Financial Planner | Desjardins Group
8 steps to becoming an independent investor
Do you prefer to do things on your own and like the idea of managing your own investments? Here's how.
Before jumping into action, expect a learning period as you learn the basics of investing that you'll need to manage some or all of your portfolio.
As a novice independent investor, you can take things gradually, managing just some of your investments yourself so you can become familiar with the process.
Step 1: Understand investment principles.
- How does the stock market work?
- What do the major stock market indexes represent?
- What's the difference between a share, a bond and an investment fund security?
These are just some of the basic concepts you'll need to learn.
Understanding their features, risks involved, liquidity and potential returns will make it easier to choose the investments that are right for you.
As an independent investor, you're the one in charge. Make sure you have the skills and time needed to:
- Choose your investments
- Watch the markets
- Review your portfolio's asset allocation
- Deal with market ups and downs
Step 2: Determine how involved you want to be in your investments.
- Do you want to monitor your investments day to day or stay on top of the latest news?
- Do you expect to make a number of transactions a month, a day?
Determining your level of involvement will help you decide what types of investment products will meet your needs.
For instance, trading specific securities will require a bigger investment of your time, in terms of research and monitoring. That's not the case if you rely on the expertise of portfolio managers to choose investment funds, exchange-traded funds (ETFs) or index funds.
Each type of investment has different features; that's why it's so important to have a solid grasp of Step 1 before choosing your investments.
Step 3: Open an online brokerage account.
Whether you're a novice or seasoned investor, or passive or very active, choose the trading platform that offers the features that will work best for you in helping you trade effectively, based on your market knowledge and trading frequency.
Step 4: Identify your investor profile and investment strategy.
- Why are you investing (goal, horizon)?
- What are you looking for from our investments: income or growth?
- Do you a good level of tolerance for stock market fluctuations?
Having a good understanding of who you are as an investor will help you make investment decisions based on your investor profile. It's also a great way to avoid knee-jerk reactions to fluctuations and stop yourself from acting out of emotion and making the wrong decisions.
Step 5: Build your portfolio.
Diversification adapted to your situation is about choosing investments across multiple asset classes, management styles, economic sectors and geographic regions, in line with your objectives, investment profile and risk tolerance level.
Diversifying your portfolio will make it more resistant to market fluctuations. If one asset class underperforms, others won't necessarily drop in value, as they all evolve in different contexts.
Brokerage firms often offer model portfolios adapted to many profiles. They can help guide your strategy.
Don't forget to take into account transaction and management fees for certain types of products.
Step 6: Stay on top of what's happening.
Stay up to date and do your homework. Many expert studies and analyses are available on brokerage platforms. They also offer tools and training.
Step 7: Invest.
Perform transactions. Stick to your strategy. Beware of the know-it-all friend. Be patient. Forget trying to get rich overnight, and don't underestimate the power of your emotions.
Step 8: Manage your portfolio.
Investing is just the beginning. Portfolio management and market monitoring should now be part of your regular routine.
Next up: Rebalance your portfolio if necessary, especially after major fluctuations, and determine the sale price and when to sell, based on your strategy.
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