The article “How to Build a Simple Do-It-Yourself Investment Portfolio” was originally published on The Financial Post on May 4, 2015.

More and more investors are managing their own investments or considering doing so. A J.D. Power survey found an increase of more than 50-per-cent in do-it-yourself investors from 2012 to 2013 in Canada.

The first step to a DIY portfolio is understanding the benefits. About three-quarters of Canadian investment industry assets are in mutual funds, according to the Canadian Securities Administrators (CSA), and average annual mutual fund fees (management expense ratios or MERs) in this country are 2.42 per cent for equity funds, according to Morningstar.

Canadian mutual funds fees have long been identified as the highest in the world, but the theory behind paying such fees is that the mutual fund manager and his or her team have the ability to outsmart the markets.

The problem with this assumption is that the stock market is a zero sum game. That is, there are as many winners and losers and one person’s gain can only come at the expense of another’s loss.

In other words, it’s impossible for every mutual fund to outperform. As a group, they tend to trend towards the average return of the market. Once you back out 2.42 per cent in fees, you have a good chance of underperforming the market by 2.42 per cent and may be better off just buying the market in the first place.

Though some managers generate good, long-term performance net of fees, they are few and far between.

This is where investments such as exchange-traded funds (ETFs) come into play. ETFs represent the markets, allowing you to buy the market for fees that are a fraction of mutual fund fees. Unlike actively managed mutual funds, they strip out the research, marketing and overhead costs and take a low-cost passive approach to investing.

A DIY investor is likely better off using ETFs than buying individual stocks because they help you avoid the temptation to buy and sell, or wheel and deal, and become emotional about your investments.

Most banks have discount brokerage divisions where you can open a DIY account. Fees to buy ETFs might be between $5 and $25. Some discount brokerages even allow you to buy ETFs at no commission (you only pay to sell, and even then it’s typically only $5-$25).

Transferring your investments from an investment adviser is usually as easy as filling out an application — often online. You should ask about the costs to sell or transfer your existing investments wherever they are held. They might range from a nominal transfer fee to a five-per-cent deferred sales charge on a mutual fund.

If your investments are in a taxable, non-registered account, be cognizant of capital gains on investments that have gone up in value. There may be tax implications from selling.

Once you transfer your investments, the next step should be high-level asset allocation. That is, how much should you have in equities versus fixed income? A typical balanced investment portfolio allocates 60 per cent to equity and 40 per cent to fixed income (cash, GICs and bonds). You might need a higher or lower fixed-income allocation depending on your risk tolerance or time horizon.

From there, my bias for the equity portion of the portfolio is towards putting one-third into each of Canadian, U.S. and international stocks. You can’t go too wrong and it gives you very easily definable parameters when rebalancing your investments back to the target allocations.

If all you have is an RRSP, your asset allocation just needs to be applied to one account. If you have RRSPs, TFSAs and non-registered investments for you and a spouse, it gets a bit trickier to figure out the ideal tax structure.

I generally lean towards fixed income primarily in RRSPs and TFSAs, Canadian equities primarily in non-registered and TFSAs, and U.S. and international equities primarily in RRSPs and non-registered — but these are broad generalizations.

Once you’re set up, DIY investors should rebalance back to their target asset allocation (bonds versus equities and how much in Canadian, U.S. and international equities) once or twice a year. You don’t need to watch your investments every day. A passive approach to investing is meant to be hands off.

Most of my clients work with investment advisers. I refer many of them to advisers in the course of my day-to-day work, so I don’t believe DIY is for everyone. There are good, happy mediums between 2.5-per-cent mutual fund fees and virtually zero MER ETFs.

Do-it-yourself investors still represent only an estimated 33 per cent of Canadian investors, according to J.D. Power, so they are in the minority compared to those with advisers. But the tools to become your own investment adviser are becoming much more readily available.

Jason Heath is a fee-only Certified Financial Planner (CFP) and income tax professional for Objective Financial Partners Inc. in Toronto.