The exponential growth in online investing over the last two years is evidence that a growing number of Canadians are taking control of their own financial well-being. But in such volatile markets, is that really a good idea?
In answering that question, Jason Storsley, president and CEO, RBC Direct Investing, says that it's important to first understand that the online investing realm is vastly different than that populated by the day traders of dot-com era fame.
"Five years ago, our clients were sophisticated in terms of their investment knowledge and knew exactly what they wanted - a platform that would give them cheap stock trades. Today, our typical clients are looking to build their knowledge and investor confidence. They recognize that they don't have to be stock pickers."
Many are just looking for simple, effective solutions, he says. "They want to have a retirement plan that meets
their investment objectives - using our online tools, they can choose a mutual fund or ETF (exchanged traded fund) portfolio that suits their needs, and then log in two or three times a year to ensure they're on track."
RBC Direct Investing is challenging the idea that only very knowledgeable and market-savvy investors can succeed at direct investment by providing tools and resources that make it easy to succeed, including risk-free practice accounts, says Mr. Storsley.
While a Google search for "mutual funds" results in an overwhelming 8.56 million link recommendations, online
investing sites such as RBC Direct Investing can serve as quality filters. "Our site does a really good job of synthesizing a lot of information into manageable pieces that our investors can wrap their heads around. We have learning plans for people who are very novice, all the way up to relatively sophisticated investors who want to learn to trade options successfully."
Another volatility-taming advantage available to RBC Direct Investing clients is access to the award-winning RBC Asset Management's mutual funds and portfolios. The largest mutual fund company in Canada, it provides access to a selection of more than 40 'Series D' funds with management fees that are about 50 per cent of the average for similar funds, enabling investors to save on fees while applying tried-and true risk management strategies such as effective diversification and dollar-cost averaging.
"A dollar-cost averaging plan is the best way to cope with volatility," says Jonathan Hartman, vice-president,
RBC Investments, explaining that it removes the peril of 'buying high and selling low,' common to even seasoned investors in volatile markets. "It manages the risk of having a poor entry point."
Another strategy that can always be applied with confidence in volatile markets is looking at costs, he says. "If you move from an investment that costs two per cent per year to an investment that costs one per cent per year, you're paying yourself an additional one per cent each year." (While that may not sound huge, consider that the annual return on the TSX Total Return index over the past 10 years, as of July 31, 2010, was 3.5 per cent; one per cent would represent almost one-third of total returns.)
Especially in volatile markets, it is essential to remember that "successful investors are risk managers first and
return managers second," says Mr. Storsley. "That starts with understanding something about yourself, your tolerance for risk and investment goals both short and long term.
"Our asset mix calculator helps you determine how much money you should have in stocks, how much in bonds, how much in cash. You can use it to revalidate or reassess your investment goals and tolerance for risk annually; if that hasn't changed, then you stick with your initial strategy - it helps you keep emotions out of your investment decisions."
Online resources to get you started
To succeed as an online investor, it is wise to invest time in education before getting started. You might want to start with your bank's website - at RBC, for example, all RBC customers have access to RBC Direct Investing practice accounts and resources.
Also worth checking out are these popular sites:
Getsmarteraboutmoney.ca, a website provided by The Investor Education Fund, provides objective information on a broad range of investment topics, from the simple to the complex.
The Stingy Investor at www.ndir.com may be the original Canadian investment blog - Norm Rothery has been writing about succeeding as a self directed investor since 1995, presenting his always interesting, alternative point of view. Another site that has been around for a long time, Bylo.org, provides information on "smart mutual fund investment for independent Canadian investors." It's considered to be one of the best sources of information on ETFs by veteran do-it yourself investors.