DIY Discount Brokerage Investing vs Robo Advisors

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You had good intentions when you were making that New Year’s Resolutions list.

When you wrote down “figure out money and investment stuff”, you thought that it might take a couple of nights of upgrading your Google-Fu, but eventually, you’d wrap your head around how to handle your own money. It can’t be that hard – or they’d teach it in school, right?

Unfortunately, it’s at this point in the process that most Canadians fall off of the “I’m going to control my investments” bandwagon.

Perhaps you read a few blog posts about bonds, stocks, and ETFs?  Maybe they linked to comparisons of strategies such as dividend investing, value investing, or the interestingly-named couch potato investing?  You had good intentions to come back to this and take action, but after reading 47 blog posts and two recommended personal finance books, you feel good about the learning, but possibly worried that you might choose the wrong direction.

Relax. It’s ok – you’re just like most of us cautious Canadians!  

There is no one-size-fits-all answer to the question: How Should I Invest My Money?  I don’t know you, your family, your goals, or your emotional relationship with money.  Consequently, I’m not going to say I have a silver bullet that will allow you to instantly cross an item off of your resolutions list.

What I would say is, that by focusing in on a few variables, I can help you decide which path you should start on when initially beginning your personal investing journey.

One of the biggest obstacles to overcome in taking control of your own investments is not the learning (although that is a prerequisite), it’s the first step of execution. This means actually doing the paperwork to open an account and start moving your money to where it will best accomplish what you want it to.

Online Investing: Two Paths Diverged In a Portfolio…

Most people who decide to forgo the traditional route of blindly throwing their money at a bunch of mutual funds usually arrive at a point where they have learned some new terms, been exposed to some new ideas, and now need to decide on exactly which logistical step they will take in order to execute their strategy.  While you certainly don’t HAVE to invest online, it is by far the easiest way for most people to handle their own investments.

Once you decide that you will enter the world of stocks and bonds through your internet portal, there are several decisions that stretch out before you.  The main choice that you’ll have to address sooner rather than later, is to completely sever ties with the advice world and go it alone with a discount brokerage account – or to throw your lot in with a mid-point solution known as a robo advisor.  See Kyle’s BMO SmartFolio review over at Young & Thrifty for a more detailed look at what a robo advisor is all about.

I can’t tell you which is the right fit for you. But after watching hundreds of readers make this decision for themselves, I can only say which characteristics on average have lent themselves to having more success with one method or the other.  Generally, I define “success” in this instance, as being able to make a decisive break from the way most Canadians approach investing (which is either not investing at all or investing in mutual funds that they have no idea about) and instead, productively taking control of and understanding your own investment strategy.

5 Reasons You Might Be a Discount Brokerage User

1) You want the absolute lowest fees available to online investors.

2) You want the freedom to choose to be a couch potato/index investor or someone who pursues an “active investing” strategy such as value investing, growth investing, dividend investing, or a similar strategy that includes reading up on specific companies or bonds and deciding when to sell or when to buy.

3) Even if you’ve never loved math, applying math concepts like percentages and ratios to situations that involve assets going up or down in value, doesn’t sound all that hard to figure out.

4) You’re cool with finding your own information and don’t want to pay a cent for the occasional helping hand.

5) Learning about online investing is fun for you.  You enjoy reading books that compare different type of investing strategies, you take online courses that talk about the best ways to make money in the stock market, and you generally think about investments analytically as opposed to emotionally.

 

5 Reasons You Might Be a Robo Advisor User

1) The idea of picking your own stocks or ETFs intimidates you to the point where you will probably never take the leap into handling your own investments.

2) You really like the idea of having someone who you can email a quick question to, or an online chat feature you can easily use as you take care of some other online errands.

3) You’ve read up on the whole couch potato/index investing vs stock picking debate and decided that you’re absolutely fine with passive management and guaranteeing yourself the market average.

4) Math such as percentages and ratios can be kind of confusing, and you don’t want to spend your leisure time delving into these numeric waters.

5) You are a big fan of the idea of a “set-it-and-almost-forget-it” investment plan that automates almost all of your investing steps and is very easy to initially set up.

 

Sponsored by BMO InvestorLine Registered trade-mark of Bank of Montreal, used under license. BMO InvestorLine Inc. is a wholly owned subsidiary of Bank of Montreal Holdings Inc.

The opinions and views expressed in this presentation are those of the presenter and not necessarily BMO InvestorLine Inc. This presentation is prepared as a general source of information and is not intended to provide legal, investment, accounting or tax advice, and should not be relied upon in that regard. If legal or investment advice or other professional assistance is needed, the services of a competent professional should be obtained. Any information contained in this presentation does not constitute and shall not be deemed to constitute advice, an offer to sell/ purchase or as an invitation or solicitation to do so for any entity. The content of this presentation is based on sources believed to be reliable, but its accuracy cannot be guaranteed. BMO InvestorLine Inc. and its affiliates, sponsors, and employees do not accept responsibility for the content and make no representation as to the accuracy, completeness or reliability of the content and hereby disclaims any liability with regards to the same.

 


3 Comments

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  1. Courtney N.

    Hey, we’re you describing me when you wrote the robo-advisor option? Although my minor in University was math so that didn’t turn me off of DIY investing. I just knew that I’m too much of a perfectionist, and that I would be paralyzed into waiting until the right moment/investment. So I instead threw a bunch of savings that were lying around into Wealthsimple, and I feel great about that decision.

    Reply
  2. Jo

    Your blog comes at a perfect time for me as I am just leaning about investments. Could you talk about income taxes for the earnings I get from investments on another blog. Thank you!

    Reply