Are you thinking about managing all or part of your own investment portfolio through a discount brokerage? This option allows you to self-manage your investments—particularly in publicly traded shares, bonds and investment fund securities—but without the benefit of any advice.
The option may seem interesting but it’s really not for everyone! If you choose to use a discount brokerage platform rather than entrusting your investments to a representative, bear in mind that this will require significant effort on your part.
It’s a bit like choosing to build your own house: You can do it yourself or you can call on professionals in the field. Before choosing either solution, you need to ask yourself if you have the skills and the time needed to deliver a project in which you’ll be investing your hard-earned money.
1. Don’t cut corners
- First of all, you need to grasp the basics of investing. Differentiating the various products, understanding the workings of financial markets and knowing certain tax components are only a few of the skills you will need before opening a discount brokerage account. To be able to choose suitable investments, you must know their features and the related risk, liquidity, potential return, etc.
- Resist the urge to start investing without first having determined your investor profile, which takes into account your objectives, financial situation, risk tolerance and investment horizon. Are you looking for short- or long-term returns? Would you lose sleep if your investments declined in value? Will you need your savings soon or in 20 years?
You will need to determine the proportion of assets to allocate to the various types of investments, i.e., shares, bonds, guaranteed investments, etc. Once you’ve set your asset allocation, you can choose the investments that best suit you. Discount brokerage platforms provide tools to help you, but you must be comfortable completing the exercise on your own. For example, if you have a conservative investor profile, the proportion of shareA share, also referred to as stock, is an equity security that entitles you to an ownership interest in a company.
The company can distribute a portion of its earnings to shareholders by paying them a dividend.
The shares of companies listed on an exchange are bought and sold at the exchange.
When a company ceases to operate, the proceeds from the sale of its assets are used to pay its debts and taxes, and the rest of the money is distributed to shareholders. in your portfolio will be lower than if you have an “aggressive” profile. Investing on your own requires a good understanding of not only your financial situation—not to mention your investment needs and goals—but also of the features and risks related to the various financial products offered. You alone will be responsible for your investment decisions and results, good or bad.
2. Set realistic expectations and do a simulation exercise
The testimonials of successful independent investors can be enticing. However, whether you manage your portfolio on your own or with the help of a representative, you should maintain realistic expectations.
At this stage, you might consider participating in a stock market simulation exercise such as Bourstad This link will open in a new window (in French only).
A number of investment dealers also offer the option of opening practice accounts with which you can first test the functionalities of their platform. Create a practice account that reflects your investor profile and risk tolerance level so that the exercise is as realistic as possible, then assess the returns you would have earned.
3. Plan your time
By investing on your own, you will have to spend time following market developments and changes in your investments and asset allocation.
Being your own dealer is demanding. You must keep up with market conditions, the factors that may impact the performance of your investments and the general economic outlook.
4. Consider the fees
Are you thinking of using a discount brokerage in order to save on fees and commissions? Reducing your brokerage fees shouldn’t be your main motivation. If you trade more frequently as an independent investor you could be in for a surprise!
Buying and selling securities comes with transaction fees, regardless of which platform you use to trade.
Some dealers offer attractive packages if you trade a lot or if you have a large amount of money to invest (e.g., $50,000 or $100,000).
Compare before choosing
On-line brokerage platforms don’t all offer the same services at the same price.
- Check applicable fees. Fees may vary from one dealer to the next.
- Compare dealers to see if you can get more services for the same price.
5. Compare on-line brokerage platforms
o invest on your own, you will need a dealerA dealer (or broker) is a professional who manages the transaction between the client and a financial institution, insurance company or stock exchange.
For example, the dealer conducts the stock exchange transaction to buy or sell on behalf of the client.
In damage insurance, a broker may offer the products of several insurers while an agent sells the products of a single insurance company. with an on-line brokerage platform where you can make your trades. Not all on-line platforms are the same: Some are more user-friendly than others.
- Before you choose, check to see how the platform works.
- Check the trading fees. They vary considerably from one platform to the next.
- Check the quality of its customer service. Is it easy to reach a representative or technical support specialist? Can you communicate with a representative in the language of your choice?
- Check the Register of firms and individuals authorized to practise to see whether the dealer is registered.
You don’t have to invest 100% of your assets on your own
It might be wiser to start gradually and self-manage only a portion of your investments.End of the insight
Videos - Available in French only
Documentation and tools
Reviewing Your Personal Finances
(pdf - 5 MB)This link will open in a new window
Updated on 14 June 2016
Prepare a balance sheet; Make a monthly budget; Set financial goals
- Choosing Investments! (pdf - 6 MB)This link will open in a new window Updated on 6 October 2016
Calculators - Available in French only