Odin Says ...

On Managing Your Own Investments

Jun 10, 2007

Should you go it alone or pay high management fees?

Many knowledgeable investors say that it is possible for one to learn a great deal about investing from articles, books and one’s own mistakes. In fact, Canada is currently witnessing a growing number of do-it-yourself retirement investors, who have decided not to pay for the service and advice of independent advisers or banks and other financial institutions.

If you decide to go your own way, try opening an account with a large discount brokerage firm, thereby cutting the fees and commissions you would have to pay. In fact, in recent bull markets, these firms have actually outperformed their full-service competitors. That, combined with the fact that Canada suffers from the highest management fees in the word for mutual funds, scores a point in favor of self-investing.

However, self-sufficiency is not for everyone. Depending on your needs, a professional adviser can offer valuable services and advice on matters such as tax optimization, estate planning and insurance coverage.

Investment Tips

• You only need to dedicate a few hours every year to initiate and maintain your portfolio. Try a mix of low-cost index funds that attempt to track the market, not beat it, and rebalance your mix annually.
• Opt for funds with management expense ratios of 0.5% or less. An actively-managed counterpart will likely charge around 2% or more. While the difference may seem small at first, compounded over many years, the returns will be drastic.
• Start early. In order to take advantage of compounding your returns over many years, it is crucial to invest as soon as you have some savings set on the side.
• If you want to stay safe, definitely avoid the latest high-flying hot stock or fund.
• You must be disciplined; do not trade restlessly and be calm and patient during a downturn or bearish market.

Suggested Books

The following is a list of books, recently published in Canada, that teach you how to take matters into your own hands:

• "Bonds for Canadians: How to Build Wealth and Lower Risk in Your Portfolio" by Andrew Allentuck (John Wiley & Sons Canada, 2006)
• "How to Pay Less and Save More for Yourself: the Essential Consumer Guide to Canadian Banking and Investing" by Rob Carrick (Doubleday Canada, 2006)
• "The Smart Canadian’s Guide to Building Wealth" by Pat Foran (John Wiley & Sons Canada, 2006)
• "The Smartest Investment Book You’ll Ever Read" by Daniel Solin (Viking Canada, 2007)