What is Direct Investing and When Should You Consider It?
Direct investing (also known as self-directed or discount brokerage investing) can offer a wide variety of investment choices from which you can build your investment portfolio. It can give you personal control over your portfolio at lower fees than full-service brokerage/investment firms would charge.
However, direct investing is not suitable for everyone. While many of the investments available through full-service brokerages and investment managers may be available to you through discount brokerages, it is important to determine if direct investing is suitable for you.
Direct investing (also known as self-directed or discount brokerage investing) can offer a wide variety of investment choices from which you can build your investment portfolio. It can give you personal control over your portfolio at lower fees than full-service brokerage/investment firms would charge.
However, direct investing is not suitable for everyone. While many of the investments available through full-service brokerages and investment managers may be available to you through discount brokerages, it is important to determine if direct investing is suitable for you.
Investments Available for Direct Investing
Almost all investment vehicles that are available to professional investors are available to you as an individual direct investor. These include stocks, bonds, money market instruments, mutual funds, exchange-traded funds (ETFs), guaranteed investment certificates (GICs), and real estate investment trusts (REITs).
On the other hand, higher risk/return investments such as private equity, venture capitalization, and private placements are often not available to individual direct investors.
Before you Attempt Direct Investing
There are several questions you need to ask yourself before you attempt direct investing:
- Do I have the necessary knowledge/expertise to analyze companies and/or investment funds?
- Do I understand the economics of market movements and cycles?
- Am I comfortable with online investing technology?
- Can I manage investments and my financial plan without external advice?
- Can I keep up to date with current market news and company information?
- Do I have time to commit to investment research?
- Do I have the required financial knowledge to understand the tax implications of my investment decisions?
- Do I understand portfolio theory and the return/risk position of investment portfolios?
If you answer “no” to any of these questions, direct investing may not be for you.
Knowing Your Own Investor Profile
Before you can consider direct investing, you must be able to determine your own investor profile as this is crucial in setting your own investment goals and guiding you to make the proper investments.
You will need to be able to independently assess your own financial goals, investment objectives, time horizon, personal financial situation, liquidity requirements, risk tolerance and level of investment knowledge.
Should You Consider Direct Investing?
If you want to have direct control over your own investment decisions and are motivated by the potential of lower fess, then you will probably want to consider direct investing.
However, if you do not have the knowledge, expertise or time to fulfill all the above criteria, then direct investing is most likely not for you.
The best course of action may be to partner with a trusted financial professional who will work with you and for you to develop a fully comprehensive personal financial plan that includes your long-term investment objectives.
By partnering with a financial professional you will be able to avoid many of the investment mistakes that could cost you far more than any fee savings you may realize through direct investing.
Partner with Bloom Investment Counsel, Inc.
For close to 40 years, Bloom Investment Counsel, Inc., a privately owned boutique investment management firm, has been providing personalized investment management services for wealthy individuals, family offices, foundations, corporations, institutions, and trusts. Contact us today at 416–861–9941 or info@bloominvestmentcounsel.com to learn more about how you can partner with us to help protect, preserve and grow your wealth.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.