It’s not too late – to invest like a pro this year

It’s not too late – to invest like a pro this year

Bad behaviour gets in the way of the best laid plans.  Time evaporates on all of us.  You also certainly don’t know what you don’t know. Just know it’s really never too late to invest.

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

Since I started this blog things have changed.  I’m older, wiser (?) and I’ve learned more about myself.  In doing so I’ve learned to hold myself to a higher financial standard by writing things down.  I now track what I’m doing (or not doing) via this blog.  I’ve got a deeper connection about what keeps me motivated, engaged and on track when it comes to money management.  Thankfully my wife and I are wealthier for it.

Over the years I’ve been able to rid myself of many poor investing habits.  Knowing your tendencies is just one way to build a modest portfolio.  There are other things you need to do year after year as well.

With the year fading away, it’s now fall, just know it’s not too late to invest like a pro this year. 

Here are my tips to recover this investing year.

1. Remember to keep it simple

You don’t need dozens of mutual funds or exotic Exchange Traded Funds (ETFs) in your TFSA or RRSP or RESP – as you save for your child’s higher education.   Maybe four (4) low-cost, diversified funds at the most:

• A Canadian equity fund
• A U.S. equity fund
• An International equity fund
• A Canadian bond fund.

I’ve provided my list of favourite ETFs for you to own here.

2. Keep it big picture

You should not look at your investing accounts in isolation.  Consider looking at all your assets as one big portfolio.  This way, you can be more tax savvy when it comes to your asset location as you optimize various accounts.

My general rule of thumb for investing is as follows:

Non-Registered = Canadian dividend paying stocks; take advantage of the dividend tax credit.

TFSAs = Canadian dividend paying stocks and Canadian REITs; no dividend tax credit but at least tax-free income and growth with time.

RRSPs = U.S. dividend paying stocks and U.S.-listed ETFs; no withholding taxes, USD dividends and long-term growth via low-cost equity ETFs.

3. Ignore financial noise

What is Trump going to Tweet next to scare the markets?  Will oil prices continue to stay low?  What is going to happen with interest-rate sensitive stocks like utilities? The real estate market in Canada is bound to crash eventually, right?

Who knows.  I mean really.  So don’t kid yourself.  Don’t put any faith nor heavy time commitment into the financial future.

Tough love – yes.

Why on earth would I say such things?

Because you have no control over those things above.

Focus on what you can control:

• Maintaining a decent savings rate for investing purposes
• Knowing what you’re invested in and why
• The ongoing costs of what you invest in and how they affect your prospective returns
• Staying invested
• Minimizing your taxes
• Maintaining a decent emergency fund
• Killing your debt obligations
• Going out and travelling and living your life
• Enjoying precious time with your family and friends
• Ignoring almost everything else in the financial sector (except this blog of course)!

I can almost guarantee sometimes you’ll invest when you shouldn’t and you’ll avoid investing when you should.  It will all work out over time.

Spare yourself the anguish over short-term market gyrations covered by thousands of financial stories abroad because you have virtually no hope whatsoever in catching the market on the way up or buying more assets when prices bottom out.  Like a shockwave by the time you hear it the event already happened.  Don’t waste your precious time.

4. Don’t raid the nest

Investing is not a race.  It’s not a fad.  The very definition of an investment is an asset purchased with the hope it will generate income or appreciate in value in the future.  So when you invest it’s for long-term.

Need money short-term?  Put it into a savings account.  Have the aforementioned emergency fund.  Saving and investing are not the same things.

Over long-term periods of investing, such as many years, stocks will likely generate higher returns than bonds and bonds should generate slightly higher returns than cash under your mattress.  You’ve probably already witnessed this from our recent multi-year market run.  People who thought the sky was going to fall a couple of years ago have missed out on some great (and higher) equity returns.

Should you borrow monies from your portfolio, such as your RRSP today, this is a reminder you are borrowing from your future self and the government loan they gave you.  So, to make up any financial shortfall you’ll either need to work longer, spend less or a combination of both.  Choose wisely.

Summary

Time flies when we’re having fun.  We’re far from perfect on this site – trust me.  However getting the financial basics right more often than not is all you really need to do.  I believe the same applies to most things in life…

To get caught up in the last few months of this year, I suggest you keep things simple:  think long-term but act short-term.  Don’t waste your time reading too much financial media noise; avoid raiding any money already invested.  With these tips in mind it’s not too late to invest like a pro this year.