Online Trading
____________


Of Note:

More Canadians are taking the plunge and managing their own investments.

But experts say that doesn't mean do-it-yourself is right for everyone.

"Unless you're prepared to spend two to three hours a week reading and researching, then you should not be
entertaining the notion."


____________________________________________________________________________________________


Taking control of your investments.

Madhavi Acharya-Tom Yew
Business Reporter
The Toronto Star

With more and more Canadians going online to manage their portfolios, experts weigh in on whether they're getting the right bang for their bucks

"The opportunity to practice the investment decisions without committing any real money is a very sensible thing for people

to do." - Paul Bates, of DeGroote School of Business st McMaster University.    SUPPLIED PHOTO

....

Do-it-yourself investing sounds so easy – get an online brokerage account, do some reading, and just point and click away, buying and selling investments in the comfort and privacy of your own home.

No need to pay fees to any adviser. After all, nobody cares more about your money than you do, right?

There's no question that more Canadians are taking the plunge and managing their own investments. The ease of online trading, with its vast resources and cheaper commissions, is bringing more investors into the fold.

But experts say that doesn't mean do-it-yourself is right for everyone.

Dan Hallett makes a living providing professional investment advice, but he's also long been a proponent of investors becoming more informed and educated.

Still, he believes that most investors don't do well on their own.

"It's not an intelligence thing by any means. It's partly knowledge, but more than anything, it's discipline. To be able to have the discipline, you need a certain amount of knowledge so you can have the confidence to do the right thing at extreme times, not sell out, not trade like crazy and drive up your brokerage costs," said Hallett, director, asset management, Highview Financial Group.

"I'm not saying that people can't or shouldn't do it, but it's certainly a challenge."

Paul Bates, dean and industry professor in financial management services at the DeGroote School of Business at McMaster University, said unless you're prepared to spend two to three hours a week reading and researching, then you should not be entertaining the notion.

"It takes that level of knowledge to know not only the products of investing, but also the process of investing. How do you place an order? Is it the right way to do it? Even if you're buying a mutual fund, what kind of load structure do you buy?"

He believes that most investors make the mistake of not knowing enough about the investments they buy.

"Even if you say, `I'm a day trader and I'm only going to hold this for a little while', well, short-term investments can become long-term investments if they don't work out so well in the short-term."

As Marc Ryan, founder of the Independent Investor website, puts it, "Clicking is easy. Building a long-term portfolio is not. And there's more to building a long-term portfolio than just picking stocks."

The ease of online investing is a double-edge sword. It can also encourage investors to trade more often and on impulse.

"If you are trying to build a long term portfolio, but you're turning over 10 to 15 per cent of your positions in a year, something is wrong," Bates said.

"The temptation is you can move around at a point and click. Even today's costs of trading, which are very cheap, can add up quickly. There's a real risk you're just chasing yesterday's returns."

Garth Rostand, executive director of the Investors-Aid Cooperative believes that while anybody whose interested can learn to manage their investments on their own, "a discount brokerage account is a bit like using a sledgehammer to pound in a nail. The product choice and the information you have access to make the process more complicated than it needs to be."

He suggests that beginning investors may start with TD e-series funds, rather than a full-fledged brokerage account. These inexpensive index funds, available online only through TD Waterhouse, can be used to build a complete portfolio.

If your investments go down in value, sharply, you're really on your own. And how will you react?

"When the markets plunged last year, there were a lot of people who said to themselves, `I can take risk' and `I'm not a worrier' but they panicked and sold their shares," Ryan said. "They weren't realistic in terms of how much of their portfolio they allocated to stocks, and then they sold at the absolute bottom of the market which is the worst time to sell."

This is where a practice account, such as the kind offered by RBC Direct Investing, can be a good tool.

These accounts allow investors to make trades with as much as $100,000 in play money to become comfortable with the process and their investment choices.

"The opportunity to practice the investment decisions without committing any real money is a very sensible thing for people to do," Bates said.

If your investment does go down in value, that doesn't mean you're not cut out to do-it-yourself.

"One of the immutable laws of the universe is that everything goes down the day after you buy it. Ask yourself, `Is my reason for buying it still valid?' and if it is, stay with it. If it isn't, cut your losses and get out."

If you're anxious about your investment all the time, particularly the ups and downs, and you're not prepared to become knowledgeable, it's not for you, Bates added. "The old saying, a fool and their money are soon parted, is unfortunately true."

If you're not sure, start with managing a small portion of your nest egg yourself, and leave the rest to an adviser.

And what about that old saying, that nobody cares more your money than you do?

"It's a good point on both sides," Hallett said.

"Until you have the knowledge and discipline to make decisions that aren't filled with emotion, that's part of what's good about having an adviser. They have a bit of distance from the money and may be able to be more objective."


...

Thanks for checking out my page. Red Mars