Should you become a DIY investor?

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:

DIY Key Findings

DIY Key Findings 2

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.

In fact, you probably don’t need any more money advice.

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.

  1. 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. 

  1. 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.

  1. Robo-Advisor

Why?

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.

ModernAdvisor - August 2016

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.”

  1. 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.

  1. 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. 

  1. Buy these funds
  2. Continue to add to them over time – and these funds will do all the rebalancing work for you. 

That’s it.

With some of these products, you’re paying just $22 per year for every $10,000 invested. 

Using my promo code MYOCASH, you can open your BMO InvestorLine discount brokerage account and save hundreds of dollars.

BMO InvestorLine - January 2019

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.

You can find a list of books I’ve enjoyed and learned from over the years here.

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:

  1. 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.

  1. 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.

  1. 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.

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe and join the journey. Learn how I'm getting there and how you can get there too!

21 Responses to "Should you become a DIY investor?"

  1. I was with a full service broker for about 10 years, invested in DSC mutual funds and some stocks. Once a year I received a phone call at work with recommendations to sell x and buy y. When I said that I wanted to look into it, I didnt hear anything back. Then the annual phone calls turned into meetings at his office with the same conversation. If I asked questions about other investments or tax consequences, I was ignored. When I had the time I started reading about investing. The Wealthy Barber, then the Millionaire Next Door and many many others became my friends. With the Couch Potato portfolio making sense to me, I opened an account at what is now TDDI. I followed that strategy to gain confidence and see the results. After the final annual meeting with no answers, I switched all my accounts to TDDI and have never looked back. There is now so much more info and blogs online that it is easy to educate yourself if you have the interest. And robo advisors make it easy if you dont want to do it yourself. I am now transitioning to a dividend strategy, with ETFs for foreign investments.

    Reply
  2. Although I recognized that I never saw the percentage ‘promised’ in my RRSP mutual funds, I didn’t know where to turn for a workable alternative. Certainly my bank wasn’t offering workable advice. After I retired, I lucked into a basic Canadian book on investing and your blog. I have saved, bought blue chips stock through a discount brokerage, and made far more than I did while working — yeah for dividends! If this comment isn’t talking to the already converted and reaches someone considering doing it themselves, my advice is the same as yours Mark: learn the basics and do it yourself.

    Reply
    1. Great stuff Pat. There is of course risks in individual stocks but I firmly believe for my own portfolio that as long as many companies pay dividends, I should have “cash for life”.

      All the best,
      Mark

      Reply
  3. Great post Mark.

    You’ve outlined the few key issues most all personal finance boils down to. And you’ve provided a wide range of specific options to cut investing costs significantly to cover most any investors needs.

    Get yourself over to MOA and get with it Canadians!

    Reply
  4. love this article Mark !
    Yes it can be done and it’s easy as long as you stay disciplined and ignore the news ( I’m guilty of that in the beginning of my DIY investing but i learned my lesson i guess :)).
    Love the “Wealthy barber” one of the best books i’ve ever read.

    Reply
  5. A key point which you outlined was to get educated. When talking about investing with my friends most of them don’t know about MER’s. Their responses are always that they are not paying for their advisors. They don’t realize that in fact they are paying dearly.

    I agree the DIY approach isn’t for everyone but everyone should know how their advisor is being paid. And if their advisors can’t answer that clearly in a way you understand and and agree with them if it’s not time for you to DIY at the very least it’s time for a new advisor.

    The key is to always understand what you are investing in whether you are the one doing it or someone else is doing it for you.

    Reply
    1. Agreed. Just like you should know how your lawyer, electrician, plumber is compensated – you should know how your financial advisor is paid too. Sadly, the financial industry doesn’t want that level of disclosure yet. Even still, investors should strive to self-educate and know what products they are putting in their portfolios and why.

      Nobody cares more about your money that you do! This you know.

      Thanks for the comment.

      How is your financial freedom journey coming along?
      Cheers,
      Mark

      Reply
      1. Good point Mark, I like how you compared financial advisors to other service providers – so true.

        My financial journey is continuously progressing. I’m super happy with the progress I’m making. My husband and I are on the path to FIWOOT!

        A few years ago my husband and I decided to DIY some of our investments and buy ETF’s. We have adopted a set it and forget it mentality and are never bothered by market fluctuations.

        Reply
        1. Great stuff – love the FIWOOT!

          Set and forget it is smart (as you know) since you just focus on one thing – increasing your savings rate over time. Do that well, and wealth is almost automatic.

          Reply
          1. I have split my portfolio between three advisors. One is a robo advisor but the other two are hybrid low fee advisors that are similar to robo’s but also offer frequent consultation with a human advisor. Ironically in my old day job I helped manage over $100 million in a retirement
            fund and a sizeable foundation endowment. So I know how to DIY, I just don’t like doing it with my own money. I realize it is costing me some thousands but I still think it is best for me to outsource managing my investments.

          2. Steve – I believe there is no right or wrong. Yes, fees costs, but an informed decision is far better than otherwise.

            As long as you know how you’re compensating your money management, what projected returns might be to meet your needs, as long as you are meeting your own financial goals – really – that’s all that matters.

            I don’t care if folks have $2 M in GICs. As long as they are investing with informed decisions in mind and meeting their needs – life is good.

            All the best and drop me a line if you have more questions.
            Mark

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