Essential Skills For Early Retirement: Be A DIY Investor

Do you have what it takes to retire early?  Believe it or not, it takes more than just money to be successful in early retirement. (Although a lot of money does help!)

What skills are necessary to make a success of a financially independent life?  This continuing series looks at the essential skills for success in early retirement.

In part 1 of the series, we discussed the an essential way for early retirees to “maintain energy levels”.

In part 2 of the series, we covered how early retirees might deal with adversity that arises from this unusual lifestyle.

Now, in part 3 of this series it’s time to talk about managing money — Specifically, managing it yourself.

It’s no secret that most of us who reached financial independence at an “early age” did it by Being DIY Investors.


Why Be A DIY Investor?

To make a broad generalization, it would be accurate to say that the vast majority of the world’s population has very little interest in managing their finances.  Most people would rather hand-over their hard earned cash to a professional.  Why?

They would rather be watching Netflix, instead of reading a book on investing.

Managing money can be stressful.  Most people have no formal training in finance, and very little time to study it.  Not to mention the repercussions of investing mistakes can be devastating —  A wrong move can wipe out years of hard earned cash.

Back when I worked a job inside the corporate machine, financial advisors were all the rage with busy people.  You did the earning and the financial advisor handled the investing….essentially passing the buck on all that financial stress.

But, (in my opinion) using financial advisors is absolutely the wrong move if you want achieve financial independence and/or retire early.

To explain why, I think it’s best if we start with a classic investing story…perhaps you’ve heard it before…

The story begins with a man from the country.  He’s bored with country life.  He longs for the excitement of the big city… so he decides to visit his successful stockbroker friend in New York City.

When he arrives, his friend shows him all the wonderful sites of the city — Wall Street, Times Square, Broadway, and so forth.

At one point the pair of friends pass a marina.  The stockbroker begins pointing out the yachts of famous Wall Street businessmen, and major stock market movers.

“This one belongs to the CEO of that major investment bank.”

“That one is owned by a man who started a successful mutual fund.”

“That yacht belongs to a broker who made over $50 million dollars last year.”

His country friend is impressed, but also curious.  He then asks the next obvious next question, So where are all the customer’s yachts?

The story inspired a classic investing book called Where Are The Customer’s Yachts by Fred Schwed.  If you have the time, it’s a very entertaining read.

By asking that simple question, the story itself reveals one of the great truths about the world of investing — Wall Street feeds off humble Mom-and-Pop investors like ourselves.

Financial advisors, stock brokers, and many mutual fund companies exist simply because they can scrape management fees and transaction fees from small investors.  Collectively, this amounts to billions of dollars every year.

Ever wonder why there are more mutual funds than publically listed companies?  I think that fact says it all — The financial-vampires need to feed.

“As your financial advisor I think we need to talk about your asset allocation. We should get you into some better performing funds.”

Without those small 1% annual management fees and $5 per trade transaction fees, many financial vampires would die of hunger….

Think about it — When you’re just starting out, 1% looks like nothing.  A few dollars per year.  But think about that 1% in the context of millions of dollars — That’s $10,000 per million, per year.  More than my family of 4 spends on groceries for an entire year!

Want to get wealthy?  In my opinion, give as little money as possible to those blood suckers.

The impact of fees on small investors isn’t new territory of course, the subject has been written about extensively by many other personal finance bloggers.  No need to repeat it here!

The simple truth:  You’ll become far wealthier investor by avoiding the fees of “investing professionals”.  DIY investing is the best way to do that.

Of course I’m not saying it’s IMPOSSIBLE to reach financial independence with financial advisors…it IS possible.  It’s just takes longer.

Individuals who reach financial independence early are well aware of the pitfalls of high fees.  We avoid them, and simply choose to invest our funds in the most efficient manner — as DIY Investors.


Big Savers Win Big

Rather than trusting the traditional advice, DIY investors also invest a lot more money.  Where a traditional retirement plan might call for 10-20% annual savings to be invested, most FIRE bloggers frequently cite savings rates well over 50%.

We write our own retirement investing advice!!!

Most years, Mrs. Tako and I saved somewhere around 50-70% to reach financial independence in our 30’s.

This excess savings not only super-charges retirement funds, but also drives individuals to invest beyond standard employer sponsored retirement plans.

Mrs. Tako and I easily exceeded the limits of our tax-advantaged plans.  We literally had to invest in taxable accounts to keep investing.

Having a taxable brokerage account is a huge advantage.  Why?  Suddenly you’re in complete control of what you invest in, how much, and when.

Sashimi plate
Gratuitous sashimi photo. Just because.  🙂

I imagine investing much like learning to ride a bike.  Employer sponsored retirement plans are like training wheels.  They are simple, and easy to get started.  But what you can do with those accounts is limited.

With taxable brokerage accounts, the training wheels are taken off.  They’re an incredible education in DIY investing.  You can do practically anything — buy mutual funds, invest in individual stocks, buy or sell options, borrow money, short shares, and even purchase preferred shares, MLPs, or REITs.

The sky is pretty much the limit…

Yes, it is entirely possible to screw-up investing with taxable accounts.  You can get yourself into trouble once the training wheels are off… but a scraped a knee (or two) can be an excellent financial education.


Multiple Paths to DIY Success

The great part about DIY investing is that it’s such a wide open field.  There are many possible paths to investing success — If you don’t like stocks, you can invest in rentals, small businesses, or any number of other investing possibilities.

The limits are only set by your imagination — DIY investing means finding an investing vehicle that works for you.

