Pandemic sees surge in Do-It-Yourself investing

Note to Editors: IIROC is a non-profit, national regulatory body that oversees Canadian investment firms and their 30,000 registered employees. As a public service, please publish this article with useful tips for readers in your community.

The COVID-19 pandemic may be causing a surge in Do-It-Yourself (DIY) investing. More than 1.2 million new online trading accounts were opened in Canada in the first half of 2020, according to stats from national research firm Investor Economics – this compared to 846,000 new accounts opened for all of 2019.

With these high numbers, Canada’s investment watchdog is encouraging investors to be informed and ask themselves important questions before embarking on the path of doing it yourself.

In a new investor bulletin, the Investment Industry Regulatory Organization of Canada (IIROC) cautions that, as implied by the words “Do-It-Yourself”, investors are responsible for their investment decisions and actions. For this reason, they have to be comfortable with managing their own investments, whether that means a financial gain or loss.

Instead of working with an investment advisor, DIY investors use discount brokers, also known as Order-Execution Only (OEO) online trading platforms. While DIY investors cannot receive recommendations or advice, OEO firms can offer them a broad range of investment products to buy and sell, such as stocks and Guaranteed Investment Certificates.

The appeal for many DIY investors is that, even though OEO firms typically charge fees for each trade, these fees are at a much lower cost than working with an investment advisor.

“Since the start of the pandemic, IIROC has seen a dramatic surge in contacts from DIY investors – up by 180% compared to the same timeframe in 2019,” says Lucy Becker, IIROC’s Vice-President, Public Affairs and Member Education Services. “For this reason, it was important for us to issue an investor bulletin to highlight key questions to ask yourself when confirming whether DIY is right for you. An informed investor is a protected investor.”

Some key questions to ask yourself:

• Are you comfortable with not receiving advice about your investments?
• Do you have ample time to devote to investing, research and monitoring?
• What is your level of investment knowledge – do you understand products and their features, benefits and risks, and do you understand what is most suitable for you?
• How complex is your financial situation? (Generally, the more complex it is, the more you may benefit from receiving financial advice.)

IIROC’s bulletin also outlines common mistakes made by DIY investors. Among them:

• Buying wrong products for your circumstances, because you misunderstood features/benefits/risks
• Engaging in trading strategies without understanding the benefits or risks
• Over-extending yourself financially by borrowing to fund investments (lines of credit or credit cards)
• Not checking account statements and being surprised by fees that have eroded your investments
• Misinterpreting investment research and subsequently “betting the farm” (and losing)

Becker also notes that older Canadians represent a significant number of calls to IIROC about DIY. “Since 2017, more than half (or 57%) of the people who call IIROC about DIY investing have been over the age of 55. This is an interesting fact because many might assume that only younger Canadians are interested in – or involved in – DIY investing.”

Read IIROC’s Investor Bulletin to determine whether DIY is right for you.

Be an informed investor.