This article was originally posted on September 12, 2012
Keep It Simple
Same goes for stocks, only invest in solid companies you know and understand.
In this post, we will access if our DIY approach is doing better than indexing in the long run. We will also try to determine to what it can be mainly attributed.
Many assume it can only be plain luck. They think DIY investors aka stock pickers can only beat indexing if they are lucky. Lucky to identify and cash in on big winners or to avoid big losses or even both.
In the end, the big question boils down to knowing if DIY Investing is worth the trouble?
We’ll have a look at our own investing situation to have a better idea.
To be clear, indexing is probably a better approach for most people. But we are trying to verify what’s better for us and it definitely may not be better for you.
Why Did We Get into DIY Investing?
Let’s get back to why we got into DIY investing in the first place.
Our initial DIY assumptions were to try to obtain similar capital returns (8%) as our expensive-on-fees mutual funds (indexing was not that accessible yet in those days) but to do a little better on dividends (4% instead of 3%) and fees (almost zero versus 2%). Here, we’ll note that indexing solutions, with fees around 0.5% or even under, are now quite easy to find. In that context, indexing is already much better than archaic mutual funds.
From the start, our overall objective was to make 12% long-term (8% capital + 4% dividends + 0% fees) instead of 9% with our old-fashioned funds (8% capital + 3% dividends - 2% fees).
In fact, doing 2-3% better seemed to be worth the hassle for us.