DIY investing doesn’t just have to mean going it alone. Here’s help to measure your comfort zone as a solo investor — and when it can make sense to seek advice.
I want to test the water and gain experience
You have an interest in the markets and would like to try buying and selling some assets on your own. You’ve been following certain companies and want to buy their stocks — without advice — but you’re nervous about taking risks with the assets you need to rely on, such as retirement savings.
One way to do it: Open a small self-directed investment account. Limit how much you’ll trade on your own to only a portion of your total assets. Know that you could see losses as well as gains over time, so stick to an amount of money you are comfortable with — and won’t need for other responsibilities.
Pros: Hone your skills as a “part-time” DIY investor. Get a feel for how you like it and the time it takes to manage a portfolio — for instance, it will be more work to actively manage a collection of individual stocks and bonds than to buy mutual funds or passive, index-linked investments that mimic the markets.
Cons: It can take time to master the technology to execute buy and sell orders efficiently, and trading mistakes can be costly. You could be caught off guard by price fluctuations based on the type of order you place, how long an order is open, or the stock exchange chosen. However, if you cap how much you invest in a DIY account, with the majority of your assets in a professionally managed portfolio, there’s less at stake, so you mitigate the risk.
I’d like more control, but welcome a few guardrails
You’re ready to take the wheel on retirement savings or other assets and like the idea of investing online and saving on management fees. Still, you don’t have a lot of time to spare, day to day, and need guidance on what investments are most suitable and how to keep your portfolio balanced and on track.
One way to do it: Collaborate with a robo advisor. Thanks to artificial intelligence, the robots have already arrived to help you automate key steps of investment planning. Robo advisors use online questionnaires to help you assess your investment time horizon, goals, and tolerance for risk, and then apply algorithms to make portfolio recommendations that are suitable for you.
Pros: Robo advisors create well-diversified portfolios at a relatively low cost. Assets are allocated to a mix of investments to manage concentration risk. Automated advice and self-service tools save time, create structure, promote discipline and prompt you to take action when needed. They also take action on your behalf to rebalance your holdings after any market swings.
Cons: While their algorithms are powerful, robo advisors can’t really get to know your circumstances or completely understand your financial planning goals. For instance, a robo advisor can’t suggest how different account types, investments or insurance products can minimize taxes or generate the most tax-effective income. No robo advisor can give you insight on family finances, such as income-splitting strategies, or help determine if you’re better off investing inside an RRSP or a corporation to fund retirement. Model portfolios are well diversified, but they limit your choice to an investment mix that can’t be fully fine-tuned or customized.
I’m prepared to go all-in and invest all my assets directly
You are comfortable reading financial statements, enjoy learning about markets and have developed the confidence to buy, sell and manage investments on your own. You understand the concept of asset allocation and are aware of how to diversify a portfolio to manage risk over time.
One way to do it: Be your own portfolio manager. To invest independently, without the support of an advisor, you can take full control over every decision through your choice of self-directed brokerage account and direct-trading platform. Whether you are a dedicated stock-picker or a fan of passive investing, researching investments and managing a portfolio on your own can be empowering.
Pros: You get to be in full control over designing a portfolio, developing an investment strategy and selecting which assets to hold — and for how long. It’s possible to find trading platforms that are easy to use, include professional investment research and analysis, and offer access to every type of security. Fees are lower, by as much as 1% to 2% in some scenarios, since you aren’t paying for advice on the suitability of investments.
Cons: It takes a lot of discipline to avoid common investing pitfalls in volatile markets when emotions can run high. Fear of losses can lead to badly timed choices, such as selling low and buying high, or missing the gains of a market rebound. Value can be eroded if you’re overly conservative or take on too much risk. You could see an unexpected tax bill if you don’t optimize how you manage assets in certain types of accounts, or you could face penalties of 1% per month if you exceed your RRSP or tax-free savings account (TFSA) contribution room.
Ask for advice — if and when you need it
If you have the time, knowledge and desire to be more hands-on, keep in mind there’s more to wealth than just your choice of investments. The financial planning process — seeing where you’re at and where you’re going — shapes your investment strategy to reach goals such as setting up a practice, starting a family, dealing with a significant life event and planning a transition into retirement.
MD Financial Management (MD) can provide as much guidance as you need, at the right time, with professional support and services to suit every type of investor, plus financial planning advice that incorporates asset management, financial management, risk management, tax planning, and retirement and estate planning.
Contact an MD Advisor* or choose your preferred service and open an account online to manage your finances your way.
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals.