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