Should you become a DIY investor?
Should you become a DIY investor?
According to a recent survey, I think you should at least consider it.
Based on the results from a recent survey from the Ontario Securities Commission’s Investor Advisory Panel, the results paint a rather poor picture about the advice some small- and medium-sized portfolio investors obtain from their financial advisor.
Based on the data I read:
- 43% of investors did not believe they obtained any educational advice.
- Almost one-third of respondents (31%) were unable to say whether their advisor had spoken to them about planning for retirement, education or buying a home. (That’s insane…)
- Only one-fifth had received any advice about budgeting or debt management.
Some of those stats among others are in the images below:
So, let me get this straight.
There are investors seeking and actually paying for financial advice. Financial advisors are to advise investors on various financial matters, for the fee they are paid. Investors are not getting advised.
Ya, you should at least consider becoming a DIY investor…
How you can get started
Ultimately nobody cares more about your money than you do (except maybe me, since I have this blog and your dedicated readership)!
How can you figure out if self-directed investing is right for you?
I believe to have proficiency in anything in life, including the job you might do, success comes from the right mix of personal traits and behaviours, with some knowledge in your craft, with skills that demonstrate your ability, and some passion to continuously improve.
With reams of financial information available, I would argue there is almost no excuse not to understand the basic elements that comprise 80,000+ personal finance books:
- Introduction: spend less than you make.
- Body #1: save and invest the difference, in low-cost products.
- Body #2: disaster-proof your life with insurance, where needed.
- Conclusion: Rinse and repeat for the next 30-40 years.
That’s the basics within 80,000+ personal finance books in four bullets.
However, money is a very emotional thing. People get excited, frustrated, and overwhelmed from time to time. I’m guilty of these emotions as well. We’re human. We’re flawed.
Why DIY is not for everyone
While investing without the services of a fee-only advisor or robo-advisor (make sure you read about my partnership here with ModernAdvisor!) might be easier than ever, I can appreciate it’s not for everyone.
Here are some checklist items that you should consider before investing alone:
- Do you have an intrinsic interest in personal finance or investing?
- Do you cringe when reading any financial media articles (or you don’t read them at all)?
- Do you like or have any sort of budget? On that note, I believe this is one of the best ways to budget.
- Do you change the subject when people (family, friends, other) talk about money?
- Does the wording “investing” make you anxious?
While answers to these questions are by no means make-or-break decisions on whether you should be your own advisor, like I am, these are probably good questions to ask yourself to determine the support you might need.
Independent thinking, critical thinking, analytical skills, patience and commitment are just some of the valuable traits all successful investors have. If these traits don’t apply to you, not to worry, there are some simplified alternatives to become your own DIY investor.
Options to get started
Here are some options (I’m a fan of) to consider when starting or renewing your investing journey.
- Tangerine Funds
Why? For a fee just over 1% (that’s costing you $100 per year on every $10,000 you have invested), Tangerine offers a variety of funds to get started at costs far lower than some big bank mutual funds.
- Mawer Balanced Fund
Why? For a slightly lower fee, the Mawer Balanced Fund is an impressive but simple all-in-one mutual fund solution to get started with investing.
For even lower fees (roughly $50 per year on every $10,000 invested), robo-advisor firms can offer a very simple investing solution for investors who need help to train their investing brain OR for investors who want a more hands-off approach to investing but want the confidence their money is being systematically managed.
A reminder my partnership gets you $50,000 managed FREE for a year.
By putting investors’ money into high-quality, low-cost, indexed Exchange Traded Funds (ETFs) they will create a systematic approach to investment management for you that entirely removes your emotions and opinions from the investment decision making process. If the market goes up or goes down, there is no major knee-jerk reaction by the robo-firm (nor you). Decisions are therefore made based on well-defined models and processes that do not leave any room for subjective interpretations. As long as the inputs into the system are the same, the outcome will be the same regardless.
As one robo-advisor CEO once explained to me:
“It’s paternalistic and it works – just like removing your potato chips from your house works if you are trying to eat healthy.”
- TD Bank e-Series Funds
I don’t have a partnership (yet) with TD but another simple solution is to own TD e-series funds. Some Canadian big banks (like TD) have been in the space of offering low-cost mutual funds or their own in-house ETFs for some time. TD e-funds happen to be some of the lowest cost solutions available.
- All-In-One Exchange Traded Funds (ETFs)
I wrote an extensive post about various all-in-one ETFs here. After opening your discount brokerage account, this is how simple investing can be.
- Buy these funds
- Continue to add to them over time – and these funds will do all the rebalancing work for you.
With some of these products, you’re paying just $22 per year for every $10,000 invested.
Why I became My Own Advisor – and why you might want to too
I became interested in personal finance, probably in my early 20s – so early on I had the aforementioned interest in this craft.
Reading The Wealthy Barber cover to cover a few times over was definitely the trigger for me. David Chilton’s tale was extremely well-written and inspiring. I figured if Roy the Barber could amass that much wealth then maybe I could too.
However, I made a number of money mistakes over the years. Thankfully, I kept my independent thinking along with my patience intact.
The biggest trigger for me to change my investing ways came after my portfolio partially crashed in early 2000s, as part of the tech crash. I bought books and started to read, lots. And I kept reading. What I found out was not really that surprising but enough facts that gave me a kick-in-the ass to change my ways in the coming years. I learned these keys:
- Active money management fees will steal from your portfolio value
For every $25,000 invested in a fund product that charges around 2% in fees, you’re kissing $500 per year goodbye. That might not sound like much but keep paying that 2% every year for another 9 years. A decade in high cost funds would cost $6,400 to buy and hold. High fees steal money from your portfolio value.
- Ownership is important
Contrary to what some financial institutions may advertise I am not richer than I think and I need think for myself in order to become wealthy. This means taking ownership over my financial plan and clearly understanding the products I am investing in and the risks associated with them. This also means setting up some goals and working towards them. They include simple things like having some financial discipline to consistently pay down my mortgage and avoiding major purchases on credit.
- Investing is a get wealthy eventually journey
Time is the market is my friend. Keeping a modest to high savings rate is my friend. Sticking with my plan is yet another friend. Striving to chase hot stocks or penny stocks or other flash-in-the-pan investments (e.g., pot stocks) is an enemy.
Even financial pros have pros
In my years of running this blog, I’ve learned that even financial pros have pros they lean on. Accountants sometimes have fellow accountants to provide a sober second thought on taxation issues. Lawyers have other lawyers to discuss complex cross-border subjects with. Certified financial planners hire a fee-only advisor now and then to go over their blind spots.
None of us know what we don’t know.
Your approach to investing will likely revolve around the time you wish to spend on the subject matter, the interest in the subject matter, and what your goals with investing are.
While DIY investing and becoming your own advisor has challenges, I suspect the passionate DIY investor will embrace these challenges as opportunities as they put their best mix of personal traits, knowledge and skills, and energy continually forward.