Understanding Self-Directed Investing

Quick Definition: Self-directed investing means an investor makes their own decisions about how, where, when, and what assets to invest in, rather than delegating those choices to a financial advisor or money manager.

Here's something that might surprise some folks: whether someone is a high school dropout working their first job or a PhD in Physics crunching complex equations, they're already a self-directed investor. That's right—investors have been making investment decisions their entire lives, even if they've never owned a single share of stock or stepped foot inside a bank to open an investment account.

Being a self-directed investor isn't about education level, income, or how much money someone has sitting in the bank. It's simply about making decisions on where to put resources—time, energy, and money—with the hope of getting something valuable in return.

Every Day Is an Investment Day

Let's start with a concept that might seem extreme at first, but stick with me because it'll help everything else make sense. Technically, we make investment decisions every single day of our lives.

Think about the last time you went to see a movie in theaters. You made a choice to invest roughly $15 for a ticket, maybe another $20 on popcorn and a drink, plus two hours of time (which is valuable, even if we don't always think of it that way).

The expected return on that investment? Hopefully an entertaining, enjoyable experience that gives something to talk about with friends or simply helps unwind after a long week.

Here's the kicker: when you walked into that theater, you may have had absolutely no idea what the actual experience would be. Sure, you might have read reviews online, watched the trailer three times, and heard a coworker rave about it during lunch break. But until those credits rolled, you couldn't know for certain whether you'd walk out feeling like it was money well spent or whether you'd be checking your phone halfway through, wishing you'd stayed home.

This is investing in its purest form. An investor is putting resources toward something with an uncertain outcome, hoping for a positive return.

The same principle applies when someone chooses to take a cooking class, buy a new video game, or even decide to grab that $9 specialty coffee on their way to work. Each of these represents a choice about how to deploy limited resources in pursuit of some form of return—whether that's knowledge, entertainment, energy, or simply a moment of pleasure.

It's amazing how many items in life we take for granted and just "buy because I want it because I have the money right now" that ultimately don't mean anything in the long run when the better choice would have been to put the money into something that would build value.

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Shifting from Consumption to Wealth Building

Now, let's take that same fundamental concept and shift it toward potential income assets—the kind that can actually grow wealth over time rather than just providing momentary satisfaction. Consider that $9 cup of coffee again. It's delicious, it gives a caffeine boost, and maybe it makes a morning feel a little more special.

But what if, instead of spending that $9 on something that's gone in 20 minutes, an investor put it into a brokerage account with the explicit goal of putting money to work? What if that $9 could start earning returns, day after day, month after month, year after year?

No one needs a $9 cup of coffee when that $9 could go into a brokerage account that could build over time. That may sound harsh, but when first starting out with high yield income investing using a very small account, every penny literally counts.

Let's go back to our movie example to make this even clearer. Imagine a new blockbuster just came out. An investor could pay premium prices—maybe $15 for the ticket, $25 for snacks, and if they're going to a fancy theater with reserved recliners, perhaps they're looking at $20-25 just for the seat.

They're easily spending $40-50 for that single experience. Or, they could make a different choice. Wait three months for that same movie to appear on a streaming service they already pay for (or rent it for $5), and take that $40-50 difference and deposit it into a brokerage account.

That money, instead of evaporating the moment the credits roll, begins working. It could purchase shares of a company, buy into a REIT asset, or get allocated to a fund that grows over time.

This doesn't mean someone should never enjoy life or that every dollar needs to be invested—that's not realistic or even healthy. But it does mean being intentional about choices. It means recognizing that the small decisions we make every day, when compounded over time, can lead to dramatically different financial futures.

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What Does "Self-Directed" Actually Mean?

So we've established that everyone is already making investment-style decisions constantly. But what makes someone specifically a self-directed investor in the financial sense?

Self-directed simply means an investor makes the decisions on how, where, when, and what types of assets they invest in. They're in the driver's seat. They're not handing money over to someone else and saying "do whatever you think is best." Instead, they're actively choosing their own path based on goals, risk tolerance, timeline, and understanding of different investment opportunities.

Think of it like cooking dinner. An investor could hire a personal chef who plans every meal, shops for ingredients, and prepares everything (that's like having a traditional financial advisor manage everything).

Or, they could decide what they want to eat, buy the ingredients themselves, and cook it their own way—maybe following a recipe, maybe improvising based on what they know. That's self-directed investing. An investor is making the calls, learning as they go, and adjusting their approach based on the results they're seeing.

When I started my software development career back in 1994, I had to learn everything by doing—trial and error, reading documentation, building systems piece by piece. Self-directed investing works the same way. An investor starts with the basics, makes some mistakes, learns from them, and gradually builds their knowledge and confidence.

As a self-directed investor, someone decides:

• How much to invest: Maybe an investor starts with just $10 a week, or perhaps they can commit $500 a month. The amount doesn't define whether they're self-directed—their active decision-making does.
• Where to invest: They choose between dividend stocks, REITs, BDCs, ETFs, bonds, or any combination that makes sense for their situation.
• When to invest: An investor might choose to invest a lump sum all at once, or they might prefer to spread investments out over time using a strategy called dollar-cost averaging.
• What types of assets: This is where it gets really interesting, because the options available to self-directed investors today are almost limitless.

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The Remarkable Accessibility of Modern Investing

Here's where things get truly exciting for anyone considering self-directed investing: the barriers that once kept regular people out of wealth-building investments have almost completely disappeared.

