Republished courtesy of the National Post
by Tom Bradley
As an investment manager, I spend my life looking for disconnects in the market. Securities that are mispriced. Trends that aren’t being recognized. And of course, extremely bullish or bearish investor behaviour. All of these create opportunities.
For all this searching, however, it struck me that the biggest disconnect in investing is in plain sight. It’s the behaviour of ordinary investors, or to be more specific, their lack of effort.
Let me explain.
Costa Rica or free roaming
Your investment portfolio is one of the most important determinants of how you will live the last third of your life. Yes, putting aside money and investing it is all about the years when you have lots of time and no regular paycheque.
The disconnect? People don’t treat it as being important. They spend more time analyzing the cost of their cellphone plans than how much they’re paying their investment advisor. They monitor daily (or hourly) how they’re doing in the NHL pool, but have no idea how their portfolio is performing. And most will switch a hairdresser or golf pro in a heartbeat but stick for years with an advisor they’ve lost faith in.
It doesn’t make logical sense when you think about what could be lying ahead. Some effort now may mean birding in Costa Rica, owning a condo in Palm Springs, taking the grandchildren to Disneyland and eventually, living in a nice retirement facility.
February in Costa Rica in 20 years or free roaming now?
Taking your grandchildren somewhere every year or avoiding the awkwardness of firing your advisor?
Why the lack of effort
Described this way, these trade-offs sound ridiculous, so why the lack of interest?
First, the reward for paying attention to your investments is years away. It’s difficult to grasp the impact of larger monthly contributions, an appropriate asset mix and lower fees. The here and now is more urgent, even if it’s less important.
Second, making a regular TFSA or RRSP contribution doesn’t feel like it moves the dial.
Third, the fees you pay are often obscured by big moves in the market. The difference between paying a fee of one per cent and two per cent over 30 years doesn’t sound like much when the TSX is up or down 15 per cent, and yet it can profoundly impact your retirement.
Fourth, investing is perverse. Just when you think you’ve figured it out, something comes out of left field. It’s not like any other product or service you purchase. When three people tell you to buy a Honda Accord, you can be assured it’s a good car. If three people tell you to buy a stock, you should run for the hills.
And finally, the professionals you deal with make it sound complicated: yield curve, EBITDA, P/E multiples, correlations. The jargon can leave you feeling like you’ll never understand what investing is about.
One step at a time
These barriers to being engaged are by no means insurmountable. If you want to commit some time to your retirement, here are a few steps to get you started.
Once a year, spread the statements from all your saving and investment accounts out on the table and see what you have.
What is the total?
- If you break it into three categories — cash and GICs, bonds, and stocks — what does the asset mix look like?
- How have you done over the last 1, 5 and 10 years?
- And of course, how much are you paying?
If you can’t do this, then find someone you trust who will help. A friend. An uncle. An advisor. Or better yet, an independent, fee-for-service planner.
You should go see your advisor once a year, whether you feel like you need it or not. You’ll learn something every time. Also, take every opportunity to attend investment presentations, whether it’s by your provider or the local library.
And at every step of the way, ask lots of questions. Get your advisor or manager to clarify what you don’t understand. Tell her what you want to know about. And definitely ask how the stuff she’s talking about will impact the last third of your life.
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