What is self-directed investing?
Self-directed investing refers to individuals who manage their own investments without the direct assistance or guidance of a professional advisor. This approach empowers investors to research, select, and buy and sell their own investments such as stocks, bonds, GICs, ETFs, mutual funds and options and set their asset allocation.
What are they key advantages of self-directed investing?
- Control: Investors make all decisions about investment selection, diversification, asset allocation, and timing.
- Independence: No reliance on third-party advice or recommendations.
- Flexibility: Ability to adjust strategies quickly in response to market changes or personal preferences.
- Cost Efficiency: Typically, lower fees, as there are no advisory charges.
What risks are involved in self-directed investing?
Self-directed investing is empowering but carries several risks, including the potential for significant financial losses due to market volatility or poor investment choices. Without guidance, investors are responsible for their own research and decision-making, which can lead to mistakes if they lack experience or knowledge. Additionally, emotional reactions during market downturns may prompt impulsive decisions that harm long-term returns. It’s important to recognize that while self-directed investing offers control and cost efficiency, it also requires a solid understanding of investment principles and risk management.
Who is DIY investing suitable for?
Do-it-yourself (DIY) investing may be well-suited for individuals who have a strong interest in financial markets and for those who possess the time and resources to conduct their own research. It is also for experienced investors who feel comfortable calling their own shots, as well as clients who are looking to minimize costs. The initial planning and setup of a self-directed portfolio can require a few hours or more, depending on the complexity of your investment strategy. Afterward, the ongoing time commitment will depend on your investing style. For example, active traders may spend significant time monitoring and adjusting their portfolios, while buy-and-hold investors may only need to review their investments periodically. The types of products held, such as individual stocks versus broad-market ETFs, can also influence how much time you'll need to dedicate to managing your investments.
What support is offered to investors by online brokers?
When you invest for yourself, it doesn’t mean that you invest by yourself. Although online brokers are barred from providing investment advice most do offer educational content such as webinars and learning centres to help educate their clients. Investors have access to features that can monitor, compare and manage their investments such as watchlists, comparison tools, alerts and stop loss orders. Many firms offer research reports that provide price targets using fundamental analysis or charting tools that use technical analysis to determine buy and sell signals.
Here is a list of examples of tools available for NBDB clients:
- My Investment Dashboard (active investor tool)
- ETF Centre
- OptionsPlay
- Wealthscope (portfolio health check tool with simulation)
- National Bank Financial and Morningstar research)
- Technical Insight (for technical analysis)
- Strategy Builder (for stock filtering and strategy backtesting tool)
- Fundamental Insight (quantitative analysis)
Take a look at the NBDB trading platform with this guided tour
What is a financial advisor?
Some investors also chose to place a segment of their money with a financial advisor. A financial advisor, also known as a Wealth Advisor, is a professional who helps clients manage their investments, plan for retirement, and achieve their life goals. Using a holistic approach, advisors may work independently, with investment firms, or within banks, and their services can range from portfolio management to comprehensive financial planning such as retirement planning, tax strategies, insurance needs and estate planning.
What are the typical roles and services provided by financial advisors?
- Personalized Advice: Assessing clients’ goals, risk tolerance, and time horizon to create tailored investment strategies.
- Portfolio Construction: Building diversified portfolios designed to meet specific objectives.
- Ongoing Management: Monitoring investments, rebalancing portfolios, and providing regular updates.
- Education and Guidance: Helping clients understand financial concepts and market trends.
- Planning Services: Assisting with retirement, estate, tax, and insurance planning.
Who advising services are for?
Advising services are usually for:
- Individuals who prefer professional guidance
- Investors with complex financial needs · Individuals lacking time, experience, or confidence to manage their own investments
- People seeking a integrated approach to wealth management
Financial advisors typically charge fees based on assets under management, hourly rates, or commissions, which can increase the overall cost of investing but provide peace of mind for many clients.
How do self-directed investing and financial advisors compare?
When considering both approaches, investors often weigh several factors to determine which suits their needs best. Below is a direct comparison across key features:
| Features | Self-Directed Investing | Financial Advisor |
|---|---|---|
| Control | Full, direct control over all investment decisions | Advisor guides; client retains ultimate authority but relies on recommendations |
| Cost | Generally lower (transaction and admin fees if applicable) | Higher (advisory fees, commissions, management costs) |
| Support | Limited to educational resources and platform tools | Comprehensive support, education, and guidance |
| Expertise Required | High; investor must research and manage risks | Lower; advisor handles research and risk assessment |
| Customization | Customizable to personal preferences | Tailored to client’s goals, but through advisor’s lens |
| Human Connection | Client support available through the call center and the secure messaging center | When a pivotal life situation happens, clients can call their advisor |
Neither approach is universally superior; the best choice depends on individual circumstances, experience, and objectives.
Why might some clients use both approaches?
Many investors find value in combining self-directed investing with professional advice, creating a hybrid strategy that leverages the strengths of both options. This dual approach can be particularly useful in the following scenarios:
- Learning and Growth: Clients may start with a financial advisor to learn the basics and gradually transition to managing parts of their portfolio independently.
- Specialization: Investors might self-manage certain assets (like a TFSA or RRSP) while using an advisor for more complex needs, such as retirement or estate planning.
- Risk Management: By combining approaches, clients can experiment with self-directed strategies in areas where they feel comfortable, while relying on an advisor for riskier or less familiar investments.
- Cost Efficiency: Using an advisor for core financial planning and handling routine investments independently can help manage costs while maintaining access to expert advice.
This flexible strategy can provide reassurance, education, and cost savings, especially for those whose needs or confidence levels change over time.
Comparing investing approaches: what to keep in mind
Self-directed investing and working with financial advisors both offer distinct pathways to building wealth. Self-directed investing appeals to those who value independence, control, and cost savings, but requires a solid understanding of the markets and investment principles. Financial advisors, on the other hand, provide expert guidance, comprehensive planning, and support—ideal for those seeking reassurance or facing complex financial situations. Many Canadians find that blending both approaches offers the best of both worlds, enabling them to learn, grow, and adapt their investment strategies as their lives and goals evolve. Ultimately, the right choice is personal, and should reflect your comfort level, objectives, and commitment to financial success.
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Key Takeaways
- Self-directed investing offers greater control and lower costs, but demands time, knowledge, and confidence.
- Financial advisors provide valuable expertise and tailored support, though at a higher cost.
- Combining both approaches can deliver flexibility, learning opportunities, and optimal results for many investors.
- At the end of the day, you need to determine what option works best for your personal situation.