Getting started as an online investor: It’s easier than you might think.
When Jill and Ben Chan decided they were ready to begin investing on their own in 2001, they were acutely aware of the cost of potential missteps. Careful savers since their marriage in college, the Chans’ portfolio had fallen prey to the dot.com meltdown. They’d lost more than half of their savings earmarked for their first home and retirement.
With a long time horizon on their side, they decided it was time to take control and transferred their account to an online broker. The experiment didn’t last long. Two years later, they were back with a financial advisor.
What went wrong? According to Mr. Chan, it was simply a matter of not having enough confidence in their investing decisions.
Today, with a bit more experience, the Chans are ready to try investing on their own once again. What they’re about to discover is that the world of online investing has changed significantly in a few short years.
RBC Direct Investing is one of a number of online brokers that continues to enhance the tools, analysis, information and education provided to its clients.
“For investors who are just starting out, the educational area within our website, which we just upgraded, tells you about how to achieve specific goals, along with very basic ways of achieving those goals,” says Jason Storsley, president and CEO of RBC Direct Investing. “A lot of people are apprehensive, so we really do everything we can to ensure our investors have the education, learning resources and tools they need in order to be confident that the investment decisions they’re making are the right ones for them.”
One of the newest tools available to RBC Direct Investing clients, as well as RBC online banking clients, is an investment practice account.
“It’s a free test drive of our online website, giving you access to all of that educational information – the learning resources, all our calculators – so you can be a well-informed investor. You can make exactly the same trades as our clients would be making with their real money; the difference is you’re doing it with $100,000 worth of practice money. You don’t have to worry about making any mistakes, so you can build the level of comfort you need.”
As a result of lower trading costs, new investment options and massive investment in online trading information and tools by online brokers, the profile of the average online investor has also changed dramatically.
“Online investors now come in all ages, in all demographics, they’re male and female. There is an attitude among investors who are particularly suited to the online space: they’re likely to be people who say, ‘I like to do things on my terms; I like to learn and educate myself; I like to do my own research and make my own decisions,’” says Mr. Storsley. “And when they do, they expect to benefit from a lower cost. We’ve seen tremendous growth in this channel because more and more people are interested in doing this themselves.”
Five to 10 years ago, he says, Canadians either delegated their investments to an advisor or did it themselves, but today, a combination of those options is just as likely.
“According to a recent survey by J.D. Power and Associates, one-third of full-service brokerage clients are also doing some investing on their own, and 26 per cent of bank mutual fund clients are also doing some of their investing on their own in an online investing channel. It has really gained in popularity, and I think that is directly related to how easy we’re trying to make it for investors,” says Mr. Storsley.
Popular blogger Frugal Trader, whose Million Dollar Journey blog has become one of the most widely read personal finance sites in Canada, offers this advice to the Chans and other investors setting out on their own: “Whatever you do, remember that knowledge is power. What worked for me was a lot of reading and research. Read Warren Buffett and Peter Lynch; learn about long-term investment strategies.”
For new investors who are just beginning to accumulate assets through monthly investments, he recommends a low-cost index strategy. “Once you’ve accumulated some assets, transfer your account to a low-cost discount firm. The key is to keep your costs low, and avoid trading in and out of investments. Buy for the long term, and keep your eye on the horizon.”
Online resources offer food for thought
Interested in expanding your investment knowledge? These Canadian personal finance and investment blogs recommended by Frugal Trader at Million Dollar Journey are worth exploring.
CanadianCapitalist.com. A post entitled “Money Mistakes and More” on August 27th begins, “Our emotions play havoc with our investments. We hold onto losers too long hoping they would break even, confuse luck with skill and allow hindsight to play tricks on our minds.” The entry goes on to recommend a number of excellent articles on the subject.
FourPillars.ca Investing and Personal Finance. Recent posts contain readable and useful information on comparing cell phones scams and small business ideas. Another post does a thorough job of parsing ‘scams during tough economic times.’
Blog.Canadian-Dream-Free-at-45.com. A post ‘about early retirement and happiness,’ Canadian Dream recently explored the ‘average return fallacy’ and the ways in which it can undermine a comfortable retirement. You’ll also find a review of the new Lee Eisenberg personal finance book, The Number.
