Exploring the Best of Both Worlds: Lessons and Insights from Hybrid Investors
James MacTavish
Any time is a good time for Canadians to strengthen their investing knowledge and make informed decisions about their financial future.
One approach some Canadians are considering is hybrid investing, where they manage a part of their investments on their own, while working with a financial advisor for the rest. According to the Canadian Securities Administrators’ (CSA) recently published Hybrid DIY Investing: A Research Summary Report, approximately one in eight Canadian investors use this dual-track investing method.
Whether you manage your portfolio entirely on your own, work with an advisor, use a robo-advisor or combine different approaches, understanding how hybrid investors think and act can offer valuable insights to help you make suitable and informed investment decisions.
What the CSA research tells us
The CSA surveyed 600 hybrid investors nationally and conducted focus groups specifically with those who take on substantially more risk and have less formal planning. From high risk tolerance to mixed advisor relationships, hybrid investors shared valuable and interesting takeaways.
A financial plan developed alongside a professional can reduce speculative investing behaviour
Critical to the success of any investor is the comprehensive financial plan that takes into account their goals, time horizon, chosen investments and risk tolerance. While many surveyed hybrid investors relied on their advisor to assist them in developing their financial plan, those who developed a plan on their own or invested without one engaged in more speculative investing behaviour. This included frequent trading, investing in speculative assets like crypto and seeking very large returns in short time frames. Alternative assets like crypto are high risk, with their values largely dependent on investor sentiment rather than clear financial analysis. Behaviour like short-term big wins can expose you to investment scams tailored with that level of appeal.
Regardless of your investing method, consider reviewing your financial plan and how you are tracking towards your goals. If you do not have a plan or you are struggling to build a plan, a certified financial planner or a registered financial advisor can be a great resource to align your investments with your risk tolerance.
A worthwhile advisor relationship goes beyond surface-level conversations
If you use a financial advisor, it's helpful to remember that the relationship is only as worthwhile as the time you invest in it. The more time you take to ask questions, actively review your plan and portfolio with your advisor, and update them on changes in your life, the more informed you will both be and the more value you will receive.
Surprisingly, 81 per cent of hybrid investors reported having a close relationship with their advisor, but only occasionally discussed their investments. In contrast, the focus group participants of highly speculative hybrid investors expressed a more distant relationship and rarely or never shared information about their DIY investments.
Understanding your risk tolerance allows you to stay within your limits
One of the most important aspects of investing is understanding the level of risk you take. Every investor has a risk tolerance comprised of their willingness and ability to take risk with their money. A general rule of thumb is to align the overall risk of your investment portfolio to your risk tolerance. This approach helps you pick suitable investments, but also sets reasonable expectations and builds projections on the level of potential returns you may generate in the future.
The Hybrid DIY Investing research found that hybrid investors are willing to take on moderate to significant levels of risk with their investments (84 per cent) compared to Canadian investors overall (46 per cent) as indicated by a recent survey conducted by CIRO, the regulator that oversees all investment and mutual fund dealers. Having a high risk tolerance is not a bad thing, but when combined with an incomplete financial plan and surface-level discussions with your financial advisor, you could be exposed to potentially unsuitable investments and possibly fraud.
Fraud awareness and prevention starts with trusted sources, not gut instinct
Lastly, the hybrid investor research revealed that high-risk hybrid investors were less aware of the red flags of investment fraud. From in-depth focus group discussions, these investors, often drawn to speculative and alternative investments, tended to overlook key steps in verifying the legitimacy of trading platforms or investments. Rather than checking registration or conducting their own research, many cited relying on intuition and informal checks online with Google, Reddit and other online forums.
Investment fraud continues to be the most prevalent form of fraud across Alberta, making it essential for all investors to check the registration of any individual, firm or platform they plan to work with. In addition to these checks, doing independent research on any investment you are considering and involving your financial advisor, if you use one, in the review can help mitigate the risk of falling victim to a scam.
Although the CSA research focused on hybrid investors, the findings carry important lessons for all Albertans navigating their investing journey. No matter how you invest, taking the time to build a solid financial plan, understand your personal risk tolerance, and verify the legitimacy of platforms and products isn’t just smart, it’s essential.
James leads the investor and consumer education campaign designed to help Albertans strengthen their investment literacy and protect themselves from investment fraud. Before joining the ASC, James worked for nearly a decade in the rapidly changing technology space, delivering communication and marketing campaigns at a global technology company.
James holds a Bachelor of Communications from the University of Calgary.