With easier access to online investment platforms, it has never been simpler for DIY investors to get started. While making investment decisions can be empowering, it is important to remember that investing requires careful planning and knowledge. For beginners, the learning curve can be steep.
In this guide, Wealth Professional Canada will walk through what it means to be a DIY investor, including the benefits and potential drawbacks. We will also explore why more Canadians are embracing this self-directed approach.
DIY investors are individuals who take full responsibility for building and managing their own investment portfolios. A DIY investor makes all the decisions about what to buy, sell, or hold without relying on a financial advisor. This approach gives DIY investors more control over their investments and lets them save on fees that would usually go to a financial advisor.
Because they set their own strategy and make their own choices, DIY investors are also known as self-directed investors. This hands-on approach appeals to people who want to be closely involved with their finances and are comfortable making decisions on their own.
Just like other investors, DIY investors have access to a wide range of investment products. These include:
Investors can buy and sell these investments through discount brokerages and online trading platforms. All they need is a self-directed account, sometimes called an order-execution-only (OEO) account.
Once the account is set up, DIY investors can shape investment strategies to match their financial goals. Usually, DIY investors choose between two main approaches:
This approach involves frequent buying and selling. Active DIY investors try to boost returns when the market is rising and limit losses when the market drops.
With this approach, investors hold investments for the long term. Instead of trying to beat the market, the focus is on matching its performance through different strategies.
As you can see, being a DIY investor means spending time analyzing the market and working with numbers. Having a solid understanding of how investing works is important to succeed. Watch this video to learn more:
For new investors who want to try DIY investing, this beginner's guide on how to invest in Canada can be a good place to start.
Self-education is vital. Making investment decisions means understanding what needs to be done and the risks involved. There are plenty of stories online about DIY investors who lost large sums because they jumped in without enough knowledge.
The good news is, DIY investors who take the time to learn how investing and the financial markets work can set themselves up for success.
Becoming a DIY investor in Canada is straightforward. Here are a few simple steps to get started:
Many investors choose the DIY route because it offers a sense of freedom and control. They can make their own decisions and avoid the costs that come with hiring a financial advisor. Let's look at some of the benefits of being a DIY investor:
DIY investors decide what to buy, sell, or hold; they set their own pace. This independence lets them shape their portfolio based on personal values and goals.
Investing does require a solid understanding of the market. Even experienced investors spend time researching and managing their portfolios. Working with a financial advisor for guidance can be a smart first step.
DIY investing helps avoid the advisory and management fees that come with traditional services. By trading through a discount brokerage, DIY investors usually pay less in commissions and other charges. These savings can help grow returns over time.
Discount brokerages do not provide personal advice or portfolio management. For those who are new to investing, not having this support can be risky.
Unlike some financial advisors who require a minimum investment, DIY investing can begin with whatever amount is available. Many online platforms have no minimum deposit, so investors can start building their portfolio even with a small sum.
Online trading platforms make it simple to manage investments from a phone or computer. DIY investors get access to tools and resources like:
These features help investors keep track of investments and make decisions quickly. For more on these tools, check out our guide on how to start trading.
Being a self-directed investor also means taking on the risks that come with managing one's investments. Let's look at some disadvantages below:
Investing involves many moving parts. To manage their own investments, DIY investors need a good understanding of how financial markets work. They also need to research different asset classes to see which ones fit their goals.
If they're starting from scratch, it might take months or even years to feel confident. If they do not have the time to learn, working with a financial advisor might be a better option.
Online trading platforms make it easy to buy and sell in seconds. This can sometimes lead to impulsive decisions. DIY investors need discipline and the ability to keep their emotions in check. Sticking to the plan, even when markets are down, is important to avoid costly mistakes.
DIY investors don't need an expert to decide if a trade fits their overall strategy. Financial advisors spend years learning how to assess risk and spot opportunities. If an investor is not confident in their own skills, it might make sense to get professional advice, at least as they get started.
Some investor protections only apply when working with a registered financial advisor. DIY investors might not be covered by these safeguards. They should know their rights as an investor, as set out by the CIRO. Taking the time to understand these protections can prevent problems down the road.
Check out this video for more insights on the pros and cons of DIY investing:
DIY investors manage their own portfolios and make investment decisions without the help of a financial advisor. While this approach takes time and effort, it can help build valuable financial skills.
Recent studies show that more Canadians are choosing to become DIY investors, attracted by the control and learning opportunities this strategy offers:
While DIY investing gives people more control over their investments, it also means they are fully responsible for managing their portfolios. While they might see higher returns because of fewer fees and commissions, they also have less protection when markets become volatile.
As with any investment approach, learning the basics is important to do well. DIY investors who are new to investing might benefit from working with a financial advisor first. This can help build confidence and avoid costly mistakes while they learn the ropes.
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