Looking to become a self-directed investor? The Robo Advisors are a wonderful training ground.

When you self-direct your investments you will be able to keep your fees at a rock bottom level. In fact, the route to the lowest fees is by way of managing your own investments. While you do not have to be a financial or investment genius there are a few areas where you will need to develop a thorough understanding.

And be careful out there. As I often write, if you don’t know what you’re doing, don’t do it.

On the path to becoming a self-directed investor you might go to the training ground known as the Canadian Robo Advisors. These are the digital wealth managers that will help set you up in a portfolio that will match your goals and objectives and risk tolerance level. The most important consideration is to ensure that you invest within your risk tolerance level. Bad things happen when we take on too much risk – they are known as permanent losses. And history suggests that investors all too often will take on too much risk; when the stock markets correct many will panic and sell creating losses or limiting gains.

If you sign up with a Canadian Robo Advisor play around with the risk tolerance questionnaire to learn how your inputs for time horizon and risk level and objective affect the portfolio recommendation. The Tangerine Investments Portfolio Selector Tool demonstrates the process in the most simple of ways.

Tangerine Portfolio Selector Tool

Many of the Canadian Robo Advisors will offer more elaborate risk assessments. You may start with the Tangerine portfolio tool and then move on to your Robo Advisor of choice. But hey, you may decide to stick around at Tangerine, Canada’s first Robo or digital wealth manager with over $3.5 billion in assets under management. It’s a simple and wonderful option as well. On that, have a read of my Tangerine Investments review.

Your Portfolio Recommendation 

All of the digital wealth managers will offer portfolios typically built around 4 core building blocks.

AssetAllocationSnip

Each with a unique approach, they will add other assets such as REITs (real estate), developing market stocks, US and foreign bonds and even some factor or smart beta options or dividend focused funds. When you are set up in your portfolio have a look at your asset allocation – your ratio of stocks to bonds and the exposure to geography – Canada vs US vs International. Know your personal portfolio with respect to the risk level and how your assets are spread out around the globe.

Your next mission is to research and understand the assets that are within your portfolio. For example if your portfolio holds iShares core S&P 500 fund, ticker XUS for US stocks, head to the iShares site to look under the hood. Read the prospectus. Look at the fund fact sheet. Have a look at the returns history and performance through market volatility. Have a look at the holdings for the fund. Understand how the index is constructed, know the index methodology. Of course, that XUS gives you exposure to 500 of the largest US companies across all major sectors. Know all of your ETF assets at least in basic terms.

Keep a close eye on your portfolio. You can observe a lot by watching. 

OK, I borrowed that wonderful bit of obvious irony from Yogi Berra who was known for his wonderful quips. In my previous life as an ad copywriter I had the pleasure of writing and creating a TSN baseball radio spot composed entirely of yogi-isms. It’s also a wonderful fit for this investment post.

Watch your portfolio performance and follow the performance of the individual ETF assets. You might bookmark the performance page for each ETF. You can also keep track of your portfolio assets on portfoliovisualizer.com. From that landing page you’d click on Backtest Portfolio to input your portfolio ETFs and asset allocation. Here’s an example of a simple portfolio mix. Input .TO for Canadian listed assets. Keep in mind that portfoliovisualizer will show the assets in US and Canadian dollars depending on where the ETFs are listed. There is also a rebalancing function.

Portfolio Example for Robo Practice

The Portfolio Rebalancing Act 

Learn how your portfolio is rebalanced and keep an eye on the moves. If you do move on to become a self-directed investor you will likely undertake some portfolio rebalancing to keep your risk level in check and the portfolio on track to reach your desired goals. You’ll discover that it is not a difficult process to rebalance your portfolio and that some portfolio drift is not of great concern.

When will you be able to self-direct? 

You might know it’s time when you discover and understand how simple it can be. You’ll likely have a comfort level and say to your self ‘this looks easy’. It might also not feel intimidating.

Where are those training grounds? You would certainly benefit from access to human advisors at your ‘Robo Advisor’. Given that, you might consider Nest Wealth, ModernAdvisor, WealthBar or Questwealth.

Now keep in mind that if you have a more complicated scenario that includes taxable amounts you might approach Justwealth. Have a read of Justwealth. The Canadian Robo Advisor that knows when to get personal. Your portfolio management may need a certain level of expertise. You may discover self-directing is outside your area of knowledge and comfort level.

In the end you may decide that using a digital wealth manager is worth the .20%-60% in fees for advice and portfolio management. But if you do make the jump to self-direct you may also consult a fee-for-service advisor to ensure that you know ‘what goes where’ to create the greatest tax efficiencies and to access a full financial plan.

Thanks for reading. While I do not accept monies for feature blogs please click here for more about Dale and ‘how I might get paid’ disclosures.

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Contact me, Dale @ cutthecrapinvesting@gmail.com or better yet, leave a message.

3 thoughts

  1. Hi Dale, thanks so much for all of your insights. I follow you over at Seeking Alpha and have visited this site a few times. Wondering if I could ask a question. I’m close to fully invested in stocks right now (5 of your wide moat 7) plus some US large cap dividends filling up my and my wife’s RRSPs. Have been listening to some Howard Marks videos and am thinking of ‘adjusting’ our portfolios to be more prepared for a macro market downturn. I’m expecting a large (equal to about a third of my portfolio) cash influx to come in about 3-4 months and am lucky to be able add about $1000 a week to our portfolio. I’m interested in bonds or bond funds but have never bought them before. Is it as easy as purchasing the iShares bond funds you have listed above and just wait for a downturn? I’d be so appreciative if you wouldn’t mind weighing in. Again Dale, thank you for all your writing, I’m so lucky to learn from you.

    Liked by 1 person

    1. Hi David, thanks for stopping by. I would not listen to any market prognosticator, no one knows what will happen. But we always prepare for major market corrections. We don’t wait till it happens, as then it’s too late. As our friends at Mawer say “You don’t fix a ship in a hurricane”. I’m also with Mawer that in a low yield environment, bonds’ use becomes as shock absorbers. You might simply use the Universe bond index funds such as VAB or XBB. Many of the Robo’s use US bonds and International (even developing) for greater diversification. If you have a big sum coming in you might average that in over several months to manage risks. Though the markets and the math says “invest ’em when you got ’em”.

      Keep in mind that if you have a longer time horizon you’ll likely make more with a very aggressive portfolio, but job 1 is investing within your risk tolerance level. Please feel free to fire away with more questions.

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    2. Hi David and I hope you have lots of diversification going on as well. I have a concentrated Canadian portfolio but it would make me uncomfortable if anyone ‘followed’ me on that route. 🙂 One can easily had enough companies to track one of the dividend indices or broad market indices. Or one can use an ETF and add on with some favourite individual stocks.

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