How to become a better investor (in 5 easy steps)

How to become a better investor (in 5 easy steps)

This blog draws inspiration from a variety of sources.  For example, we all know we need to save early, save often; keep saving for investing purposes and then stay invested for the long haul.  Easy to say.  Hard to do.

I used to tinker with investments in my Registered Retirement Savings Plan (RRSP) during my 20s.  Chase this hot mutual fund; chase that one and totally sabotage my portfolio.

Since I’ve started this blog some things have changed.  For one, I’m older and maybe (?) a bit wiser when it comes to money management.  Two (and this is a big one), I’ve learned more about myself.  I’ve learned about what keeps me motivated and engaged.  This means when it comes to money management stuff – my wife and I are wealthier for it.

Smart Investing

I recent read this article authored by the folks at Steadyhand Investment Funds – Five essential elements to being a better investor.  It was originally published in 2013 and it was updated earlier this year.   Today’s post will provide some commentary on each Steadyhand element in that article, and how well we’ve adopted these in our financial plan.

  1. Be realistic

How true.  This advice has stuck with me for many years.  From the article:

“We suggest following the Goldilocks approach when setting long-term return expectations—plan for returns that are not too high and not too low.” 

When it comes to our portfolio we’re assuming our 100% equity allocation should yield about 3-4% real return (after inflation is accounted for) for decades to come.  If this is too high, we won’t be gravely disappointed – I don’t believe we’re shooting for the moon here – expecting 3% returns.  If this is too low, and more than 4% occurs we’ll be ecstatic because we’ll have a modest amount of money to enjoy in our 50s and beyond.

We have absolutely no expectations about any bond yields in the coming decades – given where they are today thanks to prolonged dirt-low interest rates.

Our realistic expectations mean one of our desired end goals, owning a $1 M investment portfolio, should churn out at least $30,000-$40,000 per year, for life.

  1. Have a long-term plan

We do, although it should be more clearly documented for my wife and I.  Through this blog I document our investing horizon, opportunities and risks, retirement goals and spending needs, sources of retirement income and much more.  I also consider something far more important than money from time to time, that is, how are we going to spend our time and energy in retirement.  I believe there is no use in working towards any one destination without broader goals in mind.

  1. Commit to a routine

Maybe to a fault!  The folks at Steadyhand write about the concept of rebalancing in this section, to reinforce with investors the importance of this effort.  Re-balancing your portfolio helps ensure you always have the appropriate strategic asset mix aligned to your long-term plan.  This is helpful on two fronts:  your plan remains in check and through strategic decisions you take the emotions out of investing.

The way our portfolio is designed, I feel I have less to worry about.  Our routine is downright boring.

We buy and hold and reinvest dividends paid from most of our Canadian and U.S. stocks.  I rebalance our portfolio a few times per year by buying more assets (stocks) when I feel the price is right; hopefully close to 52-week lows.  Otherwise I let cash build up from dividends paid that could not be reinvested every month or quarter.  We use this money to make new ETF purchases.  On that note, we buy and hold low-cost Exchange Traded Fund (ETF) units over time for extra portfolio diversification.  These purchases occur only a few times per year to keep our transaction costs low.

  1. Prepare for extremes

We’re trying to and ready to.  From the article:

“Wall Street makes its money on activity. You make your money on inactivity.” – Warren Buffett

That’s our plan.  Buy, hold and basically do nothing except reinvest dividends the coming months and quarters.  This approach is not making our discount brokerage very wealthy but I do see our bank account rise in value with time.  I’ve largely learned to train my investing brain and accept market extremes.  This includes celebrating market lows or falling stock prices as excellent buying opportunities.

For those investors just starting out on their investment journey or experienced investors who need a helping hand from time to time – they can consider one of these robo-advisors as their low-cost portfolio investing solution.

  1. You’re the CEO

Damn right.  As the CEO of our portfolio, our biggest role is to remain in charge; to diligently monitor what we’ve put into place.  We’re far from perfect savers and investors.  But we have however done some things right to amass a personal investment portfolio now valued at over $500,000 excluding our pensions.

As CEOs of our portfolio we know what we own, why we own it; we try not to deviate from our plan and we know almost to the dollar whom we owe money to for day-to-day expenses.  We’ve got a ways to go to reach our financial goals but we’re on our way largely to taking control over our hard-earned money.  Nobody cares more about our investing success that we do.  You should feel the same about your portfolio.


How to become a better investor is not rocket science but it does take discipline, practice and time to hone your craft.  You will make mistakes and learning is a lifelong journey – money management is just one example of that.

Steadyhand’s Five essential elements to being a better investor was a positive reminder we’ve embraced many of these elements already.  We’ll need to keep following these elements for many years ahead to be successful.

What’s your plan?  What do you make of these five steps or elements to become a better investor?  What other steps do you feel you need help with?  Let me know in a comment below. 

