DIY Investors and Advice-Only Financial Planners

A Match Made in Financial Heaven

The Needs of DIY Investors

I have spent most of my financial services career serving Do-It-Yourself investors, people who choose to make their own investment decisions rather than go through an investment advisor. Over the years, I have seen many accounts get “blown up” as the investors tried to make home runs with their investment decisions, but all too often struck out.

 

I recall vividly when a young woman called up on behalf of her investment club’s account. She was in tears, as the option trade they had made went horribly wrong on some unanticipated overnight news, resulting in an almost total loss. Another client called up and lamented the losses in his account. Worth almost one million dollars at the beginning of his DIY investing career, his account was down to forty thousand dollars at the time of that call. Furthermore, his gambling addiction – for what else can you call this sort of behaviour – had also cost him his marriage. As a final example, a woman I spoke to complained about how difficult it was to make money “in this market,” even as the S&P 500, a US stock index, had gone up 30 percent that year.

 

These and similar conversations had their impact. The business I was employed in focussed on making money from clients depositing their assets with us and trading. Investment advice was not part of the company’s business model. Indeed, we representatives were prohibited by regulation from giving that sort of advice. It became apparent to me that many DIY investors needed substantially more financial guidance than I could offer in that role.

 

Investing is not a Lottery

In my observation, too many DIY investors view the markets as something akin to a lottery or gambling. I have seen countless accounts where people put their entire investment account into one stock. One man told me that his account, invested in a single stock, represented his entire life savings.

 

Other investors will think they are diversified because they have their investments spread over several stocks. A closer look reveals that they have exactly five stocks, made up of Canada’s major banks. Despite the generally good performance of Canada’s banks, this is not diversification.

 

More recently I have observed a similar phenomenon with the interest in Cannabis companies, the so called “pot stocks.” A couple of years back, there was a veritable frenzy in the desire to open accounts so people could start trading in that sector. The result: many new accounts with several stocks in each, but all cannabis companies. This is not diversification.

 

I have also seen the opposite problem. That is, accounts that hold nothing but GICs. Usually, these accounts are owned by older people who are anticipating retirement or who are already there and are not willing to take any investment risk. This does not mean an account consisting only of GICs is risk-free. Like an account that consists only of bank stocks, or pot stocks, an account consisting only of GICs is not diversified and comes with its own set of avoidable risks.

 

A Match Made in Financial Heaven

These experiences highlight for me the value that I and other advice-only planners can provide for DIY investors. In the context of a client’s financial circumstances and goals, we will analyze their current investment portfolio and make recommendations as to asset allocation and account types so that the client’s investments work toward their goals while minimizing their risks. All this while charging you a transparent fee, not muddied by conflicts of interest, and biased only toward your best interest.

 

If you are, or would like to be, a DIY investor, get in touch with me to see whether we would make a good fit.

 

Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, accounting or legal decisions.

 

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