Save Time and Money: How to Invest on your Own

I’ve been working for over 5 years on the front line of one of Canada’s top banks. As an equitable and versatile company, there are many career directions one can take. I have opted for the relatively straight forward investment customer service role, gaining access to customer concerns and struggles.

I often get asked about the basic methods of investing and savings, and so perhaps I can lay it out here to set the record straight.

The best method for saving and investing, ostensibly, is the self-directed method, otherwise known as trading, or stocks. This platform of investing is widely available, from banks to other companies known as brokerages which execute trades for their customers through the various stock exchanges.

Another common discrepancy in my customer conversations is the trouble with distinguishing differences between types of accounts, types of investments, and lastly different platforms for investing.

For example, “Can a TFSA be self-directed?” Yes. Yes, it can. Any account type can be self-directed. And investments like GICs, stocks, bonds, mutual funds, and ETFs can be in any account type. The same investments available in a TFSA are available in an RRSP, and an RESP, and so forth. The differences are in the rules that govern the plan types, and the easiest and most practical way to learn or answer questions about any of these account types is by checking the Canadian government website. Many registered plans can be researched here. You can learn about other investments and accounts like the TFSA here. Most of the information I am able to provide as an investment representative come straight from these sources.

Self-directed accounts allow you to purchase publicly traded investments, like stocks, bonds, ETFs, mutual funds, and even GICs, and all of this faster and cheaper than it would be at your local branch or call centre. Generally, the same investments available at a branch are available with self-directed investing, and they are considerably cheaper. Fund companies tend to offer a series of their mutual funds at a cheap cost for self-directed investors, and individual ETFs are known to have low management fees.

The self-directed trading platform may have some fees, such as a commission each time a trader buys or sells, but unless you are over-trading, this isn’t much of a concern and you’d save time and money by adding self-directed investing into your financial plan. Most of these brokerages and banks offer more seamless service at the self-directed level. No more waiting in line or on hold. Everything is online and at the tips of your very fingers, and the investing world is your oyster.

The trouble might be that many customers are afraid and nervous of taking charge in this manner described, but I assure you it is not even close to as difficult as it seems. You can open a self-directed account completely online, and once that process is complete you will have credentials to login to your account online. From there, it’s easy — a click away. You can make contributions and withdrawals as you please. But a word of caution — investing works best when you invest money that you’re confident you won’t need for some time, because time in the market is usually what’s most important. And, you should always be doing your own research!

Next, you may be wondering, “what do I invest in?” And this is where you keep things simple. Have reasons for what you’re doing and make informed decisions. Blue chip stocks usually provide a solid return over years, but the stock market can decline fast out of nowhere. It’s usually advisable not to make knee-jerk reactions, because big companies like the banks and tech stocks usually rebound almost as fast as they correct. You can also consider the basic philosophy of buying low and selling high. If you want, make a pact with yourself — only sell on the green days, and only buy on the red. As Warren Buffett said, “Be greedy when others are fearful.” Square stock was around 30 dollars per share in March 2020, and has increased about 5 times in value since then. That’s 5 times your money in about one year, by investing in a multibillion dollar payment processing company similar to PayPal. It’s certainly not without risk to invest in growth companies like Square and PayPal, but over a longer period of time the stock market can be lucrative.

It’s also easy to see what investments and companies your bank invests in. Simply check the top holdings of their mutual funds. For example, BMO’s US Equity Plus fund shows top holdings of Apple, Visa, Costco, Amazon, Bank of America, and PayPal. BMO offers over one hundred mutual funds. You can find information like this about any bank’s mutual funds and ETFs, online and without needing an account already. For example, once on BMO.com, you would click investments, and then mutual funds, and then mutual funds list. After choosing a fund from the list, you would select the fund profile or fund facts to see succinct information, like historical returns and top holdings.

Some mutual funds come as a portfolio, where each holding has more underlying holdings. For example, a portfolio can contain multiple mutual funds, or ETFs. Both mutual funds and ETFs, by the way, are similar in that they are a basket of investments. ETFs are known to be cheaper, more passive, and less diverse generally than mutual funds. For example, if you wanted to invest in Canadian banks, instead of buying shares of multiple bank stocks, you could invest in BMO’s ETF which goes by the following ticker: ZWB, or you could check other ETFs offered and what their top holdings are here.

ETFs and mutual funds are popular with individuals who don’t want to spend too much time managing their holdings and can be a convenient, diverse option for new self-directed investors. Investing in specific stocks may add some risk, but also faster growth potential. Generally, diversifying is good, so there’s nothing wrong with having a mix of ETFs, blue chip stocks, mutual funds, and maybe just a tiny position of speculative investments for which you have a solid thesis.

You might be wondering, “okay, all of this information is nice, but how do I actually do it?” Here we’ll get into the nitty gritty details on how to make the basic transactions of buying and selling stocks and ETFs in self-directed investment accounts.

There are two main ways to complete your order. Option 1 is the market order, which executes the buy/sell at whatever price is available. Option 2 is the limit order which lets you pick the price you would like the buy/sell to be executed at. There is an “ask price” which you can refresh on the trading screen. Prices can change in seconds, so refreshing and then placing your limit order allows you to know what price you’re getting.

Stocks and ETF prices update all throughout the day, whereas mutual funds update once per day. GIC and mutual fund purchases should be easier to establish in your self-directed account. You can search for them and try to submit a request.

If you’re going to need a chunk of money in the near future, best be cautious with your investing. It’s always good to have a cash position, or some savings. Even better if you keep these savings stashed in your trading account. That way, if the market declines suddenly, you don’t have to wait for a fresh deposit to happen, as self-directed accounts usually take at least one full business day to complete transactions with your bank accounts.

Researching what investments your favourite bank is investing its customers’ money in is a good way to gauge which investments could generate steady growth. If you happen to trade speculatively, be sure to take your profits and cut your losses accordingly. In general, try to stay away from speculative investments, but investing a tiny fraction of your portfolio in small-cap growth and futuristic companies could result positively. Some sectors are still fresh and it’s possible to invest in the next high flying stock early. Some new sentiment of stock picking has emerged with the popular disruptive ARK ETFs. Industries from genomics, to electric vehicles, to drones, to clean energy were hot to kick off 2021. According to ARK Invest CEO Cathie Wood, Tesla could still increase in share price by about 5 times over the next few future years.

This blog post isn’t official investment advice and the investments mentioned are purely for exemplifying purposes. The information transcribed is an expression of my opinion and not an official investment strategy. My positions and opinions are subject to change without notice and are not on behalf of nor do they represent the beliefs of my employer. You should be aware of the real risk of loss in following the investment suggestions opined above. This material does not take into account your particular investment objectives, financial institution, or needs, and is not intended to make recommendations for you. You must make an independent decision regarding investments or strategies described herein, and before acting on any information found in this post you should consider whether it is suitable for your own personal circumstance and you should strongly consider seeking advice from your own financial institution or advisor.

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Investment worker and passionate communicator.

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Sami Karaman

Sami Karaman

Investment worker and passionate communicator.

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