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Introduction
Investing on your own feels exciting — you’re in control, making the calls. But when investors overestimate their knowledge, they often fall into the trap of overconfidence.
Overconfidence in DIY mutual fund investing can lead to poor fund selection, chasing returns, or ignoring risk. In this blog, we explain this bias with a real-life example of Rohit and his DIY investment journey.
14/06/2025
Overconfidence happens when investors believe they know more than they actually do — leading to:
· Ignoring expert advice or research
· Making too many changes to the portfolio
· Believing short-term success is skill (not luck)
🚫 It leads to risky decisions, poor diversification, and higher chances of loss.
Real-Life Example: Rohit and the Overconfident Investor
In 2021, Rohit, a software engineer, decided to manage his own investments. He picked 5 mutual funds based solely on 1-year performance and social media hype.
For 6 months, his portfolio showed a 12% gain. Confident in his skill, he increased his SIPs and exited debt funds. But when markets corrected in 2022, his high-beta funds dropped sharply. His 2-year CAGR ended at just 6.3%.
Had he used a hybrid or goal-based asset allocation strategy, he could’ve achieved around 9–10% CAGR with lower volatility.
Key Takeaways
| Behaviour | Overconfident DIY Investor | Disciplined Investor |
|---|---|---|
| Decision Style | Self-belief driven | Data & advisor supported |
| Fund Selection | Aggressive, trend-based | Balanced, researched |
| Risk Management | Low (overlooks risk) | Medium to High (diversified) |
Conclusion
DIY investing can be rewarding — if done with humility and continuous learning. Overconfidence leads to costly mistakes. Always validate decisions with research, and don’t hesitate to seek advice.
Pause before your next fund switch. Ask: is this confidence or overconfidence? Use tools, read factsheets, and stay humble. Smart investing needs discipline more than ego.
Summary Table: Overconfidence in DIY Investing
| Investor Type | Avg. Return (3-5 Yr CAGR) | Avg. Risk (Volatility) | Avg. Investor Behaviour |
|---|---|---|---|
| Overconfident DIY Investor | 6% – 8% | High | Overtrades, ignores diversification, emotional |
| Disciplined DIY Investor | 8% – 10% | Medium | Does research, uses SIPs, stays consistent |
| Advisor-Assisted Investor | 9% – 11% | Medium | Balanced strategy, goal-based allocation |
Dr. Satish Vadapalli
Research Analyst
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