Your Money: Planning, patience, partnership: Maximizing investment performance
By Medicine Hat News on February 17, 2018.
There is nothing particularly difficult about building an investment portfolio. But making that portfolio pay off is another story. There are some key fundamentals to investment success: partnership, planning and patience. Partnership is about getting professional advice. Planning is about the establishment of goals. Patience is about thinking long-term. Making all three work together successfully is the key to consistent investment success. A good place to start is partnership and that means getting some professional advice. A certified financial planner (CFP), working in partnership with you, can bring great value to the basic construction of your portfolio. That professional partnership can help you figure out the distribution of your assets, ensure that your investments are in line with your personal financial goals and that the investments are reviewed regularly. This last point is important, because even the best constructed portfolio needs re-balancing from time to time, as your life changes and your personal financial goals evolve. Planning is the next key component. Identifying your goals, now and for your future and taking account of lifestyle issues. Considering how much money you have to invest and how frequently you are prepared to invest it. The key is to think long and hard about your needs before you just jump-in and buy an individual or group of investments, whether they are, bonds, stocks, ETF’s, mutual funds or guaranteed investment certificates. For example, it’s vital that your investment strategy matches your personal situation. Equity and growth holdings are best suited for long-term objectives because of the risk and volatility (their value will fluctuate, depending on market conditions) of these types of assets. It’s critical that you determine your risk tolerance. If you are risk-averse, then less volatile holdings are likely to provide the answer, although returns tend to be lower for this kind of investment. Your certified financial planner (who is skilled at listening and knowledgeable about your investment options, will help you with this part of the process. Once you have successfully established a level of trust and partnership with your CFP and figured out what your financial plan is, don’t delay. Get started early. There is no better time than now to begin. And that brings us to patience. Rome wasn’t built in a day, and no investment is going to pay off overnight. Steady long-term thinking is the key. So try to invest regularly, not just once a year during RSP season, as so many people do. Set up a schedule with your investment advisor. Consider investing as a regular part of your monthly budget, just like paying the rent or the mortgage. A pre-authorized contribution plan is your easiest way to do this, deciding on a regular amount of money to be deducted from your bank account. This method gives your money more time to grow and, if your focus is saving for your retirement and you are putting your money into an RSP, it can grow tax-deferred. That tax-deferred growth can be remarkable. Suppose you put $250 per month into an RSP over 25 years. If your holdings grow 6 per cent annually, you’d end up with an investment of $169,848 or $5,254 more than if you made an investment of $3,000 at the end of each year. The key is compound interest, and it’s vital to your investments. With compound interest, you earn interest on both the principal (the amount you save) and on the interest that principal produces. In other words, this means that an investment of $300,000 earning simple interest at 6 per cent would deliver $36,000 after two years. With compound interest that same 6 per cent would deliver $37,080 interest. Doesn’t sound like much? Wait. After three years at simple interest you get $54,000. With compound interest, you get $57,305. And, as the years progress, the compounding effect multiplies. Partnership with a certified financial planner (CFP), and planning your portfolio carefully, coupled with patience and long-term thinking represents the basics to success for many investors, and with good reason. They pay off. For a further discussion around your financial andinvestmentplanning strategies, please contact me, Neil Mardian, CFP, FSCI, CIM, M.Sc. (Mgmt) (403) 504- 3026 (neil.mardian@td.com). 11-10
