How To Ditch Your Advisor and Become a DIY Investor
Interview with Dan Bortolotti the Canadian Couch Potato on how to break up with your financial advisor and invest your money in ETFs and index funds.
I write about finance and investment all day – in fact, I’ve been doing it for over a decade. Which is why it’s hard for me to admit that I still have all of my retirement savings in mutual funds purchased through a financial advisor. Why? Because mutual funds in Canada are expensive – you pay big fees to own them. Exchange-traded funds (ETFs) are way cheaper to invest in. ETFs are investment funds that trade on a stock exchange like stocks and they’re often based on major stock “indexes” like the S&P/TSX 60, the main Canadian index. They can also be bought and sold for under $10 a trade through a discount brokerage.
But the idea of putting all of my money into ETFs and managing it myself makes me nervous. I do think I could do a better job than our advisor, but it’s daunting. After all, it’s my retirement savings we’re talking about. A few years ago, financial writer Dan Bortolotti did the same thing. He left his advisor, opened up a discount brokerage account and invested all of his savings in ETFs and index funds. At 42, he’s happy with the results and says he’s on track to reach his retirement goal. He’s done such a good job that he’s written a book to help others (like me) get started. The MoneySense Guide to the Perfect Portfolio is based on his Couch Potato Strategy – an investment approach for DIY investors that involves building a diversified portfolio of index or passive investments like ETFs (exactly what I’ve been wanting to do!). I asked Dan about his strategy and for his advice on how women should be taking the reins when it comes to financial planning in their families.
Q: I’m a bit scared about investing on my own and not sure where to start. Were you nervous about ditching your advisor and going DIY with your investments?
A: It took me months to get comfortable with investing on my own. Especially if you’re going into with $200,000 or $300,000 – it is really scary. Which is why I wrote the book. People don’t know where to start and tend to be intimidated by the process. They end up leaving it with their advisor because they’re not sure how to open up a discount brokerage account. They don’t know how to place trades when they’re buying mutual funds or ETFs. It’s confusing.
Q: What are you invested in?
A: My RRSP is entirely invested in ETFs. I have two RESPs for my kids and I use index mutual funds for those because I make monthly contributions to them. Index mutual funds involve lower trading costs so they’re better for investments where you contribute regularly. ETF trades cost about $10 each so they’re better for less frequent contributions.
Q: I just read a survey about how Canadian women tend to take a back seat and let their spouses do all the investing and financial planning. Do you have advice for them?
A: I think most people put their head in the sand when it comes to financial planning, not just women. But there is a tendency for women to leave a lot of this up to their partners. I look after investments for my family but I’ve also studied this stuff for years. The thing is, investing is only a small part of financial planning – both partners have to be involved in different areas. Sure, I choose the investments for our RRSP, but it’s based on consultations on our goals that we discuss together.
Investing is only one part of financial planning – you need to have context around why you’re saving and investing. And so many people worry about investing before they worry about saving. They will ask my opinion on investing products but they don’t have savings. Investment should be far down on the list of financial priorities–after saving and planning.
Q: What’s the biggest mistake you see women make in investment?
A: The biggest is allowing their partners to do it all. Even if your partner is a better investor, it doesn’t mean you should abdicate all responsibility. Make sure you are comfortable with your portfolio. You need a portfolio that is at a risk level both of you can live with.
Plus, women live longer than men on average. So there is a good chance that they are going to have to deal with this on their own. You don’t want to be learning about this for the first time at 70. You have to be aware of what you have – what is your net worth, how much do you have saved for retirement, what is your retirement goal?