Self-directed or “do-it-yourself” investing refers to investing without the help of a financial advisor and it’s growing in popularity. But it is not without risk.

What is it?

Traditionally, if you were looking to invest your money you'd seek out an expert to manage an investment portfolio on your behalf. Self-directed investing, on the other hand, refers to the approach where you create and manage your own portfolio. It’s become a common method for those with investing savvy who want to control their own investments, or who don’t want to lose part of their profits to agency fees.

“Individual investors would take on the selling of stocks*, mutual funds*, bonds*, whatever they want. They would choose what to buy, when to buy and when to sell, without advice from anyone,” says Kristina Beier, Senior Wealth Advisor, Servus Wealth Strategies and Aviso Wealth.

Who is it for?

Investing on your own requires a considerable time commitment, Kristina says. It also requires knowledge about investment fundamentals and the ability to keep up with that knowledge as the financial world is constantly changing. DIY investing may look appealing on the surface — particularly with all the media hype surrounding it and a bevy of online financial information and trading tools at one’s fingertips — but self-directed investing can also be daunting. After all, in most cases, this is the money you're counting on for your retirement years.

For these reasons, Kristina says, a “really small percentage” of members she works with also invest on their own. Many of her members have market knowledge, they just don’t have time to manage it themselves.

Is it right for you?

How do you know if you should give it a try? You should ask yourself if you have these attributes:

• Financial acumen such as being able to follow financial markets
• Time to buy and sell stocks
• Dedication
• Independent mindset
• Patience
• Well-planned financial priorities

Attributes such as these are why more seniors in particular are getting involved in self-directed investing, Kristina says. Since many are no longer working, or are working part-time, they have more time on their hands and can afford to be patient, which is important. If a person buys a stock and it goes down in value, they need to have the patience to hold on to it if it’s a good long-range stock.

“It might not be for everyone,” Kristina says. “Emotion comes into play.”

If you feel uneasy, you're more likely to make an irrational decision. Remember – when you're a DIY investor, you're flying solo. There is no second opinion and no one to bounce ideas off of. Specialized online software such as robo-advisors can direct you on how and where to invest your money, and the fees are lower, but there's likely no human advice or feedback to help keep your emotions out of investment planning.

Self-directed investors “might sell at the wrong time, and when they try to get back in, they might miss an opportunity,” Kristina says. “That’s what a lot of people do – they get into an investment, and it shoots up, and many don’t sell because they hope it will keep going up. But when it drops back down, they're selling on the downside. These are quick, rash decisions that might hinder their overall financial growth in the long-term.”

Combined approach

One option is to dabble in self-directed investing, but with the help of a financial advisor. With a combined approach, you might have your advisor manage most of your portfolio, but the two of you together can make a plan to set aside some of your money for DIY investing. Advisors like Kristina are there to help you with your long-term retirement plans and can help you build a well-diversified strategy that gives you the freedom to test out some self-directed investing options. The primary focus always remains on the long-term financial plan you have put together.

Cannabis stock is a great example. With so much buzz around the newly legalized industry in Canada, Kristina says she has had members tell her they've heard from a friend about a certain stock and they're told it might hit big. It might be riskier, and might not fit in with the steadier approach they have put in place, but if they want to purchase that one stock on their own, then a good advisor can let them know how much they can reasonably direct into that venture.

If you feel like a DIY investor, you might like the idea of using a self-directed Registered Retirement Savings Plan (RRSP), since those products give you more investment freedom. A self-directed RRSP allows you to hold many different types of investments within one, single consolidated RRSP account. Despite the name, you can also have a financial advisor for this type of account, Kristina adds.

Why an advisor can help

The number of Servus members who've implemented a combined approach to self- directed investing is starting to grow, Kristina says. She helps by working with them to ensure they stay on course, since the financial plan she puts in place with her members is the backbone of their investment portfolio. It’s a roadmap to retirement, with financial goals to reach. It’s key to have regular meetings with members and go over that plan, so they can refocus on their core strategy. Investing for retirement is a long, steady process that requires steering through market volatility, and one of the big advantages of having an advisor is they take the emotion out of the equation.

“Our advisors are there to help the members stay calm and focused on the plan they set in place,” Kristina says.

Contact an advisor

*Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Online brokerage services are offered through Qtrade Direct Investing, a division of Aviso Financial Inc.

Servus Wealth Strategies Ltd. is a subsidiary of Servus Credit Union Ltd. offering financial planning, life insurance and investments.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities.

Originally posted on June 13, 2019.