense. Be wise about advisory fees. Ask questions. Articulate your goals and lay out how to reach them in collaboration with a professional who builds financial plans for a living, not as a side hustle. Just keep in mind that the thrifty logic behind super saver shipping doesn’t necessarily work for investing. Tape this to your refrigerator: scotch is for drinking; not for thinking.

Greg Fields is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately $800 million in assets under management as of 7/04/18. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn’t buy any investment without doing their own research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results.”