Getting help starting out
On the Contrary
Our family a couple of months ago decided to get a new puppy, who is pretty cute, adorable and, we quickly discovered, hard to train.
The frustrating part was we didn’t know how to start training him, and our early attempts were not very successful in preventing some poor behaviour. But to keep any not-so-desirable actions from becoming a habit, we hired a professional to come into the home to teach us some basic training techniques and things started to significantly improve.
Similarly, new investors often experience the frustration of not knowing where to start, if they are investing correctly and where to turn for assistance.
Here are some simple tips for new investors to help build a well-behaved portfolio. Do some research Over the years, I have volunteered for Junior Achievement’s Investment Strategy Program whereby the basics of investing are taught to students in Grade 7 and 8. It’s a wonderful program for young people, and I would strongly encourage your children to participate if they have an opportunity.
There are many good resources for novice investors, but the Khan Academy is among my favourites. It is a great free resource with simple-to-use instructional videos on multiple finance topics, from interest and debt to investment vehicles, insurance and retirement. Keep it simple There are so many different types of investment products and no shortage of pundits commenting about the state of the markets that it can all be rather overwhelming. This is why it is very important to keep it simple.
A great first step is to use your savings to pay down any debt, especially high-interest credit-card debt. Even paying down low-interest-rate mortgage debt should be viewed as a good investment.
For example, a five-year mortgage rate of 3.5 per cent equates to a before-tax riskfree return of approximately five to six per cent, which is three to four times higher than the average five-year GIC rate.
Also, look at setting up a TFSA and/or a RRSP account with a monthly contribution plan to purchase low-cost exchange-traded funds (ETFs). We recommend ETFs rather than mutual funds for new investors because they offer lower fees, are easy to understand and strongly track their underlying benchmarks.
Unfortunately, many advisers continue to sell high MER funds with either front-end or back-end loads and very high trailers since that is how they are best compensated. New CRM-2 disclosure rules will hopefully discourage this type of behaviour in the future, but they are not yet in effect. Get help It never hurts to get some advice, but keep in mind there are many different financial professionals with dif ferent qualifications.
For a do-it-yourselfer, a lot of online brokerages and ETF providers offer some good advice about which ETFs to buy based on your overall risk tolerance. There are also a few new robo-adviser services being implemented in Canada that can help average investors design, build and manage their investment portfolios.
However, it’s important to look for services that provide independent and conflictfree advice, and are not simply using their technology to pump out their own financial products.
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 Canada, so there is little to no recourse for poor advice since the ultimate investment decision lies with the investor.
Finally, investment counsellors or discretionary managers who manage multi-million-dollar portfolios can be a good source of education. We, for example, have provided Investment 101 updates to the children and grandchildren of family offices, multi-family offices and private clients.