Making money with investments isn’t easy

Hey there, time traveller!
This article was published 20/12/2022 (689 days ago), so information in it may no longer be current.

Dear Money Lady,

I need some help with my investments. I have lost so much money in the market this year. I have an adviser, but he doesn’t seem to know what to do.

Marcel

Dear Marcel,

Great question. There are many different viewpoints on how to invest so let’s cover the basics and some questions you can ask your financial adviser to get you making money.

Not everyone acts the same with loss and, although we like to think we are rational in our decisions, the research and evidence suggests that all investors (and some advisers) sometimes act irrationally with errors in judgment caused by greed, emotion and the fear of loss.

Basically, there are two ways that most Canadians invest in the market today:

1) Fixed income investing, or;

2) Guided stock portfolios (exchange traded funds/ETFs and mutual funds/MFs).

To take advantage of upswings you want to be invested in securities but to add stability to your investments you also want to hold fixed products, too. Let’s talk about both.

Fixed-income investing is primarily a rules-based investment philosophy that takes emotion out of the equation. You simply follow the rules and get a solid return. Laddering is the most common method used with bonds and today $11 trillion is invested this way in Canada alone. When analyzing the markets from a long-term perspective, fixed-income portfolios win every time through laddered techniques. They are certainly not as glamorous as picking stock but, because of their stability and security, almost all large corporate and government pension funds operate with this method. Fixed-income products consist mostly of different types of bonds and buying them is much like buying real estate. You can’t turn around and sell them immediately after the purchase for a profit, as you can with stocks. They are a guaranteed product that, over time, will have a higher value than your purchase price, typically without the loss of your initial investment. Most people who invest in real estate and want a tangible asset, choose to diversify their investments in institutional bonds because of the similarities.

Guided stock portfolios are the method of choice for most Canadians when investing for the future. Gone are the days of finding a good stockbroker. Today more than ever, we have a massive expertise gap in stock-picking, with most financial planners now pushing clients into MFs and managed accounts. Managed products and adviser services now have embedded fee-based structures that are designed to protect the adviser and the brokerage firm, with the goal of limiting potential damages to their client’s portfolios. Large firms will showcase their sophistication in wealth management, financial and estate planning, trusts, business planning, and business successions. These firms will also have proprietary programs that follow specific methodologies for picking and choosing different stocks such as managed programs with varying annual fees.

Your financial objective should always be to focus on how to secure your capital with adequate growth in the most tax-efficient manner. Here are some key points to discuss with your adviser to limit losses and secure your future.

• What products do they have for the protection of lifestyle? (For example: annuities, or segregated funds.)

• Does your adviser understand your vision of retirement and your personal risk tolerance?

• What accumulation strategy is recommended versus just focusing on money management and managed portfolios? (You may want to create multiple streams of income from employee pensions, government pensions, RRSPs, TFSAs, real estate investments, laddered strip-bond portfolios, and/or side incomes/part-time jobs.)

• What products can they offer to generate a consistent, stable return regardless of the day-to-day market activity? (For example: hedged products, SMA products with guaranteed base returns, REITs, bond portfolios.)

• Have they fully outlined their fee structure, embedded costs and management or trailer fees?

If any of my readers have questions about saving for the future or need specific advice about how to retire debt free and wealthy, you can always email me your questions on my website at: www.askthemoneylady.ca