Why become a DIY investor?
I’m back from vacation folks…now back to the world of personal finance and investing…
In recent decades, the financial world has changed. With the click of a mouse, you can buy or sell pretty much anything; stocks, bonds, mutual funds, ETFs, commodities, the list goes on. More and more, people are taking charge of their own investments. Power has been given to the masses. On the contrary in many respects, the financial industry is becoming more complex. More choices and more products seem to make things more difficult to understand than ever before. Some of us are quick to throw up our hands in defeat and just want to forget about it – they seek professional help. For some, that’s a good thing. Others still, speaking for myself now, see the financial industry as a challenge; something to understand, learn from in order to create my own tailored future.
Here are a few reasons why some folks consider “going it alone” (some of the reasons I did at least) to become a Do-It-Yourself (DIY) investor.
1. You’re tired of investment management fees.
For every $10,000 invested in a mutual fund that charges 2% in fees, you’re kissing $200 per year goodbye. Mind you, there are some very good and productive mutual funds out there, but I’ve learned those guys are few and far between. Mutual funds over the long-haul rarely keep up with their respective index. Instead, I’m a fan of index products like iShares XIU, XIC, XDV, XBB and XSB to name a few and Claymore products like CRQ, CDZ, CBO and CLF. These ETFs offer investors an opportunity to buy highly-transparent, liquid investment products, with very low management fees. Straight-forward what you see is what you get kinda stuff which is an ally to the DIY investor. Personally, I like that. I understand that if I buy XIU (I own it) I’m buying a product that has the relative performance of the S&P/TSX 60 Index; the 60 largest (by market capitalization) Canadian stocks listed on the TSX. I figure if the 60 biggest companies in Canada aren’t making money, who is? I’m happy with whatever returns those big-blue chip boys are going to get.
2. You’re tired of feeling out of control.
If your money, err, my money is managed by someone else, am I really going to follow it that closely? I know the answer to this. I didn’t. I just assumed everything was running along just fine for almost 10 years of my investing career. For some, that may be OK. For me, I finally woke up I guess. Some folks use financial advisors or other professionals who are excellent at looking after their client’s best interests. That’s great. I have a few friends that are financial advisors. They have their client’s interests front and center. I’m not convinced the industry at large works this way. Businesses are in business after all to make money, not make friends. Looking back, my financial advisor never made my investing goals his priority. He was all about meeting sales targets and rightly so I guess. I must have had a bulls-eye on my chest when I walked into his office years ago.
I’ve learned I get more satisfaction from things in life when I’m in control of my own destiny. My journey to financial independence is no different. This doesn’t mean I haven’t sought some help and guidance from time to time, but simply put, my overall financial health has been better when I’ve taken more responsibility for it. I feel better about my future since taking ownership of my financial plan a few years ago. I haven’t looked back since…
3. You’ve realized it’s not THAT difficult to get started.
Think about this: you’ve probably managed or are currently managing some of your personal finances already. If you have a company pension plan, you probably sat down at some point and wondered what on earth to select for it. You’ve probably wondered how that plan is doing when the market gets hot or cold. If you’re in charge of paying the bills around your house, you’re already actively managing your money (just maybe not effectively yet). To be honest, you’re probably already doing many things related to personal finance and investing already, which means your journey is already underway right underneath your nose. One thing that is generally missing from the broader money management approach is simply taking some time to bring it all together. Looking at your assets and liabilities holistically. Setting some goals. Monitoring performance to those goals. You don’t need to start a blog, make up a bunch of spreadsheets tomorrow or make it your profession years from now. Just taking 15 minutes every month to stop and reflect how income and expenses are being managed is a huge start, an activity all adults can do with ease if they start dedicating a couple of minutes each week to unwind and think about things at the kitchen table. That’s the key right there – make the time.
In conclusion, I’m not saying DIY investing is for everyone. It’s not. You might seek help to get started and you want continual help to stay the course whatever that course may be. Everyone is entitled to manage their lives how they wish; the arena of personal finance is no exception. However, if you’ve taken time to read this blog today, either you’re already a DIY investor or you want to know more how to become one. You probably want to save on fees, feel like getting vested in your financial future or you feel it’s time, to make the time, to reflect upon where you are and where you want to be.
Contrary to what some companies in the financial industry tell you, is there anything wrong with that?
As always, I look forward to your comments!
My Own Advisor
You got it and have already learned that lesson: nobody will care more about your money than you do!
I wish you continued success and I hope you continue to stop by my blog.
Very impressive Paul, continued success to you! There will never be any substitute for hard work 🙂
Very important indeed Stu, I’m with you!
Thanks for stopping by! Your question is a great one, the financial plan you need to execute in retirement is much different than one in your peak earning years. Since “I’m not quite there yet”, this is what I’m leaning towards in another 20 years:
1) Make/revised my financial objectives for my retirement years,
2) Find out what I could do on my own to accomplish those objectives,
3) If I could not execute some things on my own, look to hire a fee-only advisor for some advice.
My plan is really read up on retirement income, retirement benefits, different accounts, etc. over the next 20 years and become very well informed of my options so when I do get to retirement age, I have some clue what I’m doing. Hopefully this approach will work out 😉
Lazy, as in not understanding your investment isn’t good and I’m glad you have taken control! Lazy, as in owning ETFs and watching your money grow – now that’s smart!!
I too, am a huge fan of good dividend paying, blue chip Canadian and American stocks.
You should take great pride in your investing, sounds like you’re doing all the right things.
Thank you for an excellent vindication of my own philosophy. Although I lost a lot of money getting my education and focusing my mind the last 10 years of self management have done well. I have had 2 advisors one of which lost capital over 3 major growth years and the other has just made cost of living inflation gains. I am lazy and would like to have someone else care for my accounts but you are correct in that no one cares as much about your money as you do.
