TORONTO — Canadians are increasingly embracing do-it-yourself (DIY) investing, and younger investors appear to be more eager than others to go it alone.
According to research firm Investor Economics, Canadians opened more than 2.3 million new self-directed investment accounts in 2020, up from 846,000 in 2019.
However, the appetite for professional financial advice breaks sharply along generational lines. A May 2021 report from global comparison site Finder.com found that one-third of millennials said they planned to stop working with their financial adviser or were seriously contemplating it, compared with 21 per cent of generation X and 11 per cent of baby boomers.
Some financial experts are concerned that in the age of meme stocks, cryptocurrencies and the current bull market, young people may be overlooking the value of advice and urge DIY investors to exercise caution.
Jason Pereira, partner at Toronto-based Woodgate Financial, explained that since many young people are priced out of buying real estate in major cities, there’s a level of despondency that’s led to risky investments.
“A lot of [DIYers] feel stuck because they can’t do the next thing to get ahead, so they’re buying lottery tickets [in the form of investments],” Pereira said.
“DIY can be fine. Absolutely,” he added, explaining that there are people in the DIY community reading the right blogs or getting the right advice and doing something akin to what a good financial adviser has done for them. However, he doesn’t think that’s the norm.
“I don’t see anyone talking about buying Vanguard’s balanced portfolio, for example, and letting it ride. It’s all GameStop and crypto and Tesla options and whatever the next fast buck is. There is no contemplation around sustainability or around security or around risk tolerance.”
Galen Nuttall, certified financial planner at Freedom 55 Financial in Belleville, Ont., said putting money away in the first place is one of the toughest aspects of investing.
"If DIY investing is helping millennials take that first step to save money, then that part is positive,” he said.
"But how they invest once they are saving gets a bit more tricky,” he added, noting that young people who benefit the least from DIY are those who are confused about where to start and don’t have the desire to figure it all out or are struggling to figure it all out.
For example, one area that DIY investors may overlook is which investments should go in which accounts, such as a TFSA, RRSP or non-registered accounts, Nuttall said.
“I’ve seen DIY investors have investments inside of a registered account that would eventually cause taxation problems that most people would be completely unaware of,” he said.
Some DIYers are unaware that some foreign investments will incur a withholding tax, even inside of a registered account, so they won’t reap the full benefit, he added.
Millie Gormely, a certified financial planner at IG Wealth Management in Thunder Bay, Ont., worries about increased interest in DIY among younger adults because the majority of millennials haven’t lived through a recession as an investor.
“People don’t realize what it’s like when the TSX drops 200 points in a day, and then does it again the next day, and then it does it again the next day and it does it for four months straight, which is pretty much what happened in 2008,” she said.
“A lot of people bailed and got out of the market. They sold their investments when they were down and they learned to regret it because they ended up shooting themselves in the foot long-term.”
While millennials did witness the 2008 financial crisis, either in their adolescence or while entering their early adult years, Gormely pointed out that there’s a difference between observing what happened to your parents and experiencing it for yourself.
“It’s not that I think people shouldn’t invest on their own, but I do worry that not everybody who’s investing on their own is going to be able to stick with it when times are terrible as well as when times are good,” she said.
“In 2008, I spent a lot of time talking people off the ledge, so to speak. Those people were grateful they had someone to run things past and talk things through with.”
Pereira said part of the investment industry's lack of traction with younger generations is a result of its decision to focus the conversation primarily around fees and returns, instead of explaining the value of advice. “There’s this belief that financial advice has to do with nothing more than investing,” he said.
“If we were smart about it and forward-thinking enough, we would’ve appealed to [millennials] when they were young with digital solutions and with conversations about how we’re going to evolve our services over time and how this is the point where your parents needed me, et cetera. Instead, all we’ve done is let them believe that financial advice is basically akin to gambling.”
For young people who feel priced out of advisory services because they don’t have enough investable assets to meet an adviser’s minimum requirements, Pereira said there are some options.
“There are fee-only planners out there and some have subscriber-based pricing where it’s a Netflix-style monthly price. The reality is just because you don’t have a lot of money in investment dollars, doesn’t mean you can’t get qualified advice.”
This report by The Canadian Press was first published Dec. 14, 2021.
Leah Golob, The Canadian Press