Monday, 6 June 2016

5 Investing mistakes to avoid



1. We have no idea of what we are doing…..

Currently as you read this, you might have thought, what is he talking about?  What I am talking about is right now you probably have an RRSP matching plan or Pension matching plan at your place of work.  Now  I am a total advocate of employer matching pension plan or RRSP plans.  If it is a 100% match, that is literally free money.  Now you put in 2% and your employer matches your 2%.  All is great?  Well look between the lines, you most likely only have the Group RRSP plan to contribute to with this matching.  And guess what, it will be mutual funds, yes I know, the mutual fund company will paint a glorious picture of how you need this or you will die a penniless life at the end.  They get ongoing guaranteed fees.  They love that.  There really isn't anyway out of picking mutual funds with this matching going on.  The only way out is to pick the lowest fee fund which is going to be an index fund.

What is wrong with this setup?  It's that most people think the workplace RRSP match is all they need.  They don't know what they are doing?  They don't know how much money they need at retirement.

Worse, is when individuals go on their own and try to invest without a plan.  They see headlines and try to chase a falling knife.  I say if you are reading a headline of the newest and biggest stock then you are already too late.  Talking about the latest sexiest stock gains is great but did you buy before that?  I enjoy my dividend approach of investing, it really is boring and only exciting to me it seems but I know what I am doing with my approach.

Do you?

2. We don't know what we are paying for

Most people still have no idea when they purchase a mutual fund, which happens to be the main type of investment product in Canada currently, that they pay fees.  Canada has some of the world's highest mutual fund fees.  In 2014, the average fee for mutual funds was 2.1%, in 2015, that number jumped to 2.3%.  Doesn't sound that high, we pay higher interest on our store credit cards so a measly 2.3% is peanuts, right?  Wrong!  A recent survey showed that 9 out of 10 Canadians severely underestimated their fees, sometimes to the tune of $150,000 over a life time.

Outside of mutual funds, there are financial advisors, brokers, and fees for just about everything.  To navigate everything properly and understand all the jargon out there for a beginner does seem daunting.

Bottom line, understand your fees and commissions that you are paying for and see if it fits yours needs.

3. We trust anyone to manage our money



Current situations that have arisen from conversations with friends, co-workers, individuals I just meet at the supermarket have a thing in common lately.  They have a financial investor.  Not just a normal financial investor but usually someone whom they have met in their circle or is a friend of a friend or even worse, it is someone's son that you trust and respect.  Now I may start off by saying all financial advisors are crooks or they are all out for themselves.  I am sure there are great ones out there but in the end, no matter their relationship to you, you are responsible of your own savings and investments.

Case in point, unless you track your investments full time, then you won't understand how everything works, all you know is your advisor keeps asking for a cheque for investing.  He says there is a great opportunity and you should not miss out.  Wait a minute, you take all the risks for his guess?  Yes, you may get a gain in the transaction but no one knows what will happen.  We do know one thing, your advisor will get a commission on the transaction.  Depending on the type of security, the percentage will vary wildly.  In the movie, Wolf on Wall Street, brokers were receiving 50% commission on junk stocks or penny stocks.  That's insane, the broker doesn't care about that $8,000 you just pumped into a start up.  He will get 50% commission on that purchase.

4.  We grow older but not wiser in finances

There are older investors in this world.  They have been in mutual funds all their life.  It would be hard to change their habits at this point.  If they were to figure out how much they have paid in their 30 or 40 years of investing then they would raise a stink.  And guess what, after the stink they would go right back and give more money to their investor.

Older investors would no doubt not realize that they could have paid between $150,000 to $250,000 during their life time in fees.  This is not in doubt especially if they have all their monies in mutual funds.

5.  We need to put up a bigger fight

Investing needs to be a battle.  It should be a battle between you and your rate of return.  Not you battling your advisor.  Believe you me, your advisor will fight tooth and nail to get that additional investment from you just to get a percentage commission which could be as little as $100.00 but they will befriend and tell you the pit falls of not investing.

We need to be learn more about our own money.  We need to avoid the route that the investing world has steered us into and fight for our money.