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Invest On Your Own, Not Alone

How best to invest? Know yourself first.

Canadians are warming to the idea of investing on their own. More than a third of those asked either have an online investment account already or are considering one.

With a keystroke here and a click of the mouse there you can trade shares in a company headquartered halfway around the world. But should you?

Do-it-yourself, or "DIY", investing may be technically simple, but that doesn’t mean it’s easy or that it should be undertaken lightly. Financial success starts with creating the right plan and then using knowledge and skill to see it through. If you invest on your own or are thinking about it, the trick is to know yourself and recognize where professional advice can help.

Getting to know you

In managing your finances, you have choices. You could let your advisor manage your full portfolio, decide to go it alone, or potentially carve out a portion of your overall investments to devote to online trading while leaving the rest in your advisor's capable hands.

Choosing the best path comes down to honestly assessing your abilities and how involved you can, or want, to be in managing your wealth. Answering the following questions can help you decide.

Do you have the knowledge? This is perhaps the most difficult hurdle to overcome to manage money successfully on your own. Even if you have stock-picking down cold, how are you with issues related to tax, fixed income or insurance needs? Do you know the best way to fund your children's education? Should you pay down a little more on your mortgage or make an RRSP contribution instead? If your financial abilities aren't deep or broad enough, you may fall short of reaching your goals – and professional advisors spend years building experience and accreditation credentials as part of a full-time pursuit of knowledge to stay abreast of investing trends and alternatives.

The Internet has created a quandary for the average investor who's trying to bump up their investing IQ. Volumes of information on finance and the economy are out there, but getting to what's useful is becoming more and more difficult. Markets are moving faster. There's a steady stream of new products hitting the market. The challenge is having enough skill, experience and judgement to make sense of it all.

Do you have the time? A survey of former DIY investors revealed "lack of time" as the number one reason for moving away from investing solo. Juggling career and family responsibilities while trying to squeeze the rest of your life into the time that's left can make it difficult to commit to your finances.

Are you inspired? Does investing fascinate you? If the answer's no, it won't be easy to give your money the attention it demands. On the other hand, if managing money inspires you, remember not to let your enthusiasm cloud your judgement. Are you achieving what you want? Your financial well-being is serious business. Your "hobby" shouldn't get in the way of getting results.

Are you disciplined? Knowing what to do is one thing. Being able to follow through can be something else. Can you stay disciplined and make the tough decisions? It's not easy to step up and buy stocks to rebalance your portfolio when the market's dropping. Or calmly take profits when equities are roaring ahead. Staying committed to your plan when there's turmoil is fundamental to achieving your goals.

TIP: Discover your investment style. Try our quick and easy .

DIY investing traps to avoid

For the independently-minded, do-it-yourself investing can be an enriching experience. But it can also turn into something you didn't expect. Here are four common DIY investing mistakes to avoid.

Relying on home runs. Pinning your hopes on one or two investments can cause you to miss out on better opportunities to grow your wealth. Everyone wants in early on the next Apple or Lululemon, but very few will find it. Focus on getting singles and doubles to win the game.

Confusing skill with luck. A rising tide lifts all boats. When the market's on a roll, it's a lot easier to pick winners. Don't confuse being in the right investment at the right time with an ability to beat the market consistently. Even the professionals have a difficult time with that.

Excessive trading. By investing online you can save on commissions, but those savings can be eaten up if you trade too much. If your trading extends to foreign markets, watch out for currency conversion fees that can quickly mount.

Forgetting that investing is a process. Time in the markets and having the right asset mix are key drivers of investment success. Yet instead of concentrating on the investment process, DIY investors can fixate on the short-term, reacting to swings in the market or the latest company news. Sticking with a properly constructed portfolio gives you the best chance of reaching your objectives.

Do-it-yourself, not by yourself

If you invest on your own, how do you figure out how much risk to take on in your portfolio?

DIY investors often find partnering with an advisor strikes the best balance. It's critical to keep your advisor in the loop, letting them know how much of your overall portfolio you have at play in your online trading accounts and what types of investment products you're working with. Only then can your advisor counterbalance any additional risks created by those DIY investments within your advisor-managed portfolio.

Build your core, then explore. Want to delve into some speculative opportunities? Work with your advisor to develop a core portfolio that's balanced appropriately for your age, objectives and risk tolerance. You'll be in a better position to explore on your own with a portion of your funds, while controlling risk in your larger portfolio.

Set a course. Even if you decide to invest on your own, an integrated financial plan that looks at all aspects of your finances including insurance, taxation and estate planning is something you can't go without. Think of it as a blueprint to guide your decision-making for years to come. Unless you're able to set out your objectives and have the knowledge to work through the details on your own, seeking guidance from a qualified financial professional is a must.

No matter the shape and size of your plan, it has to be flexible. That's why it's essential to keep your advisor in the loop. Thinking about a new investment strategy for your DIY account? Are there any major life changes on the horizon like marriage or retirement? Your advisor can adjust your plan where needed and stay on top of developments that could affect you (the recent OAS age increase and tightened mortgage rules are good examples).

Partner with a steady hand. DIYers can get overly tuned to the media and what's happening in financial markets. That can raise anxiety or breed overconfidence, leading to poor decision-making. An advisor can stay objective and act as a steadying hand through ongoing review of your advisor-managed portfolio, keeping the big picture in mind to help you stay on course.

Do-it-yourself investing isn't a sure way to get rich quick or beat the market; however, it can be satisfying, financially and emotionally. Just be sure you consider it in your overall financial plan and investment portfolio.

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Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.

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