Armchair investing has become increasingly popular in recent years. It refers to managing your own investments from the comfort of your home without using a financial advisor. With the rise of online brokerages and investment apps, armchair investing provides easy access to the stock market and other assets for retail investors. However, armchair investing also carries risks if not done prudently. Investors need to educate themselves and conduct thorough research before making investment decisions.
Armchair investing provides convenience and low costs
One of the biggest benefits of armchair investing is convenience. Investors can trade stocks, ETFs and other securities anytime and anywhere through online and mobile brokers. This avoids the hassle of having to physically go to a brokerage firm or bank during business hours. Armchair investing also incurs much lower fees compared to using a traditional financial advisor who charges commissions and management fees. Discount brokers allow investors to trade for as low as $1 per trade.
It requires self-education on investing principles
While armchair investing provides ease of access, investors are fully responsible for educating themselves on sound investment principles and strategies. This includes developing a solid understanding of asset allocation, risk management, fundamental and technical analysis, proper valuation and more. Investors should start with building a financial plan, determining risk appetite and investment timeline before selecting appropriate investments. Ongoing self-education through books, online courses and forums is crucial.
Lack of professional guidance can lead to costly mistakes
A lack of guidance from qualified financial advisors makes it easier for armchair investors to commit costly mistakes. Common errors include underdiversification, emotionally-driven trading, excess costs from overtrading, incorrect risk profiling and inadequate portfolio rebalancing. Professional advisors can provide personalized advice tailored to one’s financial situation and risk tolerance, preventing many easily avoided mistakes. Armchair investors must exhibit discipline and patience when investing independently.
Requires monitoring investments and news frequently
Staying on top of the markets and individual investments requires frequent monitoring of news, company reports and stock prices. While apps and alerts help track investments, armchair investors need to regularly analyze their holdings to detect early problems and identify new opportunities. Setting aside dedicated time every week solely for this purpose is recommended. The time commitment involved makes armchair investing difficult for investors who are very busy with other commitments.
In summary, armchair investing provides DIY investors with convenience and control but requires assuming full responsibility for education, research and portfolio management. Careful planning and discipline is necessary to avoid costly investing mistakes without guidance. Armchair investing is a viable option for self-motivated individuals willing to make the time commitment.