Don’t Be Afraid of DIY Investing: It’s Really Not That Scary

 

As mentioned in a previous post, I am the financial black sheep of my family of origin and have been more proactive with my money than my sisters who are also millennials.  They are a bit more risk averse than me in terms of investing and don’t prefer the DIY Investing approach like I do.

I have tried in the past to get them excited about personal finance and investing.  A few years ago, I set up a TD e-series Tax Free Savings Account for them and reviewed how to set up monthly contributions so that they can take advantage of dollar cost averaging.  I reviewed how to rebalance regularly to ensure that their original asset allocation was maintained.

However, the other day, my sister told me something that made me feel like I was cheated on.

Let me explain.

the nice mutual fund lady

In the last year or so, I have heard about this lady that has taken one of my sisters out for coffee a few times. She is a financial advisor and does teaching sessions about personal finance (that’s how they met).  She is nice and is apparently very approachable.

I would hear about this nice lady from time to time.  Then recently, one of my sisters said she was going to invest $40,000 of her money into a Fidelity mutual fund endorsed (let’s be honest, sold) by this nice mutual fund lady.  Of course, when one sister invests the other will follow suit (they are very close to each other and hang out all the time).

Alarm bells sounded off in my head.  A bad word was uttered.

She dropped the M-bomb.

Mutual Funds.

Of course not all mutual funds are terrible, but they can be terribly expensive and can erode into your investment returns.  They can erode your hard earned money and make your money work less hard for you.

I asked her if she knew how much the MER was and how much it cost to invest in that fund.

She said investing in the fund was of no cost to her.

Of course I reviewed with her that that there’s such things as Management Expense Ratios and that mutual funds are notorious to have higher fees (probably over 2% for Fidelity mutual funds).   I reviewed that mutual funds are not free and the cost to her is actually somewhat less obvious.

Mr. GYM is also not a big fan of mutual funds, but does have a few, like one of the Chou Funds (Francis Chou the fund manager reimburses you for your mutual fund fee if it does not perform well).  Mr. GYM likes to refer to MERs as “the financial advisors (and associated people including fund manager) enjoying a cup of coffee a day on your behalf”.  In this case, probably a nice latte a day.

I was shocked, disappointed, and saddened but I tried to keep it together.  Her mentioning the M-bomb brought back my own memories of investing with Investor’s Group where the financial advisor didn’t tell me that I was paying a 2.5%+ MER on my investment.  They even wanted me to leverage my money to invest with more them.  Snapping out of my tainted Investors Group memory, I asked her how her TD e-series were doing (you know, the ones that cost less than 0.5% because it is passive and tracks the index).  She said it was doing okay.

I asked her if she rebalanced it according to the original asset allocation yet.  She said no and she forgot how to do it.  I offer to help her rebalance her investments but she seemed disinterested.  I even offer open up the Young Money Bootcamp eCourse for her so she can learn how to DIY invest and rebalance.  Nope, not interested.  She was probably getting annoyed at her big sister being her usual bossy self.

Then I got to the point, and asked her why she wasn’t interested in a Do It Yourself Approach with investing.  I ask, because as we all know that no one cares about your money more than you.  

how fees erode your investment

There’s a great mutual fund fee calculator from Get Smarter about Money, an Ontario government backed initiative.  You can find the mutual fund and see the MER associated with it, and compare it to other funds.

I compared the one she mentioned Fidelity Canada Growth Fund (Last year’s return was a respectable 8.16% but the MER was 2.60%) with the TD e-series US Index (last year’s return was 9.12% and the MER was 0.37%).

Credit: Get Smarter About Money

With the $40,000 investment over a horizon of 5 years, the Fidelity fund would cost her $7325.39 in fees whereas a TD e-series US Index cost $881.56 in fees and the end result would be $62,118 for TD e-series and $59,097 for Fidelity.

Of course just buying the US Index is not diversifying but I just used this as an example to show that fees can erode your investment.

some people don’t want to diy invest

My sister was honest with me and said she isn’t interested in learning how to DIY Invest.

In her words “I just want to give my money to someone and not think about it”.

Well, I told her that if she wants to do that, then investing with a roboadvisor is an option, for around 0.75-1.00% fees they can automatically rebalance your portfolio if the original asset allocation is off by more than an absolute 5%.

Anyway, she didn’t seem completely convinced even when I talked about robo-advisors but did sound like she would fork over a smaller amount of the $40,000 to the nice mutual fund lady.  She probably feels indebted to her for buying coffees and teaching personal finance for ‘free’.

In the end, not only did I learn a lot of lessons from DIY investing since my early 20’s, I learned a few lessons trying to persuade my sister to do the DIY investing approach.