Great advice! I’ve been a D-I-Y er for about 10 years now. My investing style requires me to work every day at it and to consider “expert” opinions. So far I’ve done better than the benchmarks. Also you have to be ready to work through some emotional ups and downs.
Great story. I can’t understand when people say I can’t be bothered or don’t have enough time.
This is the 2nd most important thing in your life after your health. With a dividend only portfolio I’m amazed and gratified at how far you can stretch a buck before having to spend it.
I’m a dedicated D-I-Y-er, having invested the time to educate myself on what will work for me (mainly blue chip high dividend equities, index funds, some international diversification…). My question is, where can I find somebody just to do a financial plan for me given that I’m approaching a lifestyle change – retirement. I’d like another opinion on things like asset allocation etc., but don’t have any interest in talking to someone who just wants to sell me stuff! As this discussion underscores, they are mainly out to make themselves rich, not you.
Mick, great to hear – “own investor since 1986”. Great stuff and thanks for your comment. I hope you continue to follow my journey.
Thanks for stopping by! I know my bank “pumps me” with lots of information! Most of it, I ignore. Why? Similar to what TD ads say, with a spin, I think “investing can be simple”.
For some folks, large portfolios, it might be worth getting a fee-only advisor. I’m not against that, I’m just saying that for the majority of folks, Joe or Jill Canadian, they can learn the basics on their own. They just need to a) make the time and b) have the desire to want to learn.
Financial management is no different than any other part of life, you have to want to get better 🙂
Thanks Dividend Monk.
I know you support DIY investing and in your own way, via your own site, you’re doing a great job highlighting how DIY dividend investing can work (well) for folks; buy good companies, keep things simple; don’t get emotionally attached to stocks; etc.
Thanks for your comment Robert!
I’m with you, many sites on “passive indexing are doing a good job in educating the masses, it’s really not that hard to manage one’s money!”
101 Centavos, thanks!
I agree, most folks would do very well starting out (and staying with) an indexed strategy. I’ve been sold on this approach for a few years now, and although I write mostly about my dividend investing approach, I firmly believe indexing should be a core strategy to any investor’s financial plan 🙂
I took control over my finances during the 2008 meltdown. Until then I had been a lazy investor; I owned mutual funds that had low MER’s but hadn’t really made me money for some time. As the meltdown started I watched in real time the horror as our savings dropped in large chunks, caching, caching, cashing – several percent per day. When I tried to sell our mutual funds I was horrified to learn that it took about 5 working days to liquidate them and, in the meantime, our net worth dropped. I vowed to take control and be active in our investments and, to that end, I am active in manipulating them daily. Our core investments are many of the ETF’s you mentioned in your article but I have branched out to hold some good dividend paying, blue chip Canadian and American stocks. I buy the American stocks when the dollar is high, sell them when the dollar drops and keep the funds in an American dollar account. Since taking control of our accounts our net worth has risen dramatically and has far surpassed the amount we had pre-2008, and that is without adding any funds to those accounts. And now I take great pride in the fact that our finances are not being controlled by over paid fund managers that really don’t have my best interests at heart, they are being controlled by me.
While a number of commenters are very positive about DIY investing, remember to remain as positive during the recessionary (1987 1992,2001,2008 20??) periods that occur. It is easy to be “UP” when your portfolio is making money but very hard to maintain a steady strategy when everything is collapsing around your head.
Own Investor since 1986!!
What do you self-investors pay for advice? Not investment advice, financial advice? Is your online trading account pumping you with information about probate on your estate, the difference between successor/beneficiary on your TFSA, multiple Will strategies… For the $10,000 investor the planning may not mean as much. For my portfolio size, I gladly pay a little more than ETF costs to get the fringe advice that has protected my overall finances.
Thanks Kanwal, you said it well!
Great analogy Kevin, thanks for stopping by my friend!
A test post
Mark, just a test comment 🙂 Cheers!
I definitely support DIY investing. Some people suggest that if finance isn’t a person’s primary occupation, it’s best to let professionals handle it. But I promote the concept of a well-balanced individual that’s in control of all areas of their life- professionally, financially, and socially, with appropriate levels of knowledge about many of the things that impact them.
Thanks Dividend Mantra!
I too, can understand why some folks prefer professionally money management, but even then, these people should be willing (and wanting) to learn about finance and their finances.
Post and comments are right on the ball. Many people still don't realize how much they can save doing it themselves!
Nice article MOA, I think people imagine DIY investing too complicated and risky. Little do they know that they don't have to pick stocks.
The site on passive indexing are doing a good job in educating the masses, it's really not that hard to manage one's money!
Hi MOA, very good article.
I still hear though from intelligent people who would do well to start out with index investing, that it's just too complicated for them, and that's why they hire people who are smart with money. I feel like I want to grab them by both ears and get in their face! But it won't change anything, so I don't.
No one cares more about your money than you do. This is why I become a DIY investor.
Excellent article Mark!!
I think everyone should learn a bit about DIY investing though, for the same reason it helps if you know at least a BIT about how a car works so you're informed when you speak to your mechanic. Great thoughts!
MOA, very good article. Simple and to the point! 🙂
I may be out of the norm here, but I have never sought the advice of a financial professional. I opened my brokerage account in the early part of 2010 and went to town. I started my dividend growth philosophy right around a year ago and have never looked back.
I can understand why some people would want someone to professionally manage their money. Being extremely busy or being unwilling to learn about finance would be a couple of reasons. I just love nothing more than being totally in control of the success or failure of my personal finances.