14 Responses to "How to become a better investor (in 5 easy steps)"

  1. I like your approach to collecting the dividends that couldn’t be re-invested and purchasing ETF’s for further diversification. This is probably the approach I will take in my TFSA and RESP accounts, as I plan to only invest once a year. I selectively re-invest dividends in my RRSP currently, but as I become more and more hands off with that account I think it could probably benefit from that approach as well.

    1. I’ve decided on this because I think I own enough CDN content and I need to diversify more outside of Canada as I get older. I’ve been slowly working on that over the last couple of years. Thanks for reading Bradley. How are your investing goals coming along?

      1. Ya diversification is always good, especially as the accumulation years start to slip away from you. Our investing goals are pretty much on track, although I’m a little behind on our TFSA. This year my wife and I had kids (twins boys!) so I’ve started their RESP. I bought CM on the recent pullback. Although it was still above my buy signal, it was close enough that it won’t matter 17 years from now!

        1. Well done Bradley, making good use of the TFSA. I’m biased with this account but I think this is a great retirement account vs. savings account.

          Man, we only have two cats so I can imagine you’re much busier than I am!!

  2. Good stuff, but like most good advice hard to follow. It’s probably in most peoples nature to want more sooner, it was certainly in mine even when I kept telling myself not too. I think that’s why so many feel etf’s are the answer: low cost, full diversification and close to market returns. Maybe it is, but I doubt it will provide the results most expect (just my opinion).

    I like Buffets advice: If you could only buy 20 stocks, not be able sell any and must hold them forever, which ones would you choose? Add that you can continue to invest more in the 20, I think its the best investing anyone could follow. Bill Staton also gave the same advice.

    1. I struggle with the wanting more sooner bit. Every house in my neighbourhood has a nicer car or cars in their driveway. BMWs, Mercedes, etc. I drive a 17-year-old beater.

      As for Buffett’s advice – hard to argue with what he says given his track record. I think for the foreseeable future I will continue to own the top-holdings in XIU (like I do today). I can’t see myself changing that.

  3. That’s good advice. It seems you’ve got most things covered and have identified what might need attention Mark. I expect most of us have learned more about ourselves and become better investors as we age, study and learn from our mistakes to evolve an appropriate plan.

    After reviewing the 5 steps listed I believe we are prepared and practicing all. It is however quite different now being in the deccumulating stage and have yet to be “tested” so far in retirement. It’s easy when things are “good”, but I hope to also draw from numerous downturn experiences since my investing start in 1982, when it’s needed for tougher days.

    Recently you had another post from Steadyhand on preparing for the next downturn. That was timely and gave me impetus to turn my ideas/thoughts into 5 written actionable steps to help keep my hands steady and try to capitalize on the opportunity when that time comes.

    1. It’s absolutely easy to invest when things are good…but very difficult to execute on the plan when the going gets rough. I hope I have prepared myself and our portfolio enough when things tank. I suspect in the coming years a modest market downturn will occur.

      You’re smart to try to capitalize on the opportunities when markets correct or tank, but you know this already…!

  4. I had a stock that had a heck of a run-up on some great news. Thinking that this great news was overblown I sold with the intention of re-purchasing when the irrational exuberance had settled. I bought back in after a 10% correction but the stock continued to slide. So now I have this fairly large “loss” showing up on the summary. A big red blotch. The thing is, the overall value is still more than the original purchase and the dividend amount is unchanged. My point? One has to keep things in perspective.

    1. Yes, one does. Thanks to depressed oil prices I have a small capital loss with SU. I’ll probably continue to own it for the long-term (tempted to buy more actually) but it does go to show me that what goes up, might come down, and stay down for a long period of time. The oil recovery seems to be painful and prolonged. Luckily for me I own a number of other stocks that have gained considerably in price over the last 6-7 years and I have some tax efficient capital gains to worry about in another 10-20 years. Again, time will always tell. Cheers, Mark

    1. Absolutely. I think this is why I have long since gravitated to dividend investing – I get paid almost regardless of the stock price activity. Good to hear from you.

  5. Hey Mark, great article. Especially number 4. I used to freak out with day to day movement of my securities. Daily swings would often lead to incorrect decisions. That was in my early 20s(I started investing myself fairly early) and I have learned my lesson now. Even though I still do get worried, it really helps to just have the experience of being in the situation before, take a deep breath and trust yourself. There is a reason you purchased the stock.

    1. Like I wrote to Buy, Hold, Long, I think this is why I have long since gravitated to dividend investing – I get paid almost regardless of the stock price. I own 30-40 CDN stocks primiarily for dividend income as you know but I’ve also earned a good amount of capital gains from those stocks as well. Both are great news stories for total return, long term. I hope it continues but I suspect on the Canadian economy front things are not nearly as healthy and people think they are. We’ll see how much lower oil, our dollar, and our market index will go. I suspect (although I don’t know for sure) things will dip even further this summer.


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