DIY Investing vs Hiring a Financial Advisor

May 24, 2022

The rise of do-it-yourself (DIY) investors was incredible over the last two years, platforms like RobinHood and Questrade saw record new users over the last 2 years. The COVID-19 pandemic gave rise to a new wave of investors, many who suddenly had more time and money on their hands, thanks to lockdowns and stimulus checks in addition to it being in the longest, most sustained bull (growth) market in history.

Think about this, Robinhood didn’t exist during the last bear market. Since the app launched in 2012, the S&P 500 went up around 258%[1].  In other words, it’s been nearly impossible not to make money in equities over the last decade.

One begs to think:

Is the success of the DIY investor one of skill or simply riding the wave of an increasing market?

Now that we face a challenging investment environment, one that most of our clients have never experienced in their lifetimes or, as our memories tend to do, forget the pain of when they did go through it as it was so long ago.  

The reality is that self-directed investing often feels fun and easy when markets are just going up and up. It takes a bear (down) market and the experience of losses for us to start to distinguish between luck and skill.  So where does this leave you, the investor?

DIY or utilizing an investment advisor?

The answer is: whatever you feel comfortable with. Many of our clients have their own DIY accounts as well as those that we manage for them. We like to say that we handle the serous, retirement money and they handle the fun money.  

What is the difference between DIY investing and robo-adivsors?

Basically, DIY investing entails opening an investment account, selecting investments, and managing that account — all on your own. This can be done through a traditional brokerage or various trading apps, like Questrade and WealthSimple. They typically charge a flat fee/month or a trade fee ($4.95 – $9.95/trade) or service fee (0.2% – 0.50%) for use of the service.

Whereas, robo-investing or working with a robo-advisor are more like traditional wealth manager – who happens to be a computer, not a person. When you create an account online or through an app, your money is invested with an algorithm based on personal factors, such as your financial goals, risk tolerance and timeline. These robo-advisors typically rely on low-cost index funds in formulating their investment decisions, and often rebalance portfolios over time, providing extra help to DIY investors as they allocate investments and reassess objectives. They typically charge 0.25% to 0.50% for the service.

Ultimately, both modes of investing put a greater share – if not all – of the responsibility on your shoulders.

Benefits of DIY investing

DIY investors have a cost advantage from the start – the fees are lower as you are not paying an advisor for their knowledge & experience. They also have more control and flexibility when buying and selling. Rather than having to contact your advisor to do a trade, it is all up to you. Some find there can be more freedom to invest in alternative investments when managing the portfolio themselves, such as cryptocurrencies. By the same token, portfolio diversification becomes your responsibility, too. There is no qualified investment advisor looking after your accounts to make sure you are well diversified.

DIY investing is for someone who is willing to:

  • Actively track the market
  • Understand investment options
  • Analyze the investment
  • Rebalance their portfolio
  • Make objective, non-emotion based investment choices

My thoughts … There is nothing inherently wrong with managing your own investments, however … just because you can manage your own portfolio doesn’t necessarily mean you should, at least not without learning the potential risks and costs involved. Here is my perspective on the potential downfalls of DIY investing:

Downfalls of DIY investing

  • Time. If you are busy, DIY investing can be difficult. Being this type of investor requires research – 20 hours of research is a bare minimum, but you should expect to spend much more time doing research if you plan on investing in stocks. Stock picking isn’t necessarily complicated, but you need to have a good understanding of them so you can make informed decisions when you are ready to buy or sell.
  • Your emotions: Your human and as an investor it is easy to make investment decisions based on  emotions.  You need to manage the behavioral impulses of emotional buying and selling that can come from following the market’s ups and downs. Investors seem to have a knack for piling into investments at market tops and selling at the bottoms because it is not uncommon to get entangled in media hype or fear. This has an effect on the rates of return.  Market research from Vanguard found that working with an advisor can add about 3% in net returns.[2]
  • Unnecessary trading: Investors who are attracted to the idea of beating the market tend to trade more frequently, which generates trading costs and often lower returns over time.
  • Inappropriate asset allocation: DIY investing means building your investment portfolio from scratch, which leaves a lot of room for error. Without a full understanding of risk and rewards, investors could buy investments that can be highly unsuitable for their long-term goals and not diversified enough.
  • Not finding credible investment research. Many people are getting investing ideas from Facebook, Instagram, TikTok, YouTube, and other social media platforms.  These are more often than not, providing investment advice that is superficial, incorrect, misleading, biased or fail to disclose conflicts of interest.

Benefits of hiring a financial advisor

Hiring a financial advisor means paying an additional expense (typical fee based are 0.75% – 1.5%), but what you get in return can be greater than the costs of going solo. And, over time, you may increasingly value having a dedicated advisor to personally guide and hold you accountable to your financial goals.

Properly managing your investments and making the right financial decisions takes time, skill, and effort. It’s not a one-time thing, either. Do-it-yourself can easily turn into no-one-does-it. We all have a home project or two to prove it. So, if your to-do list is endless and you never quite have time to tackle your personal finances, you might need a financial advisor.

Knowledge – This is where an advisor excels. They have the necessary insight to know that the past is not an indicator of future success. Advisors always have an eye on the present with a focus on the future. They will employ various strategies to identify the best investment. They can also remove the emotion and bias’s that DIY tend to have.

A good financial advisor will also provide you with a plan – a cohesive investment strategy and overall financial plan on how you can obtain your goals. Getting organized and building a strategy going forward is a critical step. But it doesn’t just end there. People often need help implementing it, staying on track with savings goals, or revising plans when things change. This is a where an advisor can keep things from going astray with yearly investment and financial plan reviews.

In summary, I think it isn’t one or the other – it can be both.

If you would like a second opinion on your DIY portfolio or have a nagging feeling your investments should be performing better, get in touch.

[2] Vanguard. “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha.” February 2019.

About the author

  • Pam is the founder and “boss lady” of Savanti Insurance Agency and Savanti Investment Team (attached to PEAK Securities Inc.). She has over 15 years where she specializes in planning, investments, risk management, and tax-effective strategies for clients’ personal and/or corporate financial needs.

    Coquet Pamela

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Although this article was written with the utmost care and based on sources deemed reliable, there is no guarantee of its accuracy or applicability to all specific cases. This article is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. All content and information are of a general nature and does not address the circumstances of any particular individual or entity. Many of the issues discussed will vary by province. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. The opinions expressed in this article do not necessarily reflect those of Peak Securities inc.