Managing our own investments does not have to be complicated. Most of the time a simple strategy will outperform a more complicated one. But I haven’t met a single DIY investor who wasn’t intimidated at the start. At some point, most beginners will ask themselves: How can I expect to invest well when there are so many funds and products out there; so much information pouring from the financial media firehose; and so many “experts” on Bay Street and Wall Street (who usually fail to even obtain market returns) to compete against.
And yet, we exist. Relative to the large number of people who put their faith in financial advisors and “hope for the best”, we are few. But successful DIY investors are everywhere, quietly enjoying lives of financial independence, and, I believe, the numbers are growing.
How do DIY investors become successful?
Do we pursue the same training as professional financial advisors? – I don’t know of a single DIY investor who attributes their success to formal training.
Do we hire a financial advisor to learn the necessary skills and strategies? – I hope this happens, but the majority of DIY investors I’ve spoken to share stories of loss and grief rather than profit and empowerment.
Do we engage in a process of self-education and smoothly transition from naive neophyte to confident and competent DIY investor? – Every single successful DIY investor I know has a collection of struggles and errors that were instrumental in the development of their financial wisdom.
So, here’s the million dollar question: Are we doomed to either engage the financial services industry with their high fees and rampant conflicts of interest, or muddle through ourselves, making costly mistakes until we learn better?
Why DIY investors are a rare breed
When considering managing one’s own money, most people survey the vast amount of information out there, mentally file personal finance into the “difficult and boring” category, and do one of two things: hire a financial advisor and offload the responsibility; or don’t invest at all, hoping things will just work out. There is a lot of great information out there, but most people don’t have the willingness or ability to filter out the bad stuff, process the good stuff, and apply it to their own unique situation . . . at least, not without making some costly mistakes along the way.
If you have decided to take control of your own financial destiny, you’re way ahead of most people.
The sticking point: bridging the gap between general information and an individual plan
When I started writing articles for the Canadian Moneysaver as a DIY investor, I got a few emails from readers asking for advice on their own situations. When I started this blog, those requests increased substantially. Clearly, there is a great need for individual advice.
Most people, understandably, need help bridging the gap between general information and actionable steps appropriate to their scenario. Most of them had already been burned by a financial advisor at some point and were sufficiently disillusioned with the financial industry to avoid it, but lacked the confidence to execute their own plan, or even to make one. Some sat for years on large sums of money doing nothing, paralyzed by indecision.
There had to be a better way.
At first I politely declined these requests for individual help. Part of that was a lack of confidence that my own knowledge base was applicable to others. Part of it was anxiety that I might be held responsible for events beyond my control (market crashes, a period of underperformance, etc.). But as I talked with more people, gave presentations, and wrote articles, I realized that many people out there are on the cusp of being great DIY investors – they just need a mentor. Someone who has been down the same path, with a little more experience, to guide their decision making.
A new path to successful DIY investing: mentorship
And so, with a little trepidation, a few months ago I said yes to one of these requests. We talked on the phone, got to know each other, and created a plan to move forward. I would charge hourly. They could pull out at any time. It was an experiment.
And it worked.
From the outset, I told them my goal was to set them up with the knowledge, process, and supporting spreadsheets so that, when they were ready, they’d be able to do everything themselves. In other words, I was trying to work myself out of a job. Over several weeks we discussed their goals, gathered information, formulated a plan and executed it. The whole thing cost far less than even a cheap financial advisor would charge on an annual basis; and they are empowered to maintain and update the plan going forward. This is what they had to say about the experience:
Over the last 4 years we met with several different financial advisors and investment representatives, but did not feel comfortable with the direction they recommended or pressure tactics they used. We cold called Matt to ask a few basic questions and was impressed with Matt’s approach so suggested we both talk to him.
We had a general idea of what we wanted to do and after just a few discussions with Matt, he presented us with a plan and options that confirmed that he had really listened and “got us”. It was important to us that we still had control over our investments, but we really needed Matt acting as a coach to get us moving in the right direction. He tailored investments to our goals and risk tolerance and even walked us through buying and selling stocks on our investment platform to achieve the portfolio that met our needs. We had some anxiety about such a big buy in (especially as the markets had a bit of turbulence as we were implementing the plan) but Matt got us focused and made sure we were comfortable with everything as we did it.
Matt will continue to be a valuable resource to us and we have already recommended him to family and friends.H&G from BC
At this point you might wonder if this post is an elaborate advertisement. It’s not. In fact, this post was triggered by an unfortunate event.
A parting of ways
About a week ago, a reader emailed a question about her personal situation to both David Stanley and I. David asked if I would respond because he prefers to distance himself from giving individual advice. No problem, I said, I’ve been doing a little work on the side developing individual investment plans and have found it very rewarding.
The fact that I am choosing to provide this mentorship service on a limited basis for a fee does not sit well with David. In fact, he has asked me to make it public that he will no longer be associated with this blog. David has spent decades donating his time and energy to furthering financial literacy and has said that he does not wish to be connected to any endeavour in which someone is making money from the provision of financial information.
I respect David Stanley enormously, so his reaction made me think. Is fee-based mentorship service unethical? Am I setting up a conflict of interest with the rest of the blog? And, perhaps most importantly, is a mentorship program valuable enough to the community of DIY investors to justify pursuing?
So many people want to manage their own money but are held back by fear of making mistakes. They have access to mountains of general information, but struggle to apply it with confidence to their own situation. Short of discovering a pool of successful DIY investors who are willing and able to spend the necessary hours with individuals for free, a mentorship program is the best solution I can think of.
I would appreciate your honest feedback on these issues. If I am going to pursue this path, it is important that it is done with honesty and integrity. Feel free to comment below or send me an email at email@example.com.
Little to report on our BTSX portfolio this month. With the elimination of Husky Energy from the TSX60, there’s room for a third big bank (BMO) on the list. None of our top ten changed their dividends, but for those who hold other TSX60 stocks, there were a few recent dividend raises (EMA, NTR, and FTS). These have been reflected on our complete TSX60 dividend spreadsheet.