Here are a few lessons I learned from this

  1. The mutual fund lady is good at sales and has their trust
  2. Not everyone is interested in DIY investing or has the time to DIY
  3. Credentials really makes people trust you rather than learning through experience and mistakes from others (like their big sister)
  4. Perhaps some people would rather fork over money to a financial advisor so they can blame the financial advisor when their money doesn’t perform, rather than blame themselves
  5. Even though there’s been a shift to purchasing Exchange Traded Funds and Index funds- and Exchange Traded Funds have ballooned exponentially, mutual funds are still alive and kicking
  6. People need to learn from their own experiences rather than being told what to do (let’s face it, I learned about investing the hard way by investing with mutual funds and then seeing it being eaten away by fees and not performing to what I had expected, in my investing journey, I also was cautioned against buying penny stocks and I still did)
  7. Don’t be afraid of DIY Investing, the index really is your friend! Perhaps they will learn about this 5+ years down the road, like I did when I first started investing.

Readers, do you DIY invest or do you prefer to use a financial advisor?

About genymoney

GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, investing, and living a minimalist lifestyle.

26 comments on “Don’t Be Afraid of DIY Investing: It’s Really Not That Scary

    • @Dave- Yes, I felt a bit dissuaded when I was pressured to leverage and take on debt to invest by financial advisors. I’m glad the PF community seems to know their stuff-I think a lot of us owe it to Mr. Bogle! 🙂 He makes it so much easier.

  1.  Great post GYM. I think a lot of people don’t understand the fees that are involved in mutual fund investing. (most Canadian equity funds 2.5%) I am glad they changed the regulations in Canada and have to show the fees you are paying on your annual statements.

    • @Steve- Yes! Even then with the fees on the annual statement, it’d be too late (you’ve already parked your cash with them) and often inaction (e.g. not moving your money) is preferred over action.

  2. Interesting to hear about how things may differ in Canada compared to the US. I am ONLY invested in passive index mutual funds, comprised of US stock market, International Stock Market, and bond index funds. My average expense ratio is probably around 0.1-0.15%.

    I dabbled in financial advisors early in my investing career, but for the past 8-10 years I have been a DIY investor and have grown quite comfortable with it. As you say, however, I know plenty of family, friends, and colleagues who are simply not comfortable going it on their own.

    • @Dr. Curious- Wow, your expense ratio is LOW. Wonderful! Congrats on learning how to be a DIY investor. I have a doc friend in his 50’s and he just started DIY about a few years ago and is having a blast (and doing very well without paying high fees!).

  3. My first experience with investing was with a nice mutual fund lady too. It was a letter from my bank promoting to open a brokerage account and got interested in opening one. I went into the branch and the mutual fund lady immediately advises me after looking my numbers to invest in mutual funds. Being naive and all, i agreed to invest my money. I thought I was cool investing in the market but unaware of how high the fees were. So in order to pay off my student loans I cashed out my mutual funds a few years later. This was my first lesson in DIY investing.
    Kris recently posted…Expense Chronicles November 2017 – Car Registration and the Steam TrainMy Profile

    • @Kris- Lol, those nice mutual fund ladies! Mine was a nice mutual fund lady representing Investors Group with a free seminar. I booked a private consult and boom, I was suckered in. Good for you to cash your your investments to pay off your loans. I’m sure they didn’t like that you cashed them out, but it led you to DIY invest!

  4. Awesomeeeee!! I love this post! I felt like I could relate to you sooo much here, except it’s me talking to my Dad instead of sister lol.

    My Dad generally doesn’t invest but if he does, he just gives everything to the “financial expert advisors.” I notice that DIY is likely for those who are patient w/ learning this stuff. And it has to spark some excitement to them too.

    Some ppl, like my Dad feel DIY is intimidating so they just give to the person with a “certification” to manage. I guess I can understand that feeling (I try to haha). But no matter how many times I try to convince my Dad about DIY and about how high fees erode his net profits, he seems disinterested in the topics. HUGE sigh… I feel ya!

    I like the TD e-series. I think they’re good for those who want to do a monthly automation plan. I believe their MER start at 0.33%. (BTW, I feel the US has everything cheaper and better than us lol! 0.33% is probably a lot in their eyes.)

    With most ETFs, even with lower MER, we would have to pay $10 transaction cost each time, which isn’t worth it for monthly automation, unless they have an account w/ Questrade or the like. I believe you can buy ETFs for free w/ them. The only time they would incur a cost is selling, but let’s be real — I don’t think most ppl would constantly sell if it’s meant for long term hold lol.

    But yeah, it goes back to why I think TD e series is a good option for those who aren’t w/ Questrsde.

