Low trading costs are the main reason to invest for yourself. A few years ago, when stock trading commissions were commonly in the minimum $29 range, do-it-yourselfers paid about one-third the cost of people with advisers. Today, many brokers charge just under $10 if you have at least $50,000 in assets with the firm, and there are brokers charging as little as $4.95 a trade or $1 for 100 shares (that would be Questrade and Virtual Brokers, respectively).
It’s sometimes a mistake to think that a $9.95 trade costs only $9.95, Mr. Collings said. If you’ve buying a U.S. stock, foreign exchange charges will apply at rates that are highly profitable for brokerage firms. And, if you’re buying the shares of a company that doesn’t generate big trading volumes, you may have to pay a premium over the market price to have your trade completed.
The more you trade, the higher your total costs rise. Eventually, Mr. Collings warned, these costs could create as much a drag on your returns as the fees on mutual funds.
4. Making mistakes of inattention
When you’re trading stocks online, you need to be vigilant that you’re buying the right stock on the right stock exchange. Mr. Collings recounted a story told by a client who wanted to buy the iShares Gold Trust, which trades on the New York Stock Exchange under the symbol IAU. By mistake, he bought a penny mining stock called Intrepid Mines, which trades on the Toronto Stock Exchange under the same stock symbol.
This cautionary story actually has a happy ending. Intrepid Mines has delivered a gain of 500 per cent for Mr. Collings’ client.
5. Focusing on trading rather than on investing
Mr. Collings says he’s noticed an attitude among some DIY investors that they have to tend their portfolios on a day-by-day and even hour-by-hour basis. “People have said to me, ‘I don’t have as much time for investing any more because I can’t be logging into my account all the time, ready to make trades.’ People think they have to be engaged full time to find value in the market.”
If you’re a trader, then maybe so. But investors are best served by developing a plan, executing it and then doing only periodic checks to make sure everything is on track. There’s simply no need to check your portfolio every day.
“Some people feel they’re inadequate investors because they’re not watching BNN all the time,” Mr. Collings said. “To me, that’s sort of missing the point on what investing is all about – long-term diversified participation in capital markets.”
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OPPORTUNITY LOST
Here are some ways to park your money in relative safety and earn at least a small return while you decide what to buy:
You have $25,000 sitting uninvested in an online brokerage account
Expected return: zero (most firms require much higher balances before they pay a token amount of interest)
You use a high-interest savings account that trades like a mutual fund
Expected return: 1.2% (Renaissance High Interest Account, fund code ATL5000)
Hypothetical annual gain: $300
Risk factor: typically covered by deposit insurance
You use a short-term bond ETF
Expected return: 1.25%
(Claymore 1-5 Year Laddered Government Bond ETF, CLF-TSX)
Hypothetical annual gain: $312.50 (assumes this ETF's share price is flat)
Risk factor: Income paid is very low risk, but unit price could decline if rates rise.
You use a one-year GIC
Expected return: 1.75% (various small banks and trust companies)
Risk factor: typically covered by deposit insurance
Hypothetical annual gain: $437.50
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