DIY Investing Or Using A Financial Advisor’s Service?

DIY Investing Or Using A Financial Advisor's Service?

DIY Investing Or Using A Financial Advisor's Service?
 

Hey iSaved5K wealth builders, I am excited to introduce Dan Kent, our guest writer and the co-founder of Stocktrades.ca. Dan is a DIY investor for 7 years now and he has a combination of dividend, growth and real estate investments in to his portfolio and is looking to continually grow his net worth.
 

Since I also do DIY investing, I was curious about his approach to managing his own investment as a DIY investor too. I had a previously wrote a post to encourage my readers to manage their own money and investment. We now have Dan presenting you with a different view on how to manage your own investments. Take it away Dan.
 

Thank you for letting me share this space with you Leo. Many people think that investing in the stock market is a frightening endeavour if you aren’t acquainted with the intricacies of the markets. Fortunately for you, the stock market isn’t the same as it was 15, 10, or even 5 years ago. I’ve been a DIY investor for the better part of 7 years now, and while I’d have to admit the first 3 of them are not something I like to talk about very often, I’ve learned it really is not as challenging as it seems.

ETFs have given the average investor a huge advantage

The thing is, a lot of people look at making self-directed investments these days and still think “I don’t have the time nor the skill to invest myself, I’d rather pay someone else to do it for me”. I can tell you right now that the days of navigating through complex financial documents and digging through individual companies to try and find the best individual stock for your portfolio are quickly fading. Say hello to Exchange Traded Funds, or ETFs for short. Now, anyone with common knowledge of ETFs will probably tell you they are nothing new, they’ve been around since 1989.
 

I’m not going to go into too much detail on what exactly an ETF is in this article. If you don’t already know, let’s just call that the homework of this article. But I will tell you one thing about them, they are exploding. As per Clare O’Hara’s article from the Globe and Mail published earlier this month, more than $26 billion dollars flowed through ETFS last year, up 56% from 2016.

So what exactly does this mean?

The fact is people are getting tired of paying their financial advisor or fund manager exorbitant amounts for fees. They’re going to the number one resource in the world right now for investing information, the internet! They are finding companies like Wealthsimple, Questrade, and Interactive Brokers. And now, with the plethora of information available at the tips of their fingers, they are taking matters into their own hands.
 

The problem may be that the advisor you are currently working with isn’t allowed to sell ETFs. This means you have to do one of two things if you’re looking to make the switch. You need to manage your own portfolio, or find a robo-advisor to do it for you.

Making the switch to self-directed investing with ETFs

I’ll make one suggestion that is simply what I view to be best for most investors. Do it yourself, for two simple reasons. One, nothing in life is free. Your robo-advisor is going to charge you a management fee to manage your portfolio. Secondly, and this is completely dependent on whether or not you have the time to do so, ETFs are easy to learn. Don’t you wish you could go to the grocery store, have your groceries sitting at the till and you can simply pay and leave? Convenient right? There’s no debating on what type of toilet paper you want, no argument about white or brown bread. It’s just there and you pick it up, and head home.
 

That’s what ETFs do. Want exposure to the oil and gas sector? There’s an ETF for that. You don’t have to debate whether your decision to buy Exxon instead of Chevron was the correct one. Own them both and more with the iShares U.S. Energy fund.

What if I just want to purchase individual stocks?

Old school, I like it! If you’re interested in analyzing and purchasing individual stocks, the road is longer and more challenging. But don’t let that deter you from trying. Buying individual stocks, especially ones focused around growth, gives you that home run factor that you may not get in an ETF.
 

A while back I ended up getting a head start in the cannabis sector by purchasing shares of Canopy Growth Corporation. I got the shares for 11.49 a piece in early October, and as of right now I am looking at a 325% ROI in a matter of 3 months. Now, the first ever ETF focused around the cannabis industry had already been released, but for the purposes of proving a point let’s say it wasn’t. How can I gain exposure to this sector that is absolutely exploding (and for good reason) when I am solely investing in ETFs? I can’t, unless I am buying individual securities.
 

If you’re looking for one of the more popular guides on the internet for learning how to get started, check out our guide on how to buy stocks!

If you’re thinking about DIY Investing Instead of Using An advisor, you’ve come to a crossroads

You’ve pulled up T intersection. To the left is complete self-directed investment. You’re going to completely take control of your portfolio. Whether it be becoming the next Warren Buffett and crushing the average market return year in and year out through sheer ability to pick amazing stocks, or perfectly diversifying your portfolio with a group of blue-chip ETFs. And if you’re looking for a brokerage to start a practice account with, check out my recent publication of our Questrade Review!
 