    Anyway, this was a great post and very informative thnx for sharing!
    fin$avvy panda @ finsavvypanda.com recently posted…Fail-Proof Ways to Pay Off Our Debt in 2018My Profile

    • @finsavvypanda- Yup, I can verify that Questrade is free for ETFs to purchase. It’s great for dollar cost averaging and not timing the markets. Sorry to hear your dad is paycheque to paycheque- that must make you very worried for their retirement. Are your parents more interested in real estate? I find asian parents more interested in investing in real estate than in stocks (speaking from experience lol).

      • Yup, RE is such an Asian thing to do LOL!

        It’s funny how my parents would talk about investing in RE all the time, but unfortunately they never got into that either because they are extremely (and I mean extremely) risk averse! They would get all hyped up about it, but scared to actually do it.

        They bought just one house which they still live in, and almost done with the mortgage (yay for them). It was $150,000 back in 1996 (so cheap compared to what we see today, right?) haha.
        fin$avvypanda @ finsavvypanda.com recently posted…10 Ways to Develop a Rich Mindset for 2018! — #10 is Mind-Blowing!My Profile

        • @finsavvypanda- You sound very different from your parents! They must have everything in GIC’s or even under the mattress 🙂 They got a good deal on the house. It would be an interesting exercise with them to compare rate of return on their $150K house to what it is valued at today, and the S&P500 index!

  5. I’m not a huge fan a mutual fund fees either. I do think, however, that traditional mutual funds can still have a place in one’s investment portfolio. Some funds get at areas in the market I’m just not capable of and I think active management can add value there too. For example, small cap international stocks. As with anything though, let the buyer beware. Tom
    Tom @ Dividends Diversify recently posted…Partying Like It’s 2007 (Part 1)My Profile

      • Thanks for the link GYM. I had never heard of Chou Funds before. I like the pay for performance concept. Why should money management be different than anything else.

        Another point on your original article…my wife and I inherited a brokerage account from my mother in law when she passed. It was a full service account with a full service broker. I transferred it to Vanguard a year later. The fees were brutal. $175 to make a trade. I wanted a fund in the account for short term cash and the broker recommended a short term bond fund with a 2% annual fee. I also couldn’t transact on the account without calling her and having her tell me what I really should do with our money. My wife’s sister still maintains the other half of the account with this broker. She says she doesn’t want to deal with investing decisions. When we visit at Christmas, we see the broker always sends them a plant for the holidays. For what they charge, they should send a farm. I have yet to get a plant from Vanguard. 🙂 Tom

        Tom
        Tom @ Dividends Diversify recently posted…Surviving The 2002 -2007 Bull Market Hangover (Part 2)My Profile

        • @Tom- OMG. $175 to make a trade?! What are we, in the 1990’s? (actually in the 1990’s I’m sure it was cheaper than $175 to make a trade). Good for you for getting out of it. Interesting that your sister in law wants to continue paying those fees. Does this full service broker ‘churn’ and just make frequent trades to get commission? I have heard of some brokers doing that (which is awful). Haha, that’s nice the broker gifts a plant! She should totally get a farm instead, or at least a plant or roses every week.

          My husband always says that the financial advisers/mutual fund sales people are having a coffee a day thanks to your trailer fees etc.

  6. DIY all the way! We had a bad experience with a “financial planner” in our younger days so decided to learn and do it myself. I am not a pro but they can’t predict the market either! I think financial advisors (fee only) are great for people who have really no clue about finances and are not interested to learn much.
    Caroline recently posted…Why You Shouldn’t Be Too Nice To Your TenantsMy Profile

    • @Caroline- You’ve certainly done very well for yourself! Fee only financial advisors are great but most people unfortunately don’t know the difference, or think that they are talking to the sheep (except they are in wolf’s clothing).

  7. Excellent post, I love it. Many people are afraid of DIY investing. They feel so daunting, and would rather let someone do it for them. But the truth is, you have to understand what you are buying, and the fees, etc. If you don’t know what you got, that’s very dangerous. No service is free. Financial advisor has to be paid in some way for sure.

    • @Helen- Yes, it can be very dangerous if you don’t know what you’re doing. A lot of people who DIY invest don’t know what they are doing but if you stick to index funds rather than try and beat the market, it doesn’t take as much intellect or time, and instead just discipline.

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  9. Hey GYM! I’m all DIY: low-cost index funds, some robo-advisors, and a little bit of cryptocurrencies for some excitement in my life 🙂

    That said, I think there are people who feel they need to have a real live person on the other side. Lots of my family members are like that; they need that human relationship, and simply will not trust a computer, even if it’s in their best interest.

    • @Miguel- That’s interesting, apparently the main demographic of robo advisor clientele are the baby boomer group! Yeah, my mom likes the Christmas cards she gets from her financial advisor and she likes to go to the bank to chat them up (not interested in banking online). She’s amazed that I can take a picture of a cheque and have it deposited! hehe 🙂

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