When it comes to investing, many people rely on intuition or their own knowledge, confident they can match the performance of industry professionals. Yet numerous studies — including those conducted by Dalbar Inc. and JP Morgan — consistently show that the DIY investor tends to achieve significantly inferior results compared with those who adopt more structured strategies.

Why can DIY investing lead to lower returns over the long term?

According to research by Dalbar Inc. and JP Morgan, the average DIY investor in the United States achieved a mean annualised return of 3.6% over the past 20 years. Whilst this figure does exceed average inflation (2.2%), it falls well short of simple strategies such as a balanced 60/40 portfolio of equities and bonds (7.4% per annum) or investing in the S&P 500 (up to 9.4% per annum).

How do returns compare across different investment strategies?

  • DIY investing: 3.6% per annum
  • Balanced 60/40 portfolio (equities/bonds): 7.4% per annum
  • S&P 500 index investment: 9.4% per annum

The data show that even over 30-year horizons, the non-professional investor’s results remain significantly below those of passive strategies and benchmark indices.

What causes the performance gap between DIY investors and those using structured strategies?

The “performance gap” is attributable to several factors:

  • Psychological errors, such as overconfidence and irrational fear, which drive investors to buy or sell at the least opportune moments.
  • Objective market dynamics: only 1.3% of stocks generated the majority of global wealth between 1990 and 2018, whilst most securities delivered returns below those of government bonds.

Why can selecting individual securities be risky?

Concentrating on individual stocks increases the probability of underperforming indices, since the majority of securities fail to deliver returns in line with expectations. By contrast, a diversified strategy — such as investing in a broader basket of stocks or in ETFs that replicate indices — reduces the risk of missing the handful of shares that actually drive market returns.

How can an independent financial adviser improve returns?

An independent financial adviser helps to:

  • Limit emotional errors, guiding the investor on the basis of objective data and targeted analysis.
  • Structure a balanced portfolio that takes into account the client’s needs and risk profile.
  • Avoid conflicts of interest, as the adviser is not tied to the promotion of specific products.

Conclusions

The figures speak for themselves: relying on a DIY approach may seem cost-effective, yet it frequently leads to lower returns over the long term. The support of a professional — in particular an independent financial adviser — makes it possible to adopt more effective strategies and to minimise errors driven by emotion and limited knowledge. For information on how to structure a sound and enduring investment plan, please get in touch.