8 mistakes made by people who DIY their pensions

DIY has always been popular, but in the past few years it’s taken the UK by storm. With more people working from home, it can be very tempting to take on those little projects. Just look at DIY retailer Wickes – their sales are still 23%above pre-pandemic levels.

We’re also seeing the trend spill into investment. According to Boring Money, the number of DIY investors in the UK rocketed between 2019 and 2021. Despite a slight dip at the end of 2022, it’s still far above pre-Covid levels.

But while DIY is fine for small home projects such as painting the bathroom or building garden decking, it’s a lot more complex when it comes to finances.

Phone apps have made it easier for anyone to become an armchair investor. But, without proper guidance, it can be dangerous. After all, this is more than a wonky shelf – this is your financial future.

The best way to learn is through mistakes. But you don’t have to make them. Lots of people have, unfortunately, done that for you.

Here are just a few:

Mistake #1: thinking it’s about picking ‘the best’ funds

Lots of beginner investors think that picking funds is all there is to it. Choose the ones that perform well, watch your money multiply, and look forward to a comfy retirement filled with luxury cruises.

Sadly, it’s not as easy as that. The market is fickle. Today’s best performing fund may be next year’s worst performing one.

Mistake #2: losing out on tax relief

You might think you’re being a savvy investor by saving your money across several ISAs, instead of into a pension pot. But you’re overlooking the tax relief - £20 for every £80, courtesy of the taxman. After all, what good are 25 ISA savings pots if you’ve lost out on 40% tax relief?

Mistake #3: overpaying tax

Since 2015, over 55s can access (drawdown) some of their pension savings to spend or invest. This freedom comes with its own pitfalls – namely, a number of tax tripwires that are very easy to stumble into.

For example, drawdown is treated as income. You can easily push yourself into a higher tax bracket simply by withdrawing too much in pension funds. This could mean handing over a big chunk of your income to the taxman.

Mistake #4: not noticing hidden fees

You’re doing it yourself, so it’s free: right? Wrong.

DIY investment fees are often buried in the small print and written in complex language.

Sometimes these fees can be equivalent to – or higher than – paying a financial planner. But with a financial planner, you get the added benefits of a tailored plan that aligns with your goals and appetite for risk, the expertise of a professional, and objectivity – to name just a few.

Mistake #5: not knowing how much risk you’re willing to take

Even the most inexperienced investors understand that investments can go down as well as up.

Advanced investors understand how much risk is acceptable for themselves.

But even so, if you’re doing it yourself, it can be hard to conceptualise.

Meanwhile, financial planners are experienced in creating risk profiles. They run through a list of detailed questions, come up with a plan, and apply it across your portfolio.

That way you know when to stick around, and when to call it a day.

Mistake #6: not having a strategy

Investing without a plan is like wandering into the wilderness without a map.

It goes deeper than reaching towards a set figure. Before getting started, you need to decide what you want to achieve with your money.

Once you know what you want your retirement to look like, it’s time to work with a financial adviser to create a strategy to help you get there.

Mistake #7: overlooking gaps

Nobody wants to think about death or illness. Unfortunately, this is why these taboo topics often overlooked by DIY investors.

Building a serious financial plan means running through the most horrible ‘what ifs’ to ensure your family will be secure if the worst case scenario takes place. Financial planners always ensure these gaps are filled.

Mistake #8: having no support

As we’ve seen since 2020, the markets aren’t always smooth sailing. And it’s never fun to go through hard times alone.

Aside from online forums filled with other DIY investors, those going it alone have no one to reach out to for reassurance.

If you’re working with a financial adviser, they’ll be able to talk to you from a place of experience. They’ll be able to discuss the realities of what’s happening and put your mind at ease.

How to avoid these mistakes in the first place

Working with a financial planner is the best way to avoid these common mistakes. You have someone with the expertise and advice to keep you right, saving you time and money.

Whether you want to retire early, travel the world or start a new business, we’d be more than happy to discuss your goals and build a bespoke plan. Or make adjustments to an existing one.

Get in touch for a no-obligation chat.