To the right is the easier path. Sign up with a robo-advisor like Wealthsimple or a managed account like Questrade’s Portfolio IQ. There’s absolutely no shame in this. You’ve made a decision to pay lower fees and keep more of your hard earned money. You just either are uncomfortable managing it completely yourself or simply don’t have the time to learn.
 

The final path is to turn around and head back to your advisor. Naturally people don’t like change, it makes them uncomfortable. It’s understandable. Or maybe your advisor has been providing you with excellent returns to the point where paying the high fees still nets you a better return. It’s not always a slam-dunk decision to yank your money out of high fee investments. Your current advisor may very well be providing you with more than you’d ever see from switching to ETFs or Index Funds.

Sleep on it, but at least consider it

Have a look at your current returns compared to the fees you are paying with whomever you have your RRSP, TFSA or other investment account with. The light bulb moment for me came when I opened up my yearly summary of my RRSPs I had with a bank who’s name I will not divulge. I had about $10 000 in an RRSP with them and I had made about $800 on it that year. The fees? Almost 230 dollars! That’s 29% of my return on the year gone. It doesn’t take a mathematician to figure out that amount of money lost can add up substantially over the course of your working career. On the other hand, if that RRSP had earned me $2000 dollars on the year, it wouldn’t have even crossed my mind to switch. That is the decision you must make.

About Dan Kent

If you would like to get to know Dan further, you can check his website out at Stocktrades.ca or follow him on Twitter at @Stocktrades_CA
 

So readers, do you think that DIY investing is for you? Or you’d prefer to have someone else manage your money for you?
 

Leo T. Ly, Canadian Personal Finance Blogger/Enthusiast and a Realtor Living in the Markam, Ontario, CanadaAbout Leo
I am a Canadian personal finance blogger/enthusiast and a Realtor living in Markham, Ontario, Canada. I built a net worth of a million dollars over a ten year period. I did it by being a disciplined saver, taking advantage of income tax rules and borrowing money to invest rather than for consumption. I am often excited to take advantage of free money from employers and governments in addition to building more passive income sources. After accumulating my first million dollars, I am now embarking on a second journey towards achieving financial independence. On this journey, I will strive to increase my net worth to two million dollars and retire by the age of 48 - Freedom 48. Come along and follow my journey on Facebook, Twitter, Pinterest or Google Plus.



There are 22 opinions expressed on this post.

  1. Several years ago my wife and I were going over our finances. We have two kids and we have stock investments, owned a home and a rental condo property. We decided to go to a lawyer for estate planning and the lawyer suggested that she thinks we should also see a financial advisor. She referred us to an advisor and we met with him. The conversation and his recommendations did not impress me at all. Most of the things he was telling us were pretty much not new to me. I took charge instead (DIY) and have been happy with our decision.

    1. Great job Bernz. There ARE financial advisors out there who do amazing things for their clients, but in my opinion, they are few and far between. The fees just don’t add up anymore. It’s so easy to just educate yourself nowadays with the click of a mouse button. There is no reason to not try it yourself unless you’re advisor is crushing it for you.

  2. Perhaps I might have to reconsider making a decision to buy stocks (I was a bit disappointed with my former financial advisor). On the other hand, this article serves as an encouragement to a lot of people, including myself to learn more about financial management and investment.

  3. To be frank, savings hasn’t really been my strongest suit. I have this rule which says that it is of no use to make money and keep them at the bank whereas you have needs and kids and bills to pay.. etc

  4. For me, if it’s something that you can learn to do then it’s good to just do it yourself. Paying for services is not something that I would do unless I have no knowledge about what’s happening in front of me.

  5. I started investing using a micro-transaction service last year. My investments grew slowly, and the fees were relatively low – or at least I thought so until I saw what percentage those low-sounding fees were. It’s a confusing world. I may have to look into one of the robo-advisers you mentioned here and see if they are any better. I’ll sleep on it – that’s also great advice.
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  6. Hi Dan!

    Great article on ETF investing. I’m all about DIY investing! I would never want anyone manage my portfolio because no one cares about my money more than myself!

    Honestly, investing in ETF is so easy… I actually find that a manager is more troublesome. I can just set up an account and choose whatever index fund or ETF and automate it. On the side, I also love buying stocks that I feel have long term growth potential.

    Interesting that you brought up WEED. Kudos for buying at such an awesome price!! I’ve been checking out that stock and it’s been so volatile along with the other like companies. I’m curious: Do you plan on holding it for the very long term?
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  7. Currently am using a diy investing coz that what I need for now. Maybe when I reach for that point that I will engage to a more bigger investing, then I would need an advisor.

  8. This is very interesting! I have heard of doing it yourself before but didn’t really know how to go about it and what not. I’ll definitely have to look into it some more. Thanks for sharing!

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