If you know real estate, then invest there.  Small businesses?  Go right ahead.  It’s a completely personal journey.  Pick whatever works for you.

detour choices
The road to financial independence can take many paths, but avoid pointless detours!

You don’t have to stick with just index funds.  There’s a gigantic world of investing possibilities out there that has absolutely nothing to do with index funds.

Don’t want to take my word for it?

Just look at the other FIRE bloggers out there (the ones who actually achieved FI).  All of them are DIY Investors and they ALL managed to achieve financial independence through different methods:

Mr. 1500 @ 1500days — Tech Stocks, Flipping real estate, and index funds.

Michael @ Financially Alert — Real estate, and stocks.

Joe @ RetireBy40 — Stocks, real estate, blogging income, and index funds.

Go Curry Cracker — Seller Financed Mortgage, blogging income, book publishing, and index funds.

Justin @ Root of Good — Retirement consulting, blogging income, and index funds.

Millennial Revolution — Children’s book publishing, blogging, and index funds.

None of these bloggers have “day jobs” anymore.  They’ve all “made it”.  They live off their investments, and they are all DIY investors.

Furthermore, each and every one of these incredible bloggers has some kind of unique investing skill they’ve built up over years that helped them reach financial independence.

If we can be DIY investors and find financial independence, than so can many other people….I find that really amazing and inspiring.  I hope you do too.


[Image Credit: Flickr1, Vampire]

13 thoughts on “Essential Skills For Early Retirement: Be A DIY Investor

  • April 8, 2017 at 1:44 PM

    Those management fees can do a lot of damage to a portfolio. Investing doesn’t have to be difficult. Anyone can and should manage their own funds. A basic portfolio of index funds is simple, stress free, and low cost. It’s worked for us in achieving FI 😉

    • April 9, 2017 at 11:18 PM

      You’re a great example of index fund success Mr CK! I completely agree that investing doesn’t have to be difficult. I think many people get scared away by all the strange terminology and esoteric concepts!

    • April 12, 2017 at 4:53 PM

      Agreed. I don’t believe in high management fees. It might take sometime to educate ourselves on fund management, but I think it’s totally worth it in the long run. For me, retirement and rental property are my top investment choices.

  • April 9, 2017 at 5:25 PM

    “investing mistakes can be devastating — A wrong move can wipe out years of hard earned cash.”

    This is constantly on my mind. Mr. FIRE and I are lined up to buy an apartment as an investment and no matter how many times I crunch the numbers I still wake up nauseous in the middle of the night. Hence why Vanguard holds so much of my investments. Pray that Vanguard never folds… the FIRE world will be extinguished.

  • April 9, 2017 at 11:09 PM

    Thanks for the mention, Mr. Tako. This is a fantastic series which aspiring FIRE investors must be loving!

    You definitely hit the nail on the head with DIY investing. It’s an added skill that can help accelerate one’s journey to FI vs. taking the slow path.

  • April 10, 2017 at 6:25 AM

    I think DIY investing is way more simple than most make it out to be. Buy a low cost total stock market index fund, like SCHX, ITOT, or VTI, and invest regularly. When you dabble into stocks, that’s what makes people nervous.

    Also I would recommend to anyone who wishes to invest, to just start doing it. Do it small at first, and then jump all in. Investing your surplus funds is an absolute necessary prerequisite to retiring early. No one ever retires, early, off of interest from CD’s.

  • April 10, 2017 at 11:35 AM

    The problem with the management fee is that they can’t outperform the market in the long run. Why pay more for less performance? I’ve had way better luck with DIY than trusting a financial advisor. I’m sure there are very good ones out there, but a lot of them are just vampires.
    I agree with FinancePatriot. Just start small and learn as you go. That’s why everyone should start investing young. You can make mistakes and still recover.
    Thanks for the mention!

  • April 10, 2017 at 2:54 PM

    Nailed it, Tako san!
    I’ll add that some of these mutual fund companies actively work to get bad reviews of their products removed from the internet, I’ve been a target of such behavior from one of these a while ago. As a result, it is easy to be misled into believing that they add value, which from my perspective, they don’t.

  • April 10, 2017 at 9:13 PM

    Most of the professional investors have underperformed the broad stock index for years. I just read on Bloomberg that for the first time in years, these fund managers have been beating the market year to date 2017.

  • April 11, 2017 at 7:24 AM

    I agree that financial advisors are almost never worth the expense. The only time I believe you should consider using one is if you are paying them a one time flat fee to discuss something like retirement.

    But, what are your thoughts on Robo-Advisors like Betterment and Wealthfront? I started investing with them to not only save myself time but I believe I will earn more by getting the free tax loss harvesting. The way they implement this method is nearly impossible for a human to do and it has saved me more than I would have even thought possible so far.

  • April 11, 2017 at 6:01 PM

    Agreed. Achieving FI requires you to take complete control of your finances, in my opinion. Investing is the largest part of this equation. Why outsource this piece of the puzzle to a earth manager that is going to charge you a crazy fee.

    You mentioned it in your article, understanding is not difficult. Not at all. You don’t have to be a rocket scientist and you don’t need to have a degree in accounting or finance to become a successful DIY Investor. What it does take though is time, focus, and willingness to try something new/riskier with your finances. Take the first step into investing may not be easy for people that do not have the background, but it becomes a blast once you start moving. But for many, as you said, they would rather watch Netflix and will happily pay the fee. Only one day they will realize their manager was sub par and they paid way too much and left a lot on the table.

    Thanks for the great read tonight!


  • May 3, 2017 at 7:21 PM

    Getting started matters. I’d much rather make mistakes at the beginning with my small amounts rather than at the end with my retirement on the line.


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