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diy investing

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Direct investing, self-directed investing, do-it-yourself investing – no matter how you describe it, investing on your own has never been a better proposition.

Reams of financial information and tools are just a few mouse clicks away. Account features continue to improve as Canadian discount brokers (now numbering more than a dozen) vie for new customers. Trading commissions keep falling: The typical $29 trade of a few years ago is now under $10. The rise of exchange-traded funds means low-maintenance, low-cost investing is available to anyone who opens a direct brokerage account.

Investing without the services of a financial adviser may be more appealing than ever, but it is not for everyone. Without adequate knowledge, skills and time, and suitable personality traits, direct investing could be a recipe for financial ruin. Do you have what it takes to take control of your money and be a successful self-directed investor?

Topping the list of ideal attributes of direct investors is an interest in personal finance. If talk about managing money puts you to sleep, or keeping up with the latest financial news is akin to having a tooth pulled, then DIY investing is a non-starter. You will not devote the time and effort needed to be successful.

An enthusiasm for lifelong learning and enough time to grow investing knowledge are also essential.

It is not necessary to follow Malcolm Gladwell's "10,000 hours of practice rule" to master DIY investing. However, you must spend sufficient time to learn the fundamentals of investing and develop a personal investing plan before purchasing your first investment. Honing your computer skills so you can adeptly navigate the online investing world is a mandatory part of the upfront education.

An article entitled Back to school for investors outlines various educational options that suit DIY investors. Joining an investment club is another great way to learn. Some discount brokers even offer practice accounts that allow clients to test investing strategies and the mechanics of trading. Direct investors must keep abreast of the ever-changing financial world and regularly monitor and manage their investments. Record keeping, comparing returns against benchmarks, periodic portfolio review and rebalancing, and updating investment plans are all part of the job description.

How much time you spend depends on your investment strategy. Owning a portfolio of individual stocks and bonds takes more time than holding funds. Active trading consumes many more hours than a buy-and-hold strategy.

Independent thinking, good analytical capabilities, patience, decisiveness and dedication to the task are desirable traits of DIY investors. A healthy dose of realism is a useful antidote to questionable and inappropriate investments.

Having a well-designed investment plan and sticking to it is the key to successful self-directed investing, according to a DIY investor and member of the Tsawwassen/Ladner Share Club, one of the volunteer-run Canadian MoneySaver ShareClubs scattered across Canada. An investment plan sets out personal investing goals and the roadmap to achieve them, and fits into an individual's overall financial plan. DIY investors must develop their own investment plan, not an inconsequential task if done properly.

Direct investors research and make investment decisions on their own. It can be a lonely pursuit. There is no financial adviser to provide a second opinion or caution against selling at the wrong time. You may miss opportunities that professional advisers know about, or that are available only through an adviser.

Somewhere along the road to profits, every DIY investor will lose money. Stock market returns never go straight up, nor do the returns from bonds, an asset class traditionally considered low risk. The S&P/TSX Composite Index, the benchmark for Canadian stocks, lost 33 per cent in 2008 (and gained 35 per cent in 2009). Long Canadian bonds declined 6.2 per cent in 2013. DIY investors need the personal fortitude to weather these inevitable ups and downs. Can you avoid giving up and selling at the worst possible time, after a stock market crash?

A common mistake that DIY investors make, particularly rookies, is to trade too much. Brokers encourage this with easy-to-execute online trading and volume pricing discounts. Excessive trading tends to put profits in the broker's pockets, not the investors'.

Another area where DIY investors are prone to error is asset allocation. The asset class allocation may not be in line with the investor's risk tolerance. Due to home country bias, Canadian investors tend to hold too many Canadian stocks. Money in equities may be too high, especially when stock markets are rising.

These errors are symptoms of a poorly conceived investment plan and/or not devoting the time and effort required to keep investment plans on track.

Direct investing has its challenges, but there are benefits to joining the growing ranks of direct investors.

– You are in control of your money.

– Fees and commissions are lower.

– There is the potential for better returns.

– You avoid adviser bias such as investment recommendations based on an adviser's compensation, not a client's best interests.

– There is access to a larger choice of investments – stocks, bonds, mutual funds, exchange-traded funds, GICs – than some advisers offer.

– The investing process is an enjoyable pastime.

Successful direct investors possess the right mix of personal traits, knowledge and skills, and spend the time required to get the job done properly. If you think direct investing is in your future, learn the investing basics first and start small.

Gail Bebee is Canada's independent voice on personal finance and author of No Hype – The Straight Goods on Investing Your Money, a popular book of investing basics for Canadians from a financial industry outsider viewpoint. Through her writing, speaking and teaching, Gail shows people how to take control of their money and achieve their financial goals. Her website is