DIY vs. Advised Investing: Which is right for you?

Thinking about investing can be overwhelming. Not only do you need to consider what to invest in (stocks, bonds, investment funds, etc.), but you also need to think about how to start investing. There is no right, wrong, better, or worse way to invest. Generally investing depends on your knowledge, priorities, goals, timeline and relationship with risk taking. Let’s break it down.

Is investing right for me?

Before reading any further it is worth considering whether you are in a position to start an investing journey. You will want to make sure you can afford to invest and have a basic understanding of investing concepts.

• Check out our 5 Key Principles of Investing to help you start building financial confidence.

Tip
Before you invest, it’s important to understand what kind of investor you are which means knowing your willingness and ability to accept risk, your time horizon and your objectives. Try out our Investor Questionnaire to help you understand your investment goals and relationship to risk.

What are my options?

You can either invest entirely on your own (known as ‘Do-It-Yourself’ or ‘DIY’) or with the help of a registered advisor. Regardless, you should Know Your Rights as an Investor in Canada.

DIY Investing

Making your own investment decisions requires time and effort. It can also improve your overall financial literacy on other important topics such as budgeting and paying down debts. Many Canadian investors prefer DIY over working with an advisor due to the personal freedom associated with making investment decisions and lower fees.

Action #1: Find a Dealer

DIY investing means opening an “order-execution-only” or self -directed account with a registered dealer. For your protection, it is important to stick to registered firms who are subject to CIRO rules and oversight.

Action #2: Open an account

Dealers can offer many types of accounts to hold your investments. Accounts are often free to open and you are required by law to provide personal information such as:

• Full legal name
• Social Insurance Number
• Citizenship
• Home address
• Spousal information
• And more.

Tip #1
You can think of investment accounts as baskets. Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs) are examples of accounts (baskets) registered with the federal government for tax purposes. Unregistered accounts (baskets) can also hold investments and have different tax rules. Learn more about account types here.

Action #3: Fund your account

Depending on the dealer, it may be possible to transfer money into your investment account through a cheque, bank transfer, or another method. Transferring directly from a bank account is common and typically secure in Canada. Don’t be surprised if it takes several business days for the transfer to complete.

Action #4: Invest

Now comes the fun part – choosing your investments! Again, depending on the broker, you may have access to stocks, bonds, mutual funds, exchange traded funds (ETFs), cryptocurrencies, and much more. Buying and selling (trading) products can cost a small fee or be free of charge; but be aware of currency conversion fees, fees when investing in certain types of funds, and other fees.

Tip #2
Before making any investment, make sure you understand what you are getting into. If you cannot explain the investment to a child, you probably don’t know enough about it.

For each investment, ask yourself:

• How does the investment gain or lose value?
• What are the risks?
• For how long will I hold the investment?
• How does the investment fit into my overall portfolio and get me closer to my goal?
• What are the costs of buying, holding and selling?

FRAUD ALERT: Social Media
Do not trust anything you see on social media. Lavish lifestyles can easily be faked, ‘proof’ of amazing investment returns can be doctored, and you never truly know who is on the other side of a direct message. ‘Finfluencers’ are also often paid to recommend investment advice. If someone offering you investment advice is not registered, they may not have the necessary background and courses to offer such advice.

Action #5: Re-evaluate

Markets and life circumstances change. Throughout these changes, you should take time to re-evaluate your investment strategy to ensure you’re taking on an appropriate amount of risk and remaining on track to achieve your long-term goals. Our Investor Questionnaire can help you maintain some perspective.

There are many commonly held myths about investing which can hurt your progress. Are you trying to time the market? Do you believe past performance indicates future results? We have debunked these and more so you don’t have to.

Investing with the Help of an Advisor

Registered advisors charge for the service of giving you recommendations based on your situation and goals. Canadians may prefer working with an advisor over DIY to save time, for advice on other financial topics like budgeting and taxes, or because they’re uncomfortable picking their own investments.

Action #1: Find a registered advisor

Registered advisors are associated with dealers who may be independent dealer firms or they may be affiliates of banks, insurance companies and other financial institutions. They also have many different titles and certifications, depending on which professional organization(s) they have obtained their credentials. Most importantly, advisors must be registered, and you can check on the National Registration Search (www.aretheyregistered.ca) before contacting them.

• You can find more information here about selecting an advisor.

Action #2: Meet with a registered advisor

Consultation with an advisor should be free of charge. You will only have to begin paying for their services once you have invested. Ideally, you will be working with your advisor for many years so it is important you take time to learn about the person and feel comfortable before opening an account. This should help you get started:

Investment advice is never free and it is important that you understand how much the advisor is compensated for services, how this compensation is paid and how much it will cost you. The value of registered advisors is that they do the heavy lifting for you- recommending investment options aligned with your specific situation. Some advisors may only offer their own firm’s products however this is something you will want to clarify before getting started. Registered advisors can also help in other matters of personal finance which is why investment performance alone should not be the only deciding factor.

Which option is better?

The decision to start investing on your own or with a registered advisor comes down to your personal preference, time constraints, knowledge and patience. Many Canadians do both! Here are the basic pros and cons to consider:

How to invest safely – DIY and Advised

Technologies make it too easy for fraudsters to operate anonymously from anywhere. As a regulator, one of our main objectives is to stamp out investment fraud altogether. The difficulty is in predicting fraud and we typically cannot intervene until it is too late.

Here are the basic ways to protect yourself:

1. Keep your online activities secure.
2. Stay skeptical and learn how to spot the red flags of fraud.
3. When you do invest, confirm the person or firm you’re working with is registered.

If you suspect fraud

Find out what to Do If You’re a Victim of Fraud.

Takeaways

• Investing is for everyone, of all incomes, backgrounds and abilities. You can do it.
• Make sure you understand the 5 Key Principles of Investing.
• DIY and advised are both good options, it comes down to your personal comfort level, knowledge and ability to commit time and effort to it. Either way, only invest with registered advisors or firms.
• Stay skeptical. Stay safe.