DIY Investing | How to manage your investment portfolio and reach your financial goals

You’ve created your stock market portfolio—but how do you ensure that you don’t lose your hard-earned money? After all, we’ve seen the stock market crash multiple times in the past several decades. We’ve also witnessed investors panicking and ending up selling their investments at a loss. It happened to me when I was a novice investor in my early 20s and didn’t have a clue what I was supposed to do. 

The good news is that this is avoidable and it doesn’t have to happen to you. Here are the common mistakes that DIY investors make and tips on how to stay on track so that you can reach your financial goals.

What mistakes do DIY investors make? 

Over the years, I’ve seen many DIY investors who wanted to take the shortcut to get rich. Perhaps they could get away with it a first, but over time it catches up with them. 

I always find it interesting when you see people brag online about their short-term “wins”, but they go radio-silent after a few months when they’ve lost money. If you’re truly a long-term passive investor, here are common mistakes to avoid as a self-directed investor. 

Not paying attention to your fees 

If you’ve chosen an online brokerage or robo-advisor, you’ve already done a great job at eliminating fees. However, depending on which type of product you buy, you could be paying unnecessary fees. The investors that build a large nest egg are able to keep their hard-earned money in their own pockets—not transferring it to portfolio managers. Before you buy any product (such as a mutual fund, index fund or exchange-traded fund), find out what the fees are and see if you can find a comparable product for less fees. 

Making too many trades 

Online brokerages may incentivize you to make a certain number of trades in a quarter and offer you a discounted price. Don’t be fooled by this! That’s not for your benefit. It’s actually in the brokerage’s best interest because they earn money every time you make a transaction. The more trades you make, the more fees you may incur which will eat away at your portfolio’s performance. 

Letting FOMO get the best of you 

Do you remember the days of cannabis stocks, NFTs, meme stocks and cryptocurrency were all the rage? I admit, it was challenging not to feel any FOMO when you see clickbaity headlines about everyday people making a ton of money in a short amount of time. Look, I totally get it. I even dabbled in a Bitcoin ETF myself with my “fun” money. But before you take on speculative and volatile investments, be sure to do your research and ensure that it’s a logical decision—not an emotional one. 

Focusing on the short-term

There’s no need to get caught up in the stock market news since it’s normal for the market to fluctuate. In fact, the stock market will go through a correction roughly every two years, lasting about four months on average. When you’re worried about a dip in the market, just picture yourself walking up a staircase, and when you reach the end, you’ll be at the top. 

What is a monthly contribution plan (MCP)?

Once you’ve created your investment portfolio, you’ll want to continue making regular contributions. The more money you add to your portfolio, compound interest can help grow your net worth. Plus, every year, Canadians have the opportunity to contribute to their investment accounts, such as their Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). 

Here’s an example of how you can carry out the monthly contribution plan in your TFSA:

In 2024, the TFSA annual contribution limit is $7,000. It may sound like a huge amount, but if you divide $7,000 by 12 months, it works out to be $583.33 per month, $134.62 per week or $19.23 per day. I’m pretty sure most of us can think of a few ideas to save up $20 a day. Even if you can’t, start small and work your way up. If you don’t max out your contribution room for the current year, you still can catch up in future years. 

By contributing $583.33 per month to your TFSA, say if you’re invested in an index fund, you can buy shares every month (since there are usually no commissions charged on buying or selling). 

However, if you have an ETF, you’ll incur trading fees (usually up to $10 per transaction). So, you may want to accumulate a larger amount so that you can buy more shares and save on trading fees. 

Month	Monthly TFSA Contribution
January	$583.33
February	$583.33
March	$583.33
April	$583.33
May	$583.33
June	$583.33
July	$583.33
August	$583.33
September	$583.33
October	$583.33
November	$583.33
December	$583.33
Annual Total	$7,000

What is dollar cost averaging?

Dollar cost averaging is a strategy for investors to divide up a large sum of money to spread out their purchases over a period of time. The benefit of dollar cost averaging is that you’re able to buy at the highs and lows of a particular fund and over time, it will average itself out. This way you don’t have to worry about timing the market. 

If you’re following the MCP discussed above, then it may make a lot of sense to do dollar cost averaging since you’re already contributing money into your investment account on a monthly basis. 

What are dividends?

Whenever you buy shares of a company, they may distribute their earnings in the form of dividends to their shareholders. Most of the time they are paid out quarterly, but they could be monthly or special one-time payments. 

For example, when you buy a share of Toronto-Dominion Bank (TD), at the time of writing, their quarterly dividend amount is $0.96 per share. So, if you buy 10 shares of TD Bank, in one quarter, you’ll receive $9.60 in dividends. In a year, you’ll earn a total of $38.40 in dividends ($9.60 in dividends x 4 quarters). 

How does the dividend reinvestment plan (DRIP) work?

When you receive dividends from your investment holdings, you may be able to enroll in a dividend reinvestment plan (DRIP) which allows you to take the cash dividends and automatically purchase more shares. It’s a great way to do dollar-cost averaging without paying any fees or commissions.

Tracking your performance

As tempting as it may be to monitor your portfolio’s performance daily or weekly, there’s really no need to. Especially when you have years before you need to withdraw your investments, such as for retirement. For most DIY investors, checking quarterly, semi-annually or annually should be sufficient. 

How to rebalance your portfolio

So, when you do look at your portfolio, what exactly should you be looking for? Well, you’ll want to determine if your portfolio’s asset allocation needs rebalancing. 

For example, if you have a portfolio with 80% stocks and 20% bonds, but over time it’s changed to 85% stocks and 15% bonds (because your stocks went up in price, but the bonds went down), then you’ll want to rebalance it so that your risk tolerance and asset allocation is back to normal. 

The simple way to do this is by selling the funds that have gone up in price and buying the funds that have gone down in price. 

Fund Name	Ticker	Book Value	Original Allocation	Category	Market Value	Current Allocation	Difference	Action
Alpha	ABC	$8,000	80%	Canada/US/Intl’ Stocks	$8,500	85%	+5%	Sell $500
Beta	XYZ	$2,000	20%	Canada Bonds	$1,500	15%	-5%	Buy $500

Personally, what I like to do is take the money I’ve been contributing to my RRSP and TFSA all year long (plus any dividends that don’t have a DRIP option) and buy the funds that have gone down in price so that I don’t need to sell any funds. 

Learning from your investing journey

As humans, it can be easy to let our emotions get the best of us. When it comes to investing, it’s vital to control them so that we don’t get sidetracked from reaching our financial goals. Even if you do get off track, you always have the opportunity to make adjustments. 

Even as an experienced investor, I’ve made plenty of investing mistakes myself. As long as you take them as learning lessons, you can become a better investor and achieve your dream lifestyle.