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I recently asked a group of Canadian investors to describe their personal experiences in switching to lower-cost investing and to share the valuable lessons they learned along the way. This led to this three-part series, and it may help you determine whether a similar change might be right for you. In the first article “Switching to lower-cost investing”, one described real investor experiences with former advisors. And the second article “What it’s like to transfer your account to lower-cost investing” was about the account transfer process.
This final part looks at the overall level of investor satisfaction among respondents after switching to lower-cost investing and their valuable tips.
I believe the following summary is instructive but it is not a scientific survey. While every investor can benefit from learning the basics, switching to lower-cost investing is not right for everyone. Ultimately you have to decide what is best for you and your goals.
The comments below came from investors who switched from managed investments to do-it-yourself (DIY) investing through online brokers, robo-advisors or lower-cost advisors or mutual fund providers.
Most respondents were happy they made the switch:
“Larry, my spouse and I save $9,800 per year in fees with no additional risk. Managing our investments has turned into the highest paid employment I’ve ever had when I compare our return, including fee savings, to actual hours worked.” “Anyone who is on the fence about investing money on their own terms, it’s one of the scariest moves we’ve ever done. We jumped in with both feet. We had read a lot of MoneySense articles, followed some guidelines with ETFs, and we’re ahead of the game. We learned with trial and error. We retired this year with more income than we ever imagined.”
“Overall, I am happy as a DIY investor. I proved to myself that I was right, my advisor was in it for his best interests, not mine. The MER in his mutual funds was in the range of 2.5%.”
Several investors spoke about having more confidence and feeling empowered:
“Learning the basics completely changed my relationship with investing. What was once intimidating and overwhelming is now empowering and exciting. We divorced our advisor and we tell anyone that will listen to do the same. It also inspired me to take an investing course and sign up for an investing club.” “I went from being afraid of the unknowns of investing to enjoying the process and taking control. It is extremely fulfilling to handle this on my own and I look forward to seeing the growth continue over the years.”
“I executed my first stock-buying transaction very carefully. I went through the steps one by one before I was comfortable with my first purchase. Over time I got more confident using the DIY approach. I now have a lot of good blue-chip dividend-paying stocks and a few ETFs tracking the US index. I am using the DRIP option for my dividends so I don’t have to pay a commission cost for repurchasing.”
The experience also helped these investors learn from the process of switching. Here’s what they learned:
Learning investment basics is essential for DIY investors:
“Personal finance is personal so don’t compare yours with others and don’t blindly copy what others are doing or what the newest fad is. Financial literacy is the name of the game so use your knowledge to propel your finances.”
“Make sure you and your partner both know what is happening with your money. No one is going to care like you will. If you can, get at least some basic financial education before you invest.”
“I read many books in order to be comfortable in making the switch from an advisor to DIY investing. These are the books that I recommend people read, in this order: Wealthing Like Rabbits, Beat the Bank, The Value of Simple.”
“It’s only when I used the T-REX Score that I got a clear picture of the money I was losing and how much my portfolio would have grown if I had found out about this earlier.”
The T-Rex Score is a simple online tool that reveals how much of your investment return you actually get to keep over time and how much will be lost in fees.
While some investors were confident enough to dive right in to lower cost investing with both feet, others felt more comfortable with a more measured, step by step approach, including interviewing financial advisors:
“Develop a plan; start soon, even before you think you can; seek unbiased trustworthy advice; recognize the progress; accept setbacks; monitor and adapt; don’t abandon. Investing is like any other skill. Start small, start slow.”
“Get your toes wet by opening a self-directed investment account. Perhaps try it with your next TFSA or RRSP contribution. Learn how to do buys, sells, rebalancing, and tracking of cost basis. Learn and grow.”
“If you want ongoing advice, interview at least three financial advisors. Do not go with someone you know, not to any family members or friends in the business. And by no means develop a personal friendship with that person, as was my situation!!”
Many investors noted that ignoring short term volatility is key to achieving long term investing success:
“You have to decide what your strategy is. For us, it’s long-term investing in solid companies that pay dividends and adding to our investments semi-annually. It’s easy to get caught up in the hype from the media. You have to stay firm in your belief but sometimes it is hard to do.”
“With so much noise on trading (cryptos, meme stocks, Robin Hood), it is more important than ever to know the winning strategy and stick to it. If you want to gamble, take a very small percentage, say 5%, and play, but shut out the noise for the part that matters most and stay the course.”
“Do not expect average returns to occur yearly. Average returns happen only rarely. Actual yearly returns are more likely to be well above or below the long-term average.”
While investors took different approaches and some experienced bumps along the road, the great majority were happy with their switch to lower cost investing.
Whether you choose to pay for ongoing advice or become a DIY investor, I believe the best way to improve your investment returns is to spend some time learning the basics. As a better informed consumer of investment products and services, you will be in a position to make smarter choices for you and your family.
Larry Bates is the author of Beat the Bank: The Canadian Guide to Simply Successful Investing and an investment advisor with Aligned Capital Partners Inc.