Step #1: What kind of investor are you?
Typically, investors have two choices: self-directed investing or working with an investment advisor. Investing through an advisor involves paying a regular fee or percentage to a professional who provides advice on investment decisions and make trades on your behalf based on your financial goals and risk tolerance.
On the other hand, self-directed investors manage their investments by themselves. This approach offers greater control and flexibility but also comes with more responsibility, as you must oversee and manage your investment portfolio. Most self-directed investors use online brokerage sites, where fees may still apply. However, investors using the National Bank Direct Brokerage online brokerage platform, can benefit from $0 commission on all online stock and ETF transactions.
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To know more about beginning your self-directed investing journey, consult our article.
Step #2: Identify your investment style and make a plan
Once you’ve decided on the type of investor you want to be – working with an advisor, self-directed, or a mixture of the two – it's important to identify an investment style and develop a plan that aligns with your financial goals, risk tolerance, and time horizon.
What is your end goal?
Your investment end goal will help you determine a time horizon. For instance, someone who is 25 years old and saving for retirement at 65 will have a different time horizon and investment strategy than someone investing towards a down payment on a first home within the next five years.
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Are you planning on purchasing a house? The FHSA is available at NBDB. Learn more here.
Consider the stage of your life and your investment goals: Are you just starting your career? Are you mid-career and considering a shift? Are you looking for regular dividend payouts to increase your disposable income? Having both long- and short-term goals is fine, as they help you target an investment strategy and approach.
How much money do you want to invest?
The amount of money you can or want to invest will also help guide your choice of investment products. Remember that different investment products carry different fees and costs. There is no fixed amount required to start investing, but certain products may have minimum investment requirements.
What is your risk tolerance?
We might think a risk is worth taking, but can we afford the cost if things go the wrong way? Investors should always be asking themselves this question, because at the end of the day, risk tolerance and risk willingness can be two very different things. Ideally, the two should balance out.
Generally, higher risk can mean higher returns but also greater potential losses. Ensure your investment choices align with your level of risk tolerance, as it's important to be able to weather potential losses.
Your investment goals, the amount you have to invest, and the level of risk tolerance you are comfortable shouldering will shape your investment plan and drive your investment style. There are various investment strategies to consider, including day trading, buy and hold, technical analysis, value investing, growth-oriented investing, dividend investing, and low volatility investing.
Step #3: Choose a brokerage platform
Once you've identified your investment style and devised a strategy, and if you've decided to manage your own investments, the next step is to open an investment account. Choosing a reputable online brokerage platform is crucial. A site like National Bank Direct Brokerage (NBDB) offers numerous investment account options with access to a wide range of investment options, tools, and resources for both new and seasoned self-directed investors. When selecting a brokerage platform, consider factors such as simplicity, associated fees, available investment accounts, and the enterprise’s reputation.
Step #4: Open an investment account
Opening an investment account is typically a straightforward process. It involves providing personal information, selecting from different account types - cash, margin, and registered accounts - and then simply funding your account. Once your account is funded, you'll be ready to start making investments according to your strategy and goals.
Choose the right kind of account
Self-directed investors can choose from a range of different account types and investment solutions. The possibilities include RRSP, RESP, TFSA, and FHSA registered accounts, which have specific tax and saving benefits, as well as non-registered cash, margin, or short selling brokerage accounts.
Step #5: Build an investment portfolio
Building an investment portfolio involves selecting a mix of assets that align with your investment objectives and risk tolerance. A well-diversified portfolio might include a combination of stocks and bonds, as well as real estate and other alternative asset classes that help spread risk and increase the likelihood of maximizing your returns over the long term.
Choose the right stocks and ETFs
When selecting securities to include in your portfolio, it is important to research potential investment opportunities by analyzing company fundamentals, financial performance, industry trends, and market outlook.
In addition to revenue growth and earnings potential, consider factors such as competitive advantages and valuation metrics when selecting individual stocks. Use available stock screening tools, research reports, and market analysis to identify promising investment opportunities. Don’t forget to monitor the performance of your holdings on a regular basis.
For investors working with smaller amounts of money or those who are looking to maximize the diversification of their holdings, ETFs and mutual funds can be a good place to start.
Step #6: Diversify your portfolio
Diversification is one of the most important principles of smart investing. “Not putting all your eggs in one basket” is key to good portfolio management. In addition to careful consideration of factors like risk tolerance, investment objectives, market conditions, and economic trends, asset allocation is extremely important.
Diversification and asset allocation ensure that different asset classes fit together and interact effectively within your portfolio, which reduces risks over the long term. As a result, holding assets in different sectors and classes is a powerful strategy to protect investors from significant shifts in specific industries and overall market volatility.
Step #7: Use the right tools to make investment decision
Investors now have access to a range of tools and resources. When making investment decisions, it is important to use credible sources and the right tools, like those offered by NBDB. Investment research, market data, and financial analysis tools can help you make informed decisions. Whether you're buying stocks, bonds, mutual funds, or ETFs, ensure that your investment choices align with your long-term financial goals and risk tolerance.
Discover the NBDB research section
Step #8: Review your portfolio regularly
As a self-directed investor, or even if you work with a financial advisor, it is important to regularly review and reassess your investment portfolio to ensure it remains aligned with your financial goals and risk tolerance. Over time, your life situation and goals may change, requiring adjustments to your investment strategy.
Monitor the performance of your investments, assess market conditions, and adjust your portfolio as needed to optimize returns and manage risk. Consider factors such as changes in your financial situation, investment objectives, and market outlook when reviewing your portfolio. By staying disciplined, doing your research and review, and proactively managing your portfolio, you can maximize your chances of achieving long-term investment success.
Ready to begin your self-directed investment journey?
Key Takeaways
- Step #1: Decide what kind of investor you are
- Step #2: Identify your investment style and make a plan
- Step #3: Choose a brokerage platform
- Step #4: Open an investment account
- Step #5: Build an investment portfolio
- Step #6: Diversify your portfolio
- Step #7: Use the right tools to make investment decisions
- Step #8: Review your portfolio on a regular basis