Investing for yourself is Achievable for many people
You’re ready to invest. You understand why it’s important, and want to get going. But how?
There are the four ways to get your savings invested: using a financial advisor, buying mutual funds at a bank branch, using an online robo-advisor, and doing it yourself (“DIY”).
These options range from the most hands-off to the most hands-on. Like any service, the more work you do yourself, the less it’s going to cost you. If you’re looking to save on fees and willing to put in a little work, DIY is well worth considering.
Being a DIY investor isn’t hard, but it’s also not for everyone. So what does it take? Here are a few things to think about before diving in.
1. You need to have a basic level of comfort with technology. Online brokers – the website you use to buy your investments and access your accounts - are quite user-friendly. For some, it’s easy to figure out. For others, though, it can be intimidating and confusing. You need to have a willingness and patience to learn the platform.
2. You need to develop confidence and conviction in your approach. One of the benefits of using a financial advisor is that they help you stick to your plan, whether markets are up or down. Being a DIY investor means you are mostly on your own. You need a strategy and have the discipline to follow the strategy even when things feel uncomfortable.
3. You need to have the fortitude to take a small leap of faith. Transferring your money into your online brokerage account and making your first trade can feel like walking out on the ledge of a tall building. You’ve left the safety of your bank advisor and you might wonder if you’re doing the right thing. Once you place your first few trades and have your money invested, and as you follow the progress of your accounts, you’ll get a feel for how it all works and gain confidence. And you can always check in with a financial coach now and then to make sure you’re still on the right track.
4. You need to have the desire to learn the basics. And I mean the basics. You don’t need to learn how to pick stocks, understand what a P/E ratio is, study stock charts, or decipher what the U.S. Federal Reserve Chair just said. You do need to learn about ETFs, asset allocation, and placing trades. Most people can pick this up with a couple of hours with a financial expert, by reading a book or two, and/or by reading the right articles online.
5. You need to commit a little time up front and check in on your accounts a few times a year. To get your accounts set up, decide what to invest in, and place your trades takes some time and commitment in the beginning. Opening the accounts is easy and you can do it online. The learning is what takes the most time. But once you are set up, the ongoing maintenance is minimal.
Taking a DIY approach is great for many people, but there is an important caveat: you won’t be getting any personalized advice from the financial institution you are investing with. This means when you want to know how much you should be putting into your RRSP or your TFSA, you’re going to have to figure it out yourself or find a fee-based financial planner or coach who can help you. That’s one of my services: providing education, guidance and advice to people who want to manage their own investments but need a little help.
Another important consideration is that as you age, your comfort with being a DIY investor may fade. At a certain gain – be it 70, 75 or 80 – a person’s confidence in their skills and abilities when it comes to using a computer and keeping track of what they are doing can decline. At that point, a financial advisor is probably a good choice. But until then, do it yourself and save a bundle of money in fees.
Just how much can you save? To give you a sense, let’s say you have $200,000 invested with a financial advisor who puts you in funds that charge 2% per year. You’ll pay about $4,000 a year in fees. Doing it yourself for 0.15% means you’ll pay about $300 a year. This really adds up: if your $200,000 is invested for 10 years and your investment returns are 5% per year,
at the end of that decade you’ll have $52,000 more by taking a DIY approach. The lower fees plus the compounding benefit of having more to invest (because of the lower fees) is remarkable.
To get a flavour of what an online broker looks like, the banks and others like QuestTrade have demos and videos online you can look at. TD has some excellent ones, which you can see here.
If you’d like to find out whether DIY investing is right for you, let’s have a free 15-minute chat. I can gauge where you are at and answer any questions you have about getting started. I can also work with you to learn everything you need to know and get you up and running, and be there for ongoing support when you need it.