You have some money to invest? While you could give the job to a professional you can meet with in person or an on-line adviser (robo-adviser), you could also manage all or part of your investment portfolio yourself using a discount broker. This option lets you invest in financial assets such as shares traded on a stock exchange, bonds and investment funds but without the benefit of advice. You’re responsible for your decisions and the results they yield, whether positive or negative.
This may seem like an attractive option, but it’s not for everyone! It’s important to keep in mind that if you choose to use a discount brokerage platform rather than entrusting management of your investments to a representative or an on-line adviser, some effort will be required from you.
Don’t cut corners
Before opening a discount brokerage account, you need to know the differences between the various types of investments and understand how the financial markets and certain facets of taxation work. To make sure that an investment is right for you, you need to know its characteristics, related risk, liquidity and potential return.
Resist the urge to throw yourself into investing without first determining what your investor profile is based on your objectives, financial situation, risk tolerance, investment knowledge and investment horizon. Are you looking for short- or long-term returns? Would you lose any sleep if your investments declined in value? Will you need your savings shortly or in 20 years?
You’ll need to determine what percentage of your assets will be allocated to each investment type, i.e., how much in shares, how much in bonds, how much in guaranteed investments, and so on. You will then be able to pick the investments that are best suited for you from the ones that are available. Discount brokerage platforms provide tools to help you, but you need to be comfortable enough to figure things out on your own. For example, if you have a “conservative” investor profile, the percentage of shares in your portfolio will be lower than if you have an “aggressive” profile.
Stock markets are volatile and, above all, unpredictable. Investing on your own involves many risks. Avoid costly decisions and regrets.
Better to hire an investment professional if you don't have:
- the skills and knowledge necessary to read and understand financial data.
- time to collect and analyze relevant information about the company in which you are thinking of investing.
- the time to keep track of your investments.
Are you a non-frequent investor or an active investor?
Are you a non-frequent investor? For example, do you plan to hold exchange-traded funds (ETFs) and keep them for a long period of time? You’ll need to know the characteristics and objectives of the ETFs you want to hold, make sure they’re a good match for your goals and track them. This will require you to be somewhat involved but will demand less work than holding individual securities such as shares or bonds.
Do you consider yourself to be a more active investor? For example, are you planning to pick the shares in your portfolio yourself or buy and sell securities regularly? Actively self-managing your portfolio will take more of your time and energy than if you were a non-frequent investor, as you will need to monitor market developments, your portfolio’s weights and the economic outlook, while also keeping your eye out for other factors that could affect investment performance.
Do you consider yourself an active investor? Carry out some simulations
Before you start investing, you could take part in a stock market simulation like the one available through Bourstad This link will open in a new window. The knowledge gained from carrying out a simulation will help you when managing a real portfolio.
Some investment dealers also offer the option of opening practice accounts that can be used to test their platform’s functionalities before you invest for real. If this option is available, create a practice account that takes into account your investor profile and risk tolerance so that the exercise is as realistic as possible, then do some tests to determine the returns you would have earned.
The testimonials of successful do-it-yourself investors can be enticing. However, whether you manage your portfolio on your own or with the help of a representative, you should keep your expectations realistic.End of the insight
Consider the costs and compare platforms
Some platforms or applications don’t charge commissions on transactions but may charge other types of fees or offer a more limited line of services than other platforms. Before choosing a platform or application, take time to ensure that the terms and conditions are acceptable to you. For example, with a platform or application that doesn’t charge commissions on transactions:
- Fees may apply if your account is inactive or you want to close it
- The selection of securities may be limited
- Technical support, functionalities and analysis tools may not suit your needs
In addition, not all platforms are the same: some platforms are easier to use or offer active investors more tools and/or packages than others. Some dealers offer packages if you are a frequent investor or have a large amount of money to invest (e.g., $50,000, $100,000 or $500,000).
It’s therefore important to note that fees and customer service quality can vary among platforms and applications. Your job is to figure out what’s best for you given your needs. Before you settle on a choice, compare the applications by, among other things, checking:
- How the platform works
- The quality of customer service (Is it easy to contact the company?)
- Whether you can deal with the customer service department in your own language
- Whether the dealer appears in the Register of firms and individuals authorized to practise.