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6 steps you can take to be a DIY investor

Key takeaways: 

  • Create a budget and pay off high-interest debt before investing
  • Create an investment plan to help guide you and keep your emotions in check
  • Open a self-directed brokerage account.
  • Stay the course by setting up regular contributions and rebalancing when needed.

DIY investing gives you full control of your investments and could help you save on fees that eat away at your returns over time. If you’re thinking about switching over to DIY investing but aren’t quite sure where to start, here’s how to get started on being a DIY investor in 6 simple steps.

Step 1 – Make a budget

Before you start investing, you need to understand your budget. It’s important because this will determine how much you can save and invest each month.

Start with your sources of income. Then, list your fixed expenses such as your mortgage, utilities, car payment, or insurance. Continue with your other essential expenses like groceries, toiletries, or pet care. Finally, list your non-essential items such as dining out, entertainment, or shopping.


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Are you satisfied with how much money you’re able to keep in your pockets each month? If not, go through your budget again. Are there any areas where you could save money or increase your income? Remember, your budget has to work for you and be realistic, so make sure it allows you to have a lifestyle that you are comfortable with.

Step 2 – Pay off high-interest debt

In most cases, use the extra money in your budget to repay your high-interest debt before you start investing. Anything above the expected return rate of your investment is high-interest. High-interest debt that is more than your return on investment costs you more than investing the same money.

Most consumer debt, including credit card debt, would fall under that category. It’s because the interest rate is typically higher than what most individuals can earn in investment returns, even with high-risk investments.

Another benefit of paying high-interest debt is that it frees up some money in your budget to save and invest more towards your goals.

Step 3 – Build your DIY investor plan

With a budget and zero high-interest debt, you can allocate the extra money to your investing plan.

When you build your plan, you should think about your goals. For example, if you’re investing towards retirement, consider when you want to retire, how many years of retirement you expect, and how much you would need to live each year.

For example, assuming you’re expecting to retire at 65 with 30 years of retirement and need $60,000 per year, that means your goal is for your nest egg to reach $1.8M by the time you’re 65.

Then, make a plan to reach your goals. How much and how often must you contribute to achieve your goal by the deadline? Your investment plan will likely include multiple goals with various time horizons.

For example, you may want to invest in helping your children go to college or build your vacation fund, as well as hitting your retirement goal.

It’s a good idea to go back to your budget to ensure that your goals are realistic and make adjustments if needed.

Step 4 – Determine your asset allocation

You know how much to invest each month to reach your goals; now it’s time to figure out what to invest in.

Asset allocation is splitting your investments into asset types to balance risk and return.

Typically, there are three main asset types DIY investors consider:

  • stocks
  • bonds
  • cash

If you’re trying to build wealth, cash should be kept to a minimum, as inflation will eat away at your nest egg over time.  However, it’s common to hold some money as an emergency fund.

Stocks are generally riskier with higher potential returns, while bonds are considered safer with lower returns. A common rule of thumb is to hold your age in bonds and the rest in stocks.

So, if you’re 30, you should hold 30% in bonds and 70% in stocks. The reason for decreasing risk as you age is that you are less able to withstand the market’s swings as you get closer to the end of your investment time horizon.

Once you know what type of assets you want, you will need to choose actual securities to hold. A common strategy for building long-term wealth is passive investing, in particular, index investing. It’s generally a good idea to diversify your assets. Choose a few ETFs in each asset type that will together represent a large portion of the markets (both from industry (e.g. energy, tech, etc.) and a geographical perspective (e.g. Canada, US, etc.))

Another factor to consider when choosing ETFs is their cost, or Management Expense Ratio (MER). Make sure you compare ETFs to select the right ones for you. Also, you can check out these popular model portfolios for Canadian investors.

Step 5 – Open an account with a discount brokerage

You’re ready to start trading and building your portfolio, and for that, you’ll need a brokerage account. If you’re wondering how to choose a discount brokerage, here are a few things to look for (as a passive DIY investor):

  • Free ETF trades. This is especially important if, as suggested in Step 4, you decided to go the index investing way.
  • Low account fees
  • Low trading fees
  • Low minimum deposit
  • Safety
  • Good customer service

Questrade is an excellent choice for beginner investors because of its low fees, low minimum deposit, and no-commission ETF purchases. As a bonus, Questrade is partnered with Passiv. This tool will help you build and maintain your portfolio’s asset allocation over time.

Step 6 – Stay the course

Now for the hard part: discipline

To manage your investments and build long-term wealth, when it comes to investing, discipline means:

  • contributing regularly
  • having a long-term outlook
  • avoiding speculation.

Start by setting up automatic payments to your brokerage account according to your investment plan. It’s often referred to as “paying yourself first,” which ensures you don’t spend the cash you want to invest elsewhere.

Throughout your investing lifetime, you’ll experience market dips. Do not panic.

Remember, historically, the markets have always gone up over a long period. I know it’s tempting to sell your assets when the markets start falling, but you’d only be locking your losses. You haven’t lost anything until you sell your assets for a lower price than what you bought them for. On the contrary, market dips can be viewed as discount pricing, as they are often good opportunities to buy low.

With each contribution to your nest egg and your assets’ varying performance, you’ll want to make sure to maintain the portfolio allocation that you selected. This process is called rebalancing and can be done regularly or when the allocation drifts too far from the desired target (most investors consider 5%). The reason for rebalancing is to reduce your risk and grow your wealth. Suppose your allocation deviates enough from your target. In that case, you may be exposed to more risk or earn lesser returns than you intended.

As you progress closer to your investment goals’ target date, remember to adjust your risk exposure by decreasing your stock allocation. It protects you from having your portfolio value drop right before you’re ready to start withdrawing. Or when you may not be able to wait for a market recovery.

The bottom line

Are you ready to get started as a DIY investor? Build a budget, so you know where your money is going and be sure to pay off the high-interest debt. Know your retirement goals, which will help you decide your asset allocation, open a brokerage account, and rebalance as needed.

This article is a guest contribution from Brendan Lee Young ofPassiv. Passiv is portfolio management software that makes DIY investing easier. It integrates with your brokerage account, and you automate your portfolio management. With Passiv, users can invest and rebalance their portfolios in one-click.