Julian Bouchard is a typical online trader: a financial services professional in his early 30s, he funds his annual Bahamas trip by trading in currencies, options and gold stocks - using his 'play money.'
But while Mr. Bouchard and traders like him have been at home in the online investing world since the mid-1990s, they're no longer alone.
Today, Annette Schriever is also a typical online trader. She opened her online account three years ago after 20 years of investing with a financial advisor. Now in her 50s, with more investing experience, she invests in low-MER mutual funds, exchange traded funds and a portfolio of GICs with staggered maturity dates. She rebalances her portfolio once a year; she also works with a certified financial planner who provides advice on insurance, estate and tax planning.
"The Internet has reshaped the way consumers purchase goods and services, and investment products are no exception to that," says Jason Storsley, president and CEO of RBC Direct Investing.
Just a little over a decade ago, it was very challenging for direct investors to find the information they needed; the last 10 years brought a tsunami of information, much of it of dubious quality and usefulness. But today's online investors have access to information that is packaged in ways that are easy to use and understand, says Mr. Storsley.
Online investors now have a wide range of investment objectives and knowledge, he says. "Some are new to self-directed investing, while some are very experienced. This was once seen as a great place to trade and hopefully make a quick profit - it's now seen as a very appropriate place for investors to meet their long-term investment objectives."
The last year has seen a significant increase in the number of people opening online accounts. "Many deal with an advisor, but wish to manage some of their investments on their own, if for no other reason than to better understand what's going on. We're finding more and more clients are not seeing the choice between working with an investment advisor and self-directed investing as either/or - they're doing both," says Mr. Storsley.
A wealth of online tools and resources provides investors with another advantage: the opportunity to build their knowledge. "They are digging deeper and asking more questions. As an online provider, we package information and tailor it to your level of investment knowledge, and your investment needs, so there is no better place to learn," he says.
To avoid venturing beyond your competency, advises Ms. Schriever, "Keep it simple. Learn before you invest. Don't just buy an investment product because it sounds good - watch it for a while. Take a look at the way it's performed over the longer term; if it hasn't been around that long, you probably won't regret avoiding it."
RBC Direct Investing now provides a uniquely hands-on way to learn: practice accounts. "We now have a platform where you can test-drive our online investing site and use all of the educational tools and resources we provide [to]our regular clients, with $100,000 in practice money."
Direct investing is no longer about investing on your own. "We don't just give you a platform to trade on and wish you good luck. There are a lot of learning resources and education tools available to you; it's a partnership. Our clients are able to draw on the research the firm provides, from Morningstar, Standard and Poor's, RBC Capital Markets and other respected analysts.
"You can hear what the investment professionals are thinking and saying, and use a variety of stock, mutual fund and bond screeners to choose the right products. We work together to help you accomplish your investment objectives," says Mr. Storsley.
It pays to heed tax consequences
Whether you're investing with the advice of an investment advisor or on your own, it's essential to pay close attention to the tax consequences of investing.
When investing outside of a registered plan, the tax treatment on various types of income can have a significant impact on long-term returns. All else being equal, for example, it's important to consider the different tax regimes applied to dividends and interest when deciding between corporate bonds and preferred stock.
For 2009, "Interest income remains the most highly taxed at 46.41 per cent in the top tax bracket in Ontario," says Colleen Gibb, FCA, tax partner with Gibb Widdis in Ancaster, Ontario. "Capital gains are the most favourably taxed at 23.2 per cent in the top Ontario tax bracket, followed by eligible dividends at 23.06 per cent and non-eligible dividends 31.34 per cent."
Even when returns are reinvested, as is often the case with mutual funds, the investor is responsible for reporting annual income on his or her tax return.