How I Became a DIY Investor

Starting Out

I started my career in 2003 and was fortunate to start with an organization that offers a superannuation pension. Being the young guy on the block, my managers and other colleagues would rave about the returns our pension had been getting for the last number of years, which piqued my interest. 

There were several people who were very helpful in encouraging me to contribute more to my superannuation. Since our program is a matched contribution with the company, we consider these extra contributions as unmatched. Taking those people’s advice, I talked with our payroll department and setup $50 a paycheck of unmatched contributions.

I did that for several years until I was interested to learn more about investing. Looking into our superannuation rules and I realized I didn’t have the access and flexibility I expected with my extra contributions. I knew you could only access to your “locked-in” funds (mandatory contributions) once you left the company. But I didn’t realize it was the same for the unmatched funds.

In 2006, I stopped my unmatched contributions to start an RRSP with my bank. I met with my account rep and they recommended some mutual funds. Not knowing anything better, I setup my bi-weekly contributions and continued on.

Getting a Financial Advisor

In 2009, a colleague had left my organization and became an investment advisor. He contacted me to chat and ask if I wanted to invest with him. My response was “sure, maybe I’ll learn something!”

We met, and he reviewed my bank mutual funds. His advice was to move my mutual funds to him, set up my contributions, and that I should take out a line of credit and invest in the market.

Related post by AnotherLoonie: Getting Started with Leveraged Investing

The timing of this couldn’t have been any better, as this was March 2009. It was right after the stock market had hit its lowest point of the financial crisis. He said I was young and had nothing but time, plus the market just crashed so it can only go up! At 27 years old, I said sure, let’s do it. I got a $50,000 unsecured line of credit from my bank and gave to him.

We spread the money across 7 mutual funds with an average MER of 2.71%! That doesn’t sound too bad, right? Little did I know.

The Turning Point

In the fall of 2011 a friend of mine at work, my Money Buddy, asked if it was OK that he gave my name to an MLM financial group. I said “sure, maybe I’ll learn something!” I figured this was a good way to get free advice from another advisor. 

I printed off my investment statements and the advisor reviewed them. She said that I wasn’t well diversified and had a lot of duplication. Also that my allocation was 100% equities which is really aggressive. Ok, that’s scary?! So what does that all mean? 

I had no intent of switching to her organization but weirdly enough, it was an MLM financial group that got me started on my path to becoming a DIY investor.

Learning to DIY

After that meeting with the MLM advisor, I mentioned the conversation to my brother-in-law. He’s 7 years older than me and I knew he was good with money and investing. He pointed me towards the Canadian Couch Potato (CCP) blog. He said that’s what he does and that I would learn a lot. He wasn’t wrong.

From that point I can remember reading and rereading CCP posts learning about passive investing. Learning about MER (management expense ratio), ETFs (exchange-traded funds), and indexes.

Other major things included what a typical asset allocation could be and that you should base it on your own risk tolerance. 

I was blown away! Why isn’t everybody doing this? How could investing be this easy? What’s the catch? Why are the costs so much less than with my advisor?

Originally, I thought this was too good to be true, and I needed to understand why this wasn’t more common. Was this a scam? Would I end up hurting my financial future by doing this?

Why DIY Isn’t Common

From what I could tell, the reason more people aren’t DIY investors was because of fear and education. The financial industry is full of complicated terms and investment tools. It seems to pride itself on complexity, which scares the average investor into paying high fees for professional help. There are lots of fund managers that need to get paid to justify their existence. They always seem to have an angle on where the opportunities are to get higher returns. We investors pay the price for their hubris. 

The financial landscape is daunting for the average person, and the fear of failure is very real. It’s easier to get an advisor and use their high MER fund manager products rather than try to figure it out yourself.

The Plan

After all my reading of CCPs blog and fear soothing, I couldn’t unlearn what I saw and how it would impact my portfolio.

I couldn’t believe how straight forward CCP made investing sound. His Model Portfolios shaped my investment plan. Back in 2012 his model portfolios had more variety and options. If you look today he’s simplified them and the listing of US listed ETFs (which I use) is no longer there. There is a good reason for this, as he noticed people ended up hurting themselves by overcomplicating things. That’s just human nature – we like to tinker and optimize.

Fortunately for me again, CCP had just come out with a book that year. The Guide to the Perfect Portfolio (no longer in print), which I picked up, read, and studied. I had it highlighted, tabbed, and made notes in the margins.

Based on his advice, I wanted to start with the Couch Potato core four funds and I liked the idea of having some funds in US currency. The Canadian dollar was on par with the US at the time so that benefited me.

