3 mistakes you might be making as a self-directed investor, and how to fix 

If you’re a self-directed investor, you already know you’re saving a bundle on the fees and commissions that advisors and investment firms charge. Your take-charge attitude should pay off, so long as you steer clear of the investing errors below that can cost you your returns. To avoid that fate, we’ve outlined three of the most common mistakes that self-directed investors make, and how to fix them with a portfolio management tool.

Mistake #1: Neglecting to rebalance

Say you’ve set up a portfolio in your brokerage account with an asset allocation of 70% in equities and 30% in fixed-income assets, which matches your risk tolerance and investment goals.

Obviously, those allocations are going to “drift” over time as markets go up and down. If stocks are doing gangbusters and really increase in value, they may end up being worth 75% or 80% of your portfolio—more risk than you intended to take on. Similarly, if the bond component of your portfolio is increasing in value faster than your equities, your portfolio may become too conservative.

To stay on track with your preferred risk tolerance, you need to regularly rebalance your portfolio by purchasing or trading assets in the correct amounts to get back to your original allocation. Unfortunately, this is where some self-directed investors fall short.

Many are too busy to consistently monitor how far their portfolio has veered off course, then make the necessary calculations to figure out how many units of each investment to purchase or sell, and finally log in to their brokerage account and make each trade individually. Or, they might simply forget that they had intended to rebalance quarterly, annually, or at some other interval. 

If that sounds like you, there’s a free portfolio management tool called Passiv* that works with your Questrade brokerage account to help you automate some of those time-consuming, self-directed investing tasks, like rebalancing. 

With this portfolio management tool, you start by setting target allocations, which you can create from scratch or import your current holdings and adjust as necessary. Then Passiv monitors your account and emails you when your portfolio drifts too far off target and needs your attention. It takes care of all the math, suggesting the trades that are required to keep your portfolio aligned with your plan. At that point you can log in to your brokerage account to make the trades or, if you purchase an Elite membership ($99/year, but currently free to Questrade clients), you can make those trades easily within the app.

Mistake #2: Trying to time the market

When stock markets plummet—as was the case earlier in February 2020—some investors get spooked and keep their money in cash, waiting to see if markets will continue to drop or start to rebound. Problem is, it’s impossible to predict when the recovery will begin. Wait too long, and you’ll miss out on significant investment gains. 

Thankfully, there’s an easy fix: dollar cost averaging*. With this strategy, you make new investment contributions in set amounts on a regular basis (usually monthly) without trying to time the market. By doing so, you’ll benefit from buying assets “on sale” during the market dips and won’t miss out on subsequent growth opportunities.

Not everyone has time for this kind of self-directed management. But a passive investing app can eliminate the extra work. Passiv looks after the work that dollar cost averaging entails by sending you an email notification when your automated cash transfer arrives (or when you receive dividend payments) in your brokerage account to invest, and will specify how much of each asset to buy based on the portfolio targets that you’ve set. Elite members can even purchase those assets in one click.  

Alternatively, Elite members can use the Passiv Cash Management feature to create an “allocate at most” rule, which will limit the maximum amount of cash you want to invest at any time. By design, this will spread out your contributions over a longer period of time to allow for dollar cost averaging.

Mistake #3: Focusing on small, short-term gains and trading too often

Moving with the market might seem like a smart move, if you’re a self-directed trader. But you’ll be focusing on small or short-term gains, and you may not see the full potential of your investment. Also, there’s the cost of frequent trading. While Questrade and other online brokerages offer free ETF purchases, each time you sell your investments it will cost you. So, it’s optimal to avoid trades whenever possible and instead maintain your preferred asset allocation by purchasing underweight assets with new investment contributions.

To help on that front, consider a portfolio management tool, like Passiv. It features a “buy only” setting that limits trade suggestions to “buy” orders, calculating the appropriate number of units per asset that you should purchase for your target portfolio. This is especially helpful for investors who are in their working years and making new contributions regularly, as they can avoid the commission fees that come with selling overweight assets to rebalance. 

Self-directed investing can be a real passion project. With Passiv, you can simplify the process and stay on track to avoid costly mistakes.

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