DIY investing has exploded its way into normalcy, which means we no longer have tedious arguments about whether people without advisers are acting irresponsibly.
A new survey surprisingly suggests DIY investors are less prone to risky behaviour than another group: hybrid investors who have an adviser and do some investing on their own. The survey of 1,350 people, commissioned by investor advocacy group FAIR Canada, shows that hybrid investors are more likely to feel confident about investing – and make riskier investments.
Example one: hybrid investors are twice as likely to trade options and derivatives than DIY investors. Only 15 per cent of DIY people surveyed had applied for accounts to trade these securities, compared with 28 per cent of hybrid investors.
Example two: hybrid investors are twice as likely to trade with borrowed money or on margin. Eleven per cent of DIY investors had used credit or borrowed from their broker using a margin account to buy investments, compared with 21 per cent of hybrid investors. A side note here is that investors aged 18 to 34 were more likely to buy stocks with borrowed money than older investors.
In a backhanded way, the numbers for DIY and hybrid investing are an endorsement of having an adviser. It seems that if you have someone managing your investments, you’re more confident than pure do-it-yourselfers. In fact, the FAIR survey identified a sub-group of DIY individuals called the “inexperienced overwhelmed investor.”
But trading options and leveraged investing – using debt – can also be seen as signs of overconfidence. You can do fine with both, but they require a higher level of expertise and risk management.
If you’re a hybrid investor trading options or buying stocks on margin, do yourself a favour and tell your adviser what you’re up to. You might get some useful input and, at the very least, your adviser will have a better understanding of your financial risk profile.
Advisers, do you know what your clients are doing on the side? A quick no-judgment conversation about side accounts could prove helpful. A client who torches a bunch of money with options trading might be more sensitive to losses in their advised account.
As for the rise of DIY investing, FAIR cites data from consulting firm Investor Economics that shows the total number of digital trading accounts hit 11.4 million late last year, up from 2.3 million in 2020.
You can credit the pandemic investing boom for this growth, plus social media influencers and the rise of apps for trading stocks on smartphones. Let’s see what the next stock market crash does to these numbers.