Are you contemplating whether or not to be a self-directed investor? Being one means you make your own investment decisions. A few years back, it cost $29 to buy or sell a stock. Now, it costs $10 at most.
It’s as easy as ever to invest in stocks, exchange-traded funds (ETFs), and mutual funds. Simply log in to your discount broker and make the trades. Their fees have also come down in price. ETFs are the low-cost version of mutual funds. Other than that, it’s easy and low cost, and there are also other benefits to investing on your own.
Manage your risk
If you’re not comfortable investing in stocks, you don’t have to. How many times has your financial institution phoned you about how it can invest the $50,000 sitting in your savings account for higher growth? And for those who signed up, do they really know what their financial institution actually did with their money?
Most don’t fully understand how their money is invested, and they don’t learn about it until the market tanks. During the Financial Crisis, lots of people withdrew their money in fear and realized a big cut to their retirement savings. If you learn to invest on your own, there shouldn’t be fear when the market tanks because you know what you’re holding in your portfolio. You’re taking on risk that you know you can take.
You have the freedom to invest in what you’re comfortable with. If you’d rather stick with names that are close to home, such as Royal Bank of Canada (TSX:RY)(NYSE:RY) and Fortis Inc. (TSX:FTS), then so be it. They are excellent dividend stocks. In fact, Fortis just increased its dividend 10.3% from a quarterly dividend of 34 cents to 37.5 cents per share. This is its 42nd dividend increase.
That’s the freedom that self-directed investors have. You can choose to invest in businesses that generate stable earnings and cash flows. Banks and utilities such as Royal Bank and Fortis do exactly that.
If you want to add more growth to your portfolio, and you know biotechnology firms are making a lot of profit, but you don’t want to handpick individual stocks, you can buy an ETF instead. For example, iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) is a popular biotechnology ETF. Its top holdings include Biogen Inc. and Gilead Sciences, Inc., biotech companies with solid balance sheets.
Managing your own investment portfolio will keep you on your toes. You must continuously learn, read, and apply. Be ready to make mistakes. Just make sure you don’t repeat the same mistake.
Create a plan, act on it, and revise the plan as you go along. Keep track of what you’re doing, so you know if your strategy is working or not. If not, keep tweaking your plan and actions.
Just because you’ve decided to be a self-directed investor doesn’t mean you can’t get advice as well. You can still meet with your financial advisor every year if you so wish to. The satisfaction of being a self-directed investor is finding a strategy that works for you and seeing success.