Change your financial tune for success
Over the last few weeks, I’ve been thinking about my portfolio and reviewed how it has performed year-to-date. Although the dividend income has been on a slow but steady incline, I was thinking more about some investment principles that got me to this place and what I need to focus on going forward to be more successful. With more work to do on my part, to become a better CEO of my portfolio and change the way I think about money, here are those thoughts. Let me know what I missed regarding opportunities to change my financial tune in a comment below…
Whenever possible, avoid buying depreciating assets. Try your best not to compound this situation by financing the depreciating asset. Financing a new car at a high borrowing rate comes to mind as an example.
For the most part, stop obsessing about what our Canadian government does (or does not do) with our tax dollars. Instead, most are better served focusing on our own spending habits because at least we have some control over that outcome.
If you’re not saving money today, realize you’re spending money from, as Preet Banerjee puts it, your future self. The more money you spend today the longer you’ll need to work to recoup this money. Just the thought of that sucks…
Instead of worrying about your mutual fund returns against its benchmark index, you might be better off buying and holding a product that mirrors the index and its performance instead. You can read about some of my favourite indexed products here.
On the topic of mutual funds, there are a gazillion of professional money managers out there. Statistically, a handful of them will clobber the market this year. In the course of doing so, it should make these people famous but longer term, I don’t like their chances of success.
Inflation is the rise in prices for goods and services over time. Realize inflation can have positive and negative effects. Positive outcomes include economic growth and prosperity. Negative effects include the opportunity cost of sitting on cash instead of investing it.
Don’t believe anyone: nobody can accurately predict the future. If you can, email me because we should talk.
With few exceptions, finding new ways to save more money is better than seeking new investments.
Owning a home is not really an asset, especially true if you have a big 6-figure mortgage like we do.
All investing products have risk. You need to decide how much risk you want to take on and for how long.
Some of the most boring companies can make great long-term investments. Think about the things you use or buy every day as a consumer. Start with that list.
Every few years, the stock market will collapse or correct or just simply stall. Get over it. There is nothing you or I can do about it.
Unlike the stock market, investment costs are predictable and manageable. If you lower your investment costs, you’ll get a bigger piece of the investment return pie.
Because money evokes strong emotions, even seasoned investors need to stick to a plan.
Diversification is a powerful investment principle to manage risk. Diversifying across asset classes and within an asset class reduces risk to a particular company, sector, or market segment. While diversification cannot prevent an investment loss, it can help mitigate a catastrophic one.
While financial planning is important, the process of planning is more important since all plans are merely guesses based on what has happened in the past and where we live today, the present.
As with most endeavours in life, the secrets of success are not that secretive. You must have 1) an interest in the subject, 2) patience, 3) persistence and 4) the willingness to make mistakes and learn from them.
What are your thoughts?
I agree with most of the points you made here, but I don’t agree that primary residence with mortgage is not an investment. In current interest rates environment if we look mortgage payments as forced investment, and with a plan to downsize after empty nest, I think this can be a sizable investment.
It depends where you live Siva. Ask folks in the East Coast who have paid tens of thousands in interest payments only to see their house values rise modestly over the last decade. Compare that with Vancouver. It’s not even close.
For the most part, houses are an investment. I would hope. I mean, it’s a VERY big investment for many of us. But first and foremost a house is also a place to live. This means renting is often the better and smarter financial choice.
Awhh..but if I don’t complain about what the government is doing with my taxes, what will I talk about? 🙂
Ha. Funny 🙂
I agree with most of these things. I especially try to only focus on those things that I have some control over. For instance, the money I keep after taxes on my pay – where it goes, what I do with it, NOT freaking out that so much of my income is taken in taxes.
@My Own Advisor
My parents paid my school and I was able to travel in Europe for 6 months because of that, I want to make sure to offer the same chance to my kids 🙂
I agree what Preet says about spending from your future self. We don’t realize how hard it is to catch up when we spend more than we should be. Just the past few months we’ve been trying to catch up with overspends in our grocery budget and it’s not easy. I can’t imagine being so far into consumer debt to pull myself out, but it is reality for many. Yes, nobody can accurately predict the future, something we should all never forget.
Some great points that need being reminded of every now and then..
For sure. I need to remind myself of them as well. I’m far from a perfect investor.
You have some great points in this post. I especially relate to your note on reducing investment in depreciating assets and that a primary residence is not an investment. I could not agree more.
Thanks Zach. Yeah, owning depreciating assets are just plain bad. Cars for the most part, suck. I guess that’s why although we own a newer car, the other one is 13-years-old. I’m driving that baby into the ground 🙂
As for housing, we have a fat mortgage. I certainly don’t feel this house is an asset. It’s not liquid enough. Hopefully I can save and invest my way to $1 M investments before I retire. That’s the goal anyhow…
“Every few years, the stock market will collapse or correct or just simply stall. Get over it. There is nothing you or I can do about it.”
love it, if only people could understand that, Wall Street & Bay Street would be better places 🙂
I’ve recently switched my focus on saving for my kids education and I’ve experience a great feeling of pride seeing that I had already $3,300 in my RESP less than a year after starting my plan. I still have lots of debt but I rather save for my children future and take care of my debts later on.
I have to remind myself of this as well!
$3,300 saved for your kids is excellent. You’re a great dad for doing that and putting your kids first.