Over the past few years, I have read many stories about people who are managing their own money through online brokerage firms.

The trend toward self-directed investing gained momentum during the financial crisis when people felt their financial advisor was not meeting their needs. Going at alone is also attractive to younger investors who want more control, convenience, and lower fees. Even though investing self-directed investing is convenient, it takes a lot of work and knowledge. Before deciding to take over your portfolio or going at it alone, you should ask yourself the following questions.

Do I understand the difference between risk and return?

Our research tells us that many older Canadians (50+) don’t understand the difference between risk and return – when you chase higher returns, there is a greater risk of you losing your investment. People also didn’t understand what kind of return to expect from the markets. If you don’t have a solid understanding of these investment basics, you should probably consider looking for an advisor to help you set up and monitor your portfolio.

Do I understand investment products?

If you don’t know what different investment products are and how they function, you should reconsider managing your own portfolio. There are many different investment products out there, and it’s good to have a solid understanding of how they work before you start trading stocks, bonds, etc. Also, people get caught up in trends, which leads them to purchase products that can hurt their long-term financial goals.

Do I understand how to trade securities? 

Like understanding investment products, it is important that you understand how different types of trades work before you start trading securities. There are also different types of accounts and positions you can take when you trade.

Am I an emotional investor?

If seeing your portfolio take a dive drives you to trade, consider whether you are ready for the stress of managing your own investments. Furthermore, trading fees from moving back and forth between products can eat into your returns. To manage money well, you need to be able remove emotion from the equation.

Do I like reading reports and analysis?

Reading materials about the investment products you purchase is key to ensuring your portfolio is on the right track – you should do this even if you have a financial advisor. This takes time, and requires some knowledge about fees and rates of return. You will want to do this on a regular basis to make sure you have the right mix of investments in your portfolio.

I don’t think I’m ready to invest on my own. Now what?

If you have money to invest, you will want to seek out a registered financial advisor. Before you pick an advisor, you need to know what you want from an individual, understand the type of service they provide, and check the person’s background and registration. Our Guide to Investing will help walk you through this process.

Let us know if you have any questions or observations by leaving a comment for us below.

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