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Dear Money Lady: I need some help with my investments, I’ve lost so much money in the market this year. I have an advisor but he doesn’t seem to know what to do.
– Marcel
Dear Marcel, great question! There are many different views on how to invest, so let’s cover the basics and some questions to ask your financial advisor to help you make money.
Not everyone behaves in the same way when dealing with losses, and while we like to think we’re being rational in our decisions, the research and evidence suggests that all investors (and some advisors) tend to act irrationally at times, with misjudgments that caused by greed, emotions, etc. fear of loss.
There are basically two ways most Canadians invest in the market today: (1) fixed income investments or (2) managed equity portfolios (Exchange Traded Funds/ETFs + Investment Funds/MFs). To take advantage of upturns, you want to invest in securities, but to stabilize your investments, you also want to hold fixed income products.
Let’s talk about both.
Investing in fixed income investments
Fixed income investing is first and foremost a rules-based investing philosophy that takes all emotion out of the equation. You simply follow the rules and get a solid return. Laddering is the most common technique used in bonds, and today $11 trillion is invested this way in Canada alone.
When analyzing the markets from a long-term perspective, the fixed income portfolios win every time using ladder techniques. They’re certainly not as glamorous as stock picking; However, due to its stability and security, almost all major corporate and government pension funds use this method.
Fixed income products are primarily made up of various types of bonds, and buying these products is similar to buying real estate. You can’t flip them right after you buy them and sell them for a profit like you can with stocks. It is a guaranteed product that will outperform your purchase price over time, usually without losing your initial investment.
Most people who invest in real estate and want a tangible asset choose to diversify their investments into institutional bonds because of the similarities.
Fixed income products are primarily made up of various types of bonds, and buying these products is similar to buying real estate.
Managed Equity Portfolios
Managed equity portfolios are the method of choice for most Canadians when investing in the future.
Gone are the days of finding a good stockbroker. Today, more than ever, we have a massive stock picking skill gap as most financial planners are now pushing clients into MFs and managed accounts. Managed products and advisory services now have embedded fee-based structures designed to protect the advisor and brokerage firm with the goal of limiting potential damage to their clients’ portfolios.
Large corporations will demonstrate their expertise in wealth management, financial and estate planning, trusts, business planning and corporate succession. These firms will also have proprietary programs that follow specific methods for picking and picking different stocks, such as: B. Managed programs with different annual fees.
Managed equity portfolios are the method of choice for most Canadians when investing in the future.
What works for you
Your financial goal should always be to focus on how to protect your capital with reasonable growth in the most tax efficient way. Here are some key points to discuss with your advisor to limit losses and secure your future:
- What products do they have for lifestyle protection? (for example: pensions, special funds)
- Does your advisor understand your vision of retirement and your personal risk tolerance?
- What accumulation strategy is recommended instead of just focusing on money management and managed portfolios? (eg: you want to create multiple income streams from employee pensions, state pensions, RRSP, TFSA, real estate investments, tiered strip bond portfolios, and/or side income/part-time jobs)
- What products can they offer to generate a consistent, stable return regardless of daily market activity? (for example: Hedged Products, SMA Guaranteed Base Return Products, REITs, Fixed Income Portfolios)
- Have they fully outlined their fee structure, embedded costs, and management or inventory fees? (Example: MER fees on MFs, front-load fees, back-end load fees. You should also review the tax loss periods for MFs and review the blackout periods used to cover charging fees on MFs or managed products).
Of course, if any of my readers have questions about saving for the future or need specific advice on staying debt-free and prosperous in retirement, you can always email me your questions at my website. Christine Ibbotson is a national radio host, YouTuber and author of three finance books and the Canadian bestseller How to Retire Debt Free & Wealthy.
