Many of our readers are DIY investors and, with the multitude of financial blogs and online information available, there is obviously a huge growing interest in managing your own investment portfolios.

Investment do-it-yourselfers generally fall into two categories:

  1. Investors aiming to reduce fees.

Over the last several years the media reports of high and hidden investment fees in Canada has triggered a DIY interest. In fact, for these investors their only interest is to reduce their fees.

“I’m paying all these huge fees and the only thing I’m getting is poor performing mutual funds. I might as well manage my money myself.”

While reducing investment fees should be of primary importance, it shouldn’t be your only concern.

Many of these investors fire their advisers after “years of bad returns.” Then, fortuitously, a galloping bull market begins just as they take over and they crow about how great they are at investing. Of course, this false confidence disappears when the inevitable falling market occurs and they realize that they do not have the skill set or behaviour required to be successful for the long term.

  1. Investors who are interested in the investing process

There are some investors who are genuinely interested in learning more about finances, and want to get more involved in their own investing. The motivation is there to educate themselves and do the necessary research. The more one understands about investing, the better one is able to make sound decisions.

Is being “interested” enough?

The downfall in educating yourself and researching all possible investment choices can be the tendency to get stuck in inertia as you dither about trying to make a “perfect” decision. Do you buy index mutual funds? ETF? Individual stocks? Dividend paying or growth stocks? Vanguard or iShares?

Just do it

If you are going to be a do-it-yourself investor, at some point you’ll have to “do-it.” Don’t try to time your entry point. There is an enormous opportunity cost of doing nothing while waiting.

Once you’ve made a decision you must tune out all the chatter and market fluctuations that can have you second-guessing your choices.

K.I.S.S.

Most investors are capable of managing an index or total market fund portfolio. It’s simple, not time consuming, and it will give you a very diversified portfolio.

If you like individual stocks, a buy-and-hold strategy of dividend payers may be suitable for your temperament.

Don’t add too much unnecessary complexity to try to boost your returns.

Final thoughts on DIY investing

DIY investing requires a commitment of time and energy to become financially literate, as well as an understanding of emotional barriers that can get in the way.

Being exuberant during a bull market, or worried upon a market crash is part of being human, but successful DIY investors need to ignore their impulsive nature.

According to tons of research that has been done over the years, it’s unfortunately true that only a small percentage of investors really succeed in managing their investments well.

What made you become a DIY investor? Are you good at managing your portfolio, or do you sometimes tend to fall prey to inertia and waver in your decision-making? In your opinion, how successful have you been?

My New Year’s challenge to you is to review your portfolio to make sure it’s still consistent with your long-term goals at a level of risk that you are comfortable with.

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9 Comments

  1. Grant on January 13, 2016 at 8:36 am

    I agree the most important part of investing is behavioural, especially avoiding the “big mistake” of selling when markets crash. A sound knowledge of market history and a focus on keeping things simple will help with avoiding behavioural errors. Many investors who started DIY after March 2009 think they are grat investors, but only time will tell.

  2. Ter Hamer on January 13, 2016 at 11:23 am

    With the recent seismic shift in the Canadian political scene, my wife and I made a number of changes. With the election of the NDP in Alberta, we disposed of half our Canadian holdings and bought American ETF’s. With the election of Junior, we disposed of the other half for other American ETF’s. I suspect Notley, Trudeau and Wynne will all be gone in four years, but until then, staying out of Canadian investments is probably a good idea. It certainly has been so far. I am, however, am a very patriotic Canadian and regret doing this. My faith in democracy has taken a beating. Not too many Churchill’s out there anymore. Not that there ever were.

  3. tom on January 13, 2016 at 12:46 pm

    i too fired my adviser. After over 10 years my portfolio had 0 net return. during that time the tsx had doubled.
    like many i dived in after too little education and got burnt.
    however over the years i got more knowledgeable and now i do beat the market, so i am happy with my decision.
    my lesson to those out there, don’t fire your adviser until you get the education and prove to yourself that you can do it, otherwise you can do worse.

  4. Nancy on January 14, 2016 at 11:55 am

    I’m not a financial planner, but wouldn’t now be the best time to buy Canadian, while the stocks are underpriced if you are in for the long haul? My US and International Funds in my pension are doing well and I continue to purchase these, but I also haven’t ceased purchasing Canadian on a monthly basis because I’m hoping that things will turn around down the road and that is where I will make the big “turnaround” returns. Is this flawed thinking?

    • Ter Hamer on January 14, 2016 at 6:09 pm

      Hello Nancy — it would be nice to be optimistic about our Canadian stocks while the prices are low, but my thinking is that they are still going lower. I see no recovery until after provincial elections in Ontario and Alberta, and the next federal election. None of these leaders (Notley, Wynne, Trudeau) strike me as having the necessary competence to lead an economic recovery and their actions to date have been almost wholly negative. Were I to invest in Canada, my first choice would be a sound corporation with a strong presence in the USA. An example would be TD Bank, very low in value now, an excellent company, and a large American presence.

    • Grant on January 14, 2016 at 8:26 pm

      Nancy, no your thinking is not flawed at all. Rebalancing your portfolio back to it’s predetermined asset allocation, likely now buying Canadian stocks (buy low, sell high), is exactly the right thing to do. Making tactical decisions based on what you think is going to happen, whether it’s economic or political, is a loser’s game. The evidence is quite clear about that.

  5. Kathy Waite Your Net Worth Manager on January 15, 2016 at 7:33 am

    I meet more DIY investors that are doing it because they have felt gouged or badly treated in the past by an advisor .
    Those who index and just rebalance once a year , they have a plan seem to do OK. Those who start buying individual stocks based on a newsletter or good feeling get into a cycle of not really understanding why it soared or plummeted and when to cut their losses or sell to take profits. They just do nothing. Its amazing the stories people tell themselves. One recently said he had never lost money on his risky bets ( includes Sino Forest and some tiny junior oil ) . On every account the book value was higher than market value by thousands. I pointed that out and the answer was ….” yes but i haven’t sold so I haven’t lost! ” ummm………doesn’t mean it will bounce back .
    One BV was $20k and the MV $2k but the reason for not selling it now was ” its only small , not a big mistake ” ……….ummm it was $20k that bombed not $2k
    If you DIY just ETF index and go to the beach .

  6. Amber Tree on January 16, 2016 at 3:58 am

    These are some good tips. I agree that you first need to be interested in the subject. You then need to design a simple, automated system for investing . That is the best way according to me.
    This way you can reduce fees from asset accumulators. In exchange, you need to free up some time, have the insight via research and the temperament to stick to the plan.

    • Kathy Waite on January 16, 2016 at 1:22 pm

      I love Ambers description “asset accumulators” its spot on! If you google and read Larry Elford Investment Bodyguard he often talks about the fact investment advisor isnt a regulated title, let alone Vice President of Investments they are all investment representatives.

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