Planning to retire early or well? Or maybe you just want some extra money to spend now. In either case, chances are that you will need to stash some of your hard-earned salary into some investments other than just your house. But markets are skittish and
Nineteen things you need to know about investing, plus David Rosenberg’s biggest lesson learned.
The quickest way to grow your money — aside from an unexpected windfall — is to invest what you already have. It’s also the quickest way to lose it all if you’re not careful. That’s one reason why there are so many rules and investing oracles, though only one of Omaha. Following the ups and downs of the market and the swings of market commentators can all be a bit exciting, but it shouldn’t be. Much like the standard 60/40 split between stocks and bonds, which, by the way, doesn’t work for everyone all of the time, investing should be a bit boring.
“Investing should be like watching paint dry or watching grass grow,” says Martin Pelletier, portfolio manager at TriVest Wealth Counsel Ltd, a Calgary-based private client and institutional investment management firm. If you want excitement, go to Las Vegas.”
The hot stock, the hot IPO , the hot bought deal, all probably best left alone, especially if they take off without you. It’s better to sit on the sidelines than chase returns. “Markets can remain irrational longer than you can remain solvent,” Pelletier says. “The four most dangerous words in investing are: This time it’s different. People often praise investors who have a good run or fire managers after a bad run. They are, on average, wrong on both decisions.
Or, as Jonathan Rivard, a financial advisor at Edward Jones in Richmond Hill, Ont., puts it, “follow your goals, not the herd.” One exception to that rule, says Peter Hodson, CEO of 5i Research Inc. in Toronto, is to buy a company when it declares its first-ever dividend. The company will likely raise the dividend in the future, but even if it doesn’t, it will still attract yield seekers, which should keep the stock buoyant. A dividend will also help you stay in the stock when temporary macro-economic conditions force the price down as panicked investors flee for safer ground. As Pelletier notes: “More money has been lost trying to anticipate and protect from corrections than actually lost in them.”
But much of investing is pretty pedantic and requires investors to focus on the details of both the fundamentals and how they invest. For example, investors should hold long-term investments in either a discount brokerage account or a transaction-based full-service account so that they don’t incur fees while they wait, says David Kaufman, president of Westcourt Capital Corp., a Toronto-based portfolio manager specializing in traditional and alternative asset classes and investment strategies. But investors who trade frequently on their own research, especially in small-cap companies, should use discount accounts with fixed trading commissions. “Full-service brokers still charge on a per-share basis, meaning that it’s twice as expensive to buy $10,000 of Apple the day after a split than it was to buy $10,000 of Apple one day prior, which is crazy but true,” he says. “Fixed-fee discount accounts don’t care about the number of shares, just the number of transactions.”
No matter what kind of advisor — if any — investors decide to have, they should feel comfortable that they are getting the best advice at the right price. That will become easier when new regulations governing what advisors must disclose to their clients — including all fees and actual returns — start going into effect in July.
The rules, called Client Relationship Model - 2 and mandated by the Canadian Securities Administrators, have been known for a while, which has given advisors plenty of time to prepare their systems accordingly. That’s also given them a lot of time to churn up their client portfolios in the weeks and months leading up to the implementation of CRM -2. Most advisors, of course, won’t do anything untoward, but investors might want to beware any excessive buying and selling in their accounts until summer. Forewarned is forearmed.