Top 10 Things You Should Know About Investing

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When it comes to investing your hard-earned money, it’s important that you know the full scope of what investing means long-term. Your financial advisor should educate you to be money smart so that you fully understand where your money is, and what your investments can do for you.

A few years ago, I read a survey that compared people who worked with a financial advisor to those who did not. Seventy-five per cent of those who worked with an advisor were better off in the long run, meaning there is clear value in working with someone who knows your family, your needs, and provides service that you know you can trust.

I’ve spent 25 years in the finance world and I’m passionate about educating people on financial security. Maxim Financial Group is my personal business, and I work with Customplan Financial Advisors Inc., which has offices across Canada, including Saskatoon and Regina. My two key guiding principles in this business are forming long-term relationships with our clients, and providing mentorship to younger advisors, helping both clients and young advisors to navigate the finance world successfully.

Below are the 10 helpful suggestions for investing:

One of the biggest issues I’ve seen with investing is when clients feel too emotionally attached to their money, especially when the market dips, or when the media reports negative changes. Emotional attitudes towards money can impact and cloud decision making and it’s helpful to recognize that investing is a long-term process where some years you make money, and some years you don’t. It’s important to have a clear, rational mindset towards your investments, and remember they are long-term

I often see clients who don’t realize that investing is a long-term commitment, and if you are trying to invest for an overnight windfall, then you will be disappointed. For example, one of my clients who started with me 20 years ago had $600,000, and today those investments are worth roughly $1.2 million. Having successful investments takes time and patience!

You need to make sure your advisor is educating you about your money and investing according to your view, and not theirs, which is a key difference. Your advisor is working for you and should, therefore, be teaching you how to be financially smart. In my practice, this is an ongoing conversation I have with my clients about their funds, especially as the market changes over time.

Many people think financial advisors are dated and not necessary in today’s world since you can go online and invest with a robo-advisor. But the question is, who are you going to talk to if there’s a problem? If you have a question about your money, or you need help, who is on the other end of the conversation? Is it an advisor, or is it a 1-800 number? I hear people say all the time that fees are eroding their investments, but an advisor’s insight and experience are absolutely worth the fee. If you invest somewhere and there are no fees, then that’s likely a problem, because fees are a given part of investing. A lot of people go online because they think it’s less expensive, but in the long run, you lose the value and knowledge that an advisor provides.

If there’s a drop in the market, a lot of people remove themselves during the drop, or after the drop, when the market corrects itself. Remember to never remove your money or do investment changes when the market is at its peak, and make sure to never invest when the market is high, either. Investing is a balancing act, and large amounts of money should be sprinkled into the market through monthly dollar-cost averaging, which works out the best in the long run.

It is important to not compare what you’re earning to other people. Someone else’s needs or risk assessment will be different from yours, and when you work with an advisor, they will assess your risk level with a Know Your Client assessment. I once had someone come in and say that he wanted aggressive investments, but after completing the assessment, he actually leaned more towards a balanced fund. So it’s important to remember your needs are different from another person’s, and therefore your return on investment will be, as well.

One time a client came in and said to me, “I want to invest in this fund because last year it did 21 per cent.” While that sounds like a good idea, investments do change year to year and what you saw in the previous year won’t match the coming year, which is why it’s important to not base decisions on a previous year’s rate.

If someone has 10 funds, it’s called diversification, which is spreading your money over different countries and sectors to get the benefit of all markets. Many funds though, will have similar companies. If you have four funds that have the same investments in the same companies, then you don’t have a diversification of funds — just a diversification of management. I’ve also seen clients with six investment accounts, all with different advisors. Naturally, there’s confusion as each advisor will have a different viewpoint. I work with six funds only, and depending on the client’s risk, I go from there. For me, a key part of investing is simplifying the list of funds so you understand your money better.

Clients need to be made aware of the tax consequences of investing because in mid-life, once you’re accumulating money, there’s a tax consequence called capital gains. Large unregistered investment accounts accumulate capital gains. These are not reported on a yearly basis through tax receipts, meaning that if you have $300,000 of capital gains, it’s only taxable when you take that money out, move it, transfer it, or if you die. Your advisor needs to tell you about the tax consequences of capital gains, which can be quite high, especially if you weren’t planning for that expense.

From a financial advisor’s viewpoint, it’s the client’s money, not the advisor’s money. Too often, I’ve heard of clients who put themselves into a trading position and have no idea what’s happening with their money. It’s up to the advisor to make sure they’re trading based on what the client wants and expects. The majority of financial advisors are very good and capable, so it makes sense to work with one.

Advisors are worth what they’re being paid, and the associated fees can always be negotiated. Investing is a long-term position — it always has been, and always will be. The advisor’s job is to invest money properly and protect the client, meanwhile ensuring the client knows their financial needs and what their investments are doing. Financial education goes together with financial security, and by extension, what matters most — you and your family’s long-term security and wellbeing.


The Maxim Group / CustomPlan Financial

1302 8th Street East