Thursday, 25 February 2016

Do's and Don'ts of DIY Investing (Do-It-Yourself)



Do's
  • Do understand that you are in it for the long term
  • Do understand that you are responsible for all losses and gains
  • Do know about fees - MER, transaction fees, financial advisor fees, etc
  • Do know the difference between a TFSA at the bank level and a TFSA self directed account
  • Do know the difference between a RRSP at the bank level and a RRSP self directed account
  • Do know the difference between a RESP at the bank level and a RESP self directed account
  • Do act like a fund manager
  • Do know your investment style (Dividend, growth, index)
  • Do know your risk tolerance
  • Do setup DRIPs
  • Do keep learning.  Books, blogs, podcasts, newspapers, magazines, websites, etc
  • Do setup tickers on your smartphone or online account
  • Do know the difference between investing and trading
Don'ts
  • Don't think you can time the market
  • Don't invest in mutual funds
  • Don't invest in GICs or market linked GICs
  • Don't invest in commodity or inverse ETFs.  (HVU, HOD, HOU,etc )
  • Don't go for the home run
  • Don't buy penny stocks
  • Don't buy stocks you hear about on online forums, CNBC, BNN, neighbour

Now this is not an extensive listing but these are my do's and don'ts of DIY investing.  My biggest concern on this list is the fees, namely my least favourite fee, the mutual fund fee.  It all started when I first opened my RRSP account at my local bank.  You go in and they tell you to pick your mutual funds you want to invest in.  There is no one to talk to.  You basically just give them money and if you want to do something, there is nothing to do.  I see the ups and downs of the mutual funds.  But basically everything is a mystery.  I think there must be a better way.  I started to learn about fees and was very taken back at the amount fees can add up.  They advertise that you are compounding your savings over 20 years but they never advertise that fees compound also.

The home run.  Yes, there are individuals who I know have made the switch to being self directed and in just a matter of days, they are talking trash.  How they are going to be day traders and all this and that.  It's amazing what one episode of Mad Money can do to an individual.  Word of advice, don't do it.  It was so easy to be a day trader, everyone would be doing it.

Timing the market.  Here is a classic where everyone and their uncle thinks they know the market bottom and top.  If timing the market was so easy, again, everyone including experts would know how to do it.  Remember the old saying, "buy low, sell high"?  Well it seems everyone forgets that in up markets and then again in down markets.  It's always panic time, so lets buy high and sell low.

GICs.  These things do not pay enough interest to keep up with inflation.  That basically means, you are losing money if you hold these.  And wasn't the whole idea of doing it yourself is so you can have more choice.  Going back to GICs just defeats that purpose.

Learning.  There is so much information out there in the online world and traditional media.  Learning from anyone that has come before you is a very humbling experience.  Reading and following other financial bloggers and financial columnists is a very good source of information.

Does anyone else have their Do's and Don'ts of investing?