Armed with my CCP resources, I’m ready to complete my plan.

Asset Allocation

I went with the balanced approach of a 60/40 split of equities and bonds. A drastic change from the 100% equity allocation I had with my advisor. I chose this as it was CCP’s base example and since I was just starting out and my pension plan used a 60/40 balanced fund that gave me confidence in what I was doing and kept me consistent.

My Allocation and ETFs

Below you can see what I started out with in 2012. I’ve included the MERs from 2012 and today to show how things have gotten even cheaper to DIY.

If you’ve been keeping track, you can see the MER’s on my new ETF funds are 90% less than with my advisor’s mutual funds and give me an immediate boost in my return of 2.50% (2.71% – 0.21%).

That’s a guaranteed 2.5% return, compounding every year! This is the ultimate reason I became a DIY investor.

Type	Allocation	Fund	Symbol	MER (2012)	MER (2021)
Canadian Equity	20%	iShares Core S&P/TSX Capped Composite Index	XIC	0.26%	0.06%
U.S. Equity	20%	Vanguard Total Stock Market Index	VTI†	0.07%	0.03%
International Equity	20%	Vanguard Developed Markets Index	VEA†	0.12%	0.05%
Canadian Bond	40%	iShares Core Canadian Universe Bond	XBB	0.30%	0.10%
		Average Portfolio MER		0.21%	0.07%

NOTE: This is no longer my asset allocation or funds. I have changed to a 75/25 equity and bond mix along with swapping out VEA† and XBB for VXUS† and VAB, respectively.

† VTI, VEA, VXUS are bought on the US stock market and are in US dollars (USD). I exchanged CAD dollars for USD using Norbert’s Gambit.

Picking My Brokerage

Since I already banked with RBC, it was familiar and straightforward to open up my accounts with RBC Direct Investing. Today however I would suggest using Questrade or another low fee broker. I really like RBCDI, but there are cheaper options out there.

And then there are Taxes

I since I was going to be selling off non-registered investments, I had to take taxes into consideration. But wait… my advisor’s funds also had deferred sales charges (DSC) which are a penalty if you take your funds out early. The idea is it will help people stay invested. In my case, I had been with my advisor for only 3 years leaving 4 years of penalty (DSC) left.

With some quick excel math, I calculated I would make back the money on the penalty in 2.5 years just based on the 90% savings (2.50%).

I decided I can’t wait any longer. I’m leaving my advisor.

The Exit Conversation

Before any of my plan could move forward, I had to have the chat with my advisor and former colleague. After I dropped the news on him, he wanted me to come in and sit down with him and one of the people from their securities department.

I was happy with my advisor. His advice to leverage and invest in 100% equities was the right advice at the right time. I just didn’t realize how much that was costing me in MER.

Coming prepared for the meeting, I knew what I wanted, and there wasn’t anything that would change my mind. I had also prepped and printed a spreadsheet that compared their fees to the fees I was moving to. It showed different portfolio value comparisons up to a million dollars.

The pair tried to convince me to stay. That they offered more services that justified the fees like investment advice, insurance, etc. I listened and then gave my reasons.

I don’t mind paying you for your advice while my portfolio is small. But when my portfolio is $500K or $1M, I can’t see me paying you $27,000 a year in fees when I talk to you twice a year. That’s not worth it.

They had nothing to say as I spun the spreadsheet around and showed them.

Looking back now, the sheet I showed them only had single year comparisons of fees. It’s actually MUCH worse. I now know the negative compounding effect of years of high fees and my sheet should have taken into account the year over year compounding. What I showed them was a generous representation of what it would cost me.

Related Calculator: If you want to see how MER impacts your portfolio, check out my MER fee calculator.

Execution

At this point, there wasn’t much left to do. The investigation and hard conversation had already been done. I was able to transfer everything over using RBCDI forms. Since I was paying taxes on my investment gains anyway, I decided to use some of the non-registered money to max out my RRSP, max my TFSA, pay down some of the investment loan, and then I put the rest into NON-REG.

Final Thoughts

For those starting out, I don’t want you to feel that you have to learn everything in a day. I hope you can take from my story that my knowledge progressed over years (9+ years in fact!) and I continue to learn about investing.

Take this story and do what you feel you need to do. You’re lucky. There are way more resources in FI community to draw from now and the investing options have expanded and made it even easier to start out. There are now companies like WealthSimple and Questrade and others that offer commission-free ETF purchases.

The costs of ETF index funds have never been cheaper. It’s a great time to be a DIY investor.

Take my advice – Keep it simple and just start!