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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.