A generation ago, if an investor wanted to invest in real estate, they generally needed tens of thousands of dollars for a down payment, plus the ability to qualify for a mortgage, plus the knowledge and time to manage property, deal with tenants, handle repairs, and navigate all the complexities of being a landlord. For most people, real estate investing was simply out of reach.

Today, through vehicles like REITs (Real Estate Investment Trusts), an investor can literally become involved in real estate with as little as $5 to start. Yes, five dollars. With that tiny amount, they can own a fractional share of a REIT asset representing commercial properties, apartment complexes, shopping centers, or office buildings. They get exposure to the real estate market's potential returns without needing to fix a leaky roof at 2 AM or deal with a difficult tenant.

Think of it like owning a piece of a shopping mall or apartment complex without dealing with tenants. I'm a huge fan of REIT assets and I have invested in a few for years and years—investors are actually "into real estate" in their investments through these vehicles.

The same principle applies across virtually every asset class imaginable:

• Gold and precious metals: Once upon a time, investing in gold meant buying physical bars or coins, storing them securely, and dealing with the complexities of buying and selling physical commodities. Now, an investor can invest in gold through ETFs or digital platforms with whatever amount they have available.
• New businesses and startups: Platforms now exist that allow regular investors to put money into new companies and entrepreneurial ventures—opportunities that were once reserved exclusively for wealthy venture capitalists and angel investors.
• International markets: Want exposure to emerging markets in Asia, established companies in Europe, or growing industries in South America? An investor can access all of these through their smartphone in a matter of minutes.
• Dividend and distribution-paying assets: An investor can build a portfolio of companies and funds that pay regular cash dividends and distributions, essentially creating their own paycheck from investments.

From my software development background, I know that the best systems are built incrementally. The same applies to building an investment portfolio—start small, learn, and grow positions over time. Today's modern platforms have removed virtually every barrier to entry for everyone to start a journey of income asset investing.

An investor doesn't need a financial degree, a large sum of money, or special connections. What they need is:

• A smartphone or computer with internet access
• A valid ID and social security number
• A bank account to fund investments
• The willingness to learn and make informed decisions
• The discipline to start, even if starting small

The Evolution of Accessibility

• 1980s-90s: Needed a broker, paid hefty commissions, required thousands to start
• 2000s: Online brokerages emerged, but still had minimum balances
• 2010s: Fractional shares, zero commissions, $5 minimums
• 2020s: Complete democratization - anyone with a smartphone can start

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The Power of Starting Where You Are

The beauty of self-directed investing in the modern era is that an investor can start exactly where they are right now. If they can only invest $5 this week, that's where they start. If they can manage $50, fantastic. If they have $500 sitting in a savings account earning 0.01% interest, that's awesome too.

The key is understanding that every dollar an investor invests is a dollar that could potentially go to work for them. It's like hiring an employee who works 24 hours a day, seven days a week, 365 days a year, and never asks for a vacation. Invested money is constantly working, potentially growing through appreciation, earning dividends and distributions, or generating returns in whatever form chosen assets provide.

I wish I had started earlier with high yield income investing but I know for a fact that it is never too late to begin. When I began to focus on dividends and high yield investing in 2012, I was drawn to their cash-flow power and passive-income potential.

This isn't about deprivation or never enjoying life. It's about being intentional. It's about recognizing that we're already making investment decisions every day, and consciously choosing to direct some of those resources toward building long-term wealth.

Just a basic shift in buying behavior makes a difference: The few times in my life when I've been short on money, I found that the store brand versions of basic items like ketchup and mustard or bottled water are just as good as the name brands.

I mean, water is water right?

I was amazed at the amount of money that could be saved over time by simply switching to store brand products. It doesn't make any sense to consistently over-spend on name brand bottled water or name brand coffee or name brand cheese when an investor is trying to build wealth. Pennies make dollars so every penny counts when starting out.

Please keep in mind that I'm not a professional or licensed financial advisor and this is not financial advice. I create all of my articles based on my personal experience and research. Check out our full disclaimer(s).

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Real-World Investor Scenarios

Here's how different investors might approach self-directed investing based on their life stage:

Each of these investors is self-directed—making their own choices based on their unique situation, goals, and risk tolerance.

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Taking Control of Your Financial Future

Being a self-directed investor means taking ownership of one's own financial future. It means educating oneself about different types of assets, understanding risk and reward, learning from both successes and mistakes, and continuously adapting strategy as life circumstances change.

It means recognizing that nobody cares about an investor's financial wellbeing as much as they do. Even a financial advisor might have good intentions and legal obligations to their clients, but at the end of the day, an investor is the one who will experience the consequences—good or bad—of investment decisions.

I despise get-rich-quick schemes and these constant streams of people online saying they have the "perfect passive income scheme" when the reality is that dividend and distribution-paying assets are the real way to preserve capital and receive passive income.

The journey of self-directed investing isn't always smooth. Markets fluctuate, assets don't always perform as expected, and investors will make mistakes along the way. But every misstep is a learning opportunity, and every small victory builds confidence and knowledge.

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Common FAQs About Self-Directed Investing

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Final Thoughts

The most important step is simply recognizing that investors already have everything they need to begin. They're already decision-makers, already people who weigh options and choose how to allocate resources. Now, it's just about applying that same mindset to assets that can grow wealth over time rather than just providing momentary satisfaction.

So, welcome to the world of self-directed investing. Investors have actually been here all along—they're just now becoming aware of it and choosing to use it intentionally to build the financial future they deserve.

The key is starting with what an investor can afford, learning along the way, and staying consistent. Whether someone is just beginning their investment journey or looking to take more control of an existing portfolio, self-directed investing offers the freedom to build wealth on their own terms.