Do you lose sleep trying to calculate if you should convert your index fund holdings to ETFs now or wait another month? Was it a tough decision to go with the brokerage with the $8 trades vs. the one with the $5 trades? If so then you might want to consider the fact that as investment DIYers, things have never been better.
Here are some of the reasons why:
Stock trading commissions – In the past you could only buy and sell stocks through full service brokerages which would charge in excess of $100 for a trade that you can do now for $5. A frequent trader would go bankrupt pretty quick with those commissions and even for a buy and hold strategy, lower commissions represent a big saving. Read a BMO Investorline review here.
Mutual fund costs – Prior to the advent of the dreaded DSC (or back end) option in 1987, front end commissions were as high as 9%. The DSC option was actually an improvement over the front-end option because all of your investment dollars would be invested instead of being lopped off for commission. Now you can get most funds with front end option and no commissions. You still have to shop around for lower MERs however.
Information – The number one improvement in this area is the internet. Financial blogs, forums, websites, company sites, investment book reviews, learning pages, online research reports all help DIYers not only learn more about investments but allow them to carry out the execution via online brokerages. Television is also another area where there is much more information on dedicated business channels than in the past.
Index Funds – These first appeared in the US in the mid-70s although they were slow to catch on. According to GlobeFund.com there are only 6 Canadian index funds that have 15 year returns with the oldest being established in 1985. These passive investment funds provide a low cost alternative to actively managed mutual funds.
ETFs – The first Canadian Exchange Traded Fund established in 1990 was called TIPS and was the first ETF in Canada or the US. The last several years has seen a huge increase in the number of ETFs traded on the TSE and the US markets. ETFs are valuable building blocks for a low cost diversified portfolio.
If you can think of any other reasons why DIYers have it much better now than in the past then feel free to leave a comment!