Get help starting out
For portfolio builders, keep it simple, do the research and seek out advice
Our family a couple of months ago de cid ed to get a puppy, who is pretty cute, ador able and, we quick ly dis cov ered, hard to train.
The frus trat ing part was we didn’t know how to start train ing him, and our early at tempts were not very suc cess ful in pre venting some poor be hav iour.
But to keep any not- so- de sir a ble ac tions from be com ing a hab it, we hired a pro fes sion al to come into the home to teach us some basic train ing tech niques and things started to significantly improve.
Similarly, new in vest ors often ex peri ence the frus tra tion of not know ing where to start, if they are in vesting cor rect ly and where to turn for as sist ance.
Here are some sim ple tips for new in vest ors to help build a well- behaved portfolio.
DO SOME RE SEARCH
Over the years, I have volunteered for Jun ior Achieve ment’s In vest ment Strategy Program where by the basics of in vesting are taught to stu dents in grades 7 and 8. It’s a won der ful pro gram for young people, and I would strong ly en cour age your chil dren to par tici pate if they have an oppor tun ity.
There are many good re sources for nov ice in vest ors, but the Khan Acad emy is among my fa vour ites. It is a great free re source with sim ple- to- use in struc tion al vid eos on mul tiple fi nance topics, from in ter est and debt to in vest ment vehicles, insur ance and re tire ment.
KEEP IT SIM PLE
There are so many dif er ent types of in vest ment prod ucts and no short age of pun dits commenting about the state of the mar kets that it can all be rath er over whelm ing. This is why it is very im port ant to keep it sim ple.
A great first step is to use your sav ings to pay down any debt, espe cial ly high- in ter est cred it- card debt.
Even pay ing down low- interestrate mortgage debt should be viewed as a good in vest ment.
For ex ample, a five- year mortgage rate of 3.5 per cent equates to a be fore- tax risk- free re turn of ap proxi mate ly five to six per cent, which is three to four times high er than the aver age five- year GIC rate.
Also, look at set ting up a TFSA and/ or a RRSP ac count with a month ly con tri bu tion plan to pur chase low- cost ex change-traded funds ( ETFs).
We rec om mend ETFs rath er than mu tual funds for new invest ors be cause they of er lower fees, are easy to under stand and strong ly track their under lying bench marks.
Un fortu nate ly, many ad vis ers con tinue to sell high MER funds with either front- end or backend loads and very high trail ers since that is how they are best com pen sat ed.
New CRM- 2 dis clo sure rules will hope ful ly dis cour age this type of be hav iour in the fu ture, but they are not yet in ef ect.
GET HELP
It never hurts to get ad vice, but keep in mind there are many dif er ent fi nan cial pro fes sion als with dif er ent quali fi ca tions.
For a do- it- yourselfer, a lot of on line broker ages and ETF pro vid ers of er some good ad vice about which ETFs to buy based on your over all risk tol er ance.
There are also a few new roboadviser services being implemented in Canada that can help average in vest ors design, build and man age their in vest ment port folios.
How ever, it’s important to look for ser vi ces that pro vide in depend ent and con flict- free ad vice, and are not sim ply using their tech nol ogy to pump out their own fi nan cial prod ucts.
For investors who have already started a portfolio, investment advisers can be a good source if they want to maintain control but need some periodic advice.
But be aware that there is currently no fiduciary duty for advisers in Can ada, so there is lit tle to no re course for poor advice since the ultimate in vest ment decision lies with the in vest or.
Finally, in vest ment counsellors or dis cre tion ary man agers who man age multimillion- dol lar port folios can be a good source of edu ca tion. We, for ex ample, have pro vided In vest ment 101 updates to the chil dren and grand children of fam ily of ces, multi- family of ces and pri vate cli ents.