A growing number of Canadian investors are interested in managing all or some of their portfolio, says Donna Nelson, vice president, Strategy, at RBC Direct Investing. "While some are interested in short-term stock market returns, many are looking to meet their long-term goals with self-directed investing."
But for many people who want the independence and cost savings of direct investing, it can be difficult to know where to begin.
"They have the desire, but not necessarily the confidence or the knowledge," says Ms. Nelson. In addition to convenience and low trading costs, these investors are looking for guidance and validation. "They're basically saying, 'Tell me what to think about, and then I'll decide what to do.'"
In other words, they require accessible tools, information and educational learning resources, and the industry is responding.
"At RBC Direct Investing, for example, we've just enhanced our online investing sites and devoted two key sections to guidance and learning. Our Guidance & Planning section has a wealth of extensive learning resources to help bridge any knowledge gap," she says.
For everyone from the novice who wants to learn how to get started to the relatively experienced investor who wishes to add options or other more complex investment vehicles to their portfolio, the RBC Direct Investing site allows investors to develop tailored learning plans based on their needs and objectives.
To enable investors to deepen their knowledge within a safe environment, RBC Direct Investing has recently introduced an industry first, practice accounts that are integrated within the actual online investing site, giving clients the opportunity to use all of the tools, educational resources and trading capabilities with $100,000 in practice money. "People can buy and sell a wide range of investment products; it gives them a chance to test drive the online investing site and build investing knowledge and confidence."
The practice account also gives more sophisticated investors an opportunity to try out advanced strategies.
"Perhaps you're a somewhat experienced investor who trades in stock on a regular basis, but you may not have tried options trading," says Ms. Nelson. "Now you have the ability to do so in a risk-free setting, with 'show-me' videos that tell you how to place an options order."
In addition to the wealth of user-friendly tools available online, lower trading costs have made it possible for direct investors to reduce risk in their portfolios through more affordable diversification, says John Bart, founder and 'Chief Mentor' of Canadian Shareowner, an organization that has been working to improve investment literacy in Canada since 1986.
Despite the market declines experienced after the dot.com crash and the financial crisis, says Dr. Bart, the fundamentals of successful stock investment have not changed. "You hear people say that long-term investing is no longer effective, but that's simply not true."
To succeed as a long-term stock investor, he says, requires "investing in the right kinds of stocks, with strong growth and operating fundamentals. If you invest in companies with heavy debt loads, flat or negative revenue growth or operating margins that are going down, you're not going to be a successful investor." Tools provided by Shareowner help investors compare companies by fundamentals, therefore, and determine when stocks are reasonably priced.
Diversification by company, sector and time are all key to successful investing, says Dr. Bart. "When most people invest $20,000 in 20 stocks, they do it all at once, assuming that the markets will then go up. But if someone invested in late 2007, they were hammered for the next year and a half."
To avoid that kind of disaster, he advises, it would be wiser to divide the $20,000 into four parts, and invest only $250 per stock initially. "Wait a quarter before investing more; if something bad is happening, you can sell your initial position. You need patience. Twenty years ago, it was very expensive to do that, but today commissions are quite low."
"The Internet has reshaped the way people sell and purchase goods and services, and it's no different for investment products. Expectations have changed, and I think we'll continue to see more tools and information," says Ms. Nelson, noting that the amount of information can be overwhelming. "Rather than attempting to wade through all the information on the Internet, spend some time researching the information and tools your online investing firm provides to ensure it's a good match for your investing needs."
Increase your investment acumen
If you are not quite ready to invest, but are eager to increase your investment literacy before you do, the following sites can help.
Investored.ca is funded by the Ontario Securities Commission and covers the basics of personal finance and investment as well as providing worksheets, calculators and other learning tools. This is a good place to start if you're looking for scam and fraud avoidance information; for information specific to your region, visit the website of your provincial Securities Commission.
Keith Betty of Shakespeare's Primer has done an admirable job of categorizing the various kinds of investments; once you have that mastered, visit StingyInvestor.com, published by Keith Rothery, a regular contributor to CanadianMoneysaver.com, for tips on investing strategies.
For non-commercial information on index funds, visit Bylo.org; Moneysense (now found at the CanadianBusiness.com website) still provides the most thorough and helpful information on the couch potato portfolio, an index fund portfolio that promises to provide competitive returns and requires only 15 minutes per year to manage.