This is not to say we foresee uniform doom and gloom. One bright spot remains the U.S. economy, which was given a vote of confidence last month when the Federal Reserve raised its target interest rate. If the U.S. expansion is as robust as the Fed thinks it is, that should bode well for the Canadian economy and exporters, which rely heavily on the American market.
On a broader level, the Fed liftoff was also a signal that monetary policy, which has dominated the macroeconomic landscape for years now, will be less important going forward. The days of easy money may have begun to draw (slowly) to a close, and as they recede we’ll have a clearer picture of other factors – like the business cycle and asset valuations – which have been masked by accommodative monetary policies for nearly a decade.
But we might not like what we see. Growth globally is poised to be slow in 2016. Canada’s prospects will be tied to this low-flying trajectory, in large part because there are so few potential growth drivers in the domestic economy.
Many investors spend a lot of time worrying about the wrong things. In particular, they worry about things that are unpredictable. Even if they happen, these things may have only an indirect impact on their long-term profits. As a result, they have little time to pay attention to things that have a direct impact on the value of their investments. Our stock market investment advice will help you become a worry-free investor.
For instance, at times they may mull over every tidbit of economic information that comes out, and how it differs from its predecessor of a week or a month earlier. They hope to detect a pattern—a sign that the economy is mending and headed for a return to steady growth, say, or perhaps deteriorating and doomed to plunge into a new recession.
Others look for patterns or omens in domestic or international politics, or in demographic data, or in the price of gold. This can eat up an awful lot of time and no stock market investment advice out there can save you the time you’ll waste.
These investors often feel they can cut their investment risk by selling some or all of their stocks in times of high risk, and buying them back when risk is low. This never works well for long. After all, risk as portrayed in the media, and genuine market risk, are two different things. No matter how you try, it’s hard to pinpoint market turning points, if only because you have to outguess so many other smart people who are trying to do the same thing.
Why stocks imitate the traffic on freeways, not elevators’
“… Psychologists tell us that in order to learn from experience, two ingredients are necessary, frequent practice and immediate feedback…”
Investing is intimidating and hard to us because we just don’t practice or engage in it enough.
This short sentence stopped in me my tracks as it captures so neatly and concisely my motivations for becoming an investment coach.
A lot of people are intimidated by investing. There are many elements about investing that strike fear into the hearts of people. The fear of math andall those formulas, ratios, and calculations. The fear of losing all your savings. The fear and trepidation of clicking that button on your computer screen to buy or sell a stock.
How to overcome investing fears
I found the best way to overcome the fears of investing and just about any skill or competency is to educate ourself and to frequently engage in the activity and behaviour to gain experience and confidence.
When we decide to become a nurse or a computer programmer or a financial analyst, we go to school to educate ourselves and practice the skills necessary to be proficient in that occupation. To determine how successful we are in acquiring a skill we take tests and exams that provide us with meaningful and timely feedback. We then will apply those skillsets in a job where we will repetitively practice those skills we’ve developed which ultimately make us even more experienced.
These are the usual steps when it comes to becoming proficient in a skill. We will commit the time and resources to do what’s needed often enough to learn to get it right. However when it comes to choosing a home, a mortgage or an RRSP, or stock or bond, most people don’t get much practice or opportunities to learn. And when it comes to saving for retirement, barring reincarnation, we will engage in that process or journey exactly once.
People don’t invest often enough
People have a hard time with investing because they simply just don’t do it enough. We don’t commit the time to learn and practice the skill. If we’re not engaged in the process, we will not receive meaningful feedback (which is ironic because technology gives us real-time feedback on the progress of our portfolios) and we will be less likely to improve our development. When we do engage in a program with a financial advisor, often our interaction takes place at the start and maybe if we’re lucky once a year, which to me is not enough when we are talking about something so important as your personal finances. That meaningful feedback loop that can keep us engaged is few and far between.
With the proliferation of passive investment strategies and automated portfolio management services, I fear that more people in the future will be even less engaged in the process of investing and as a result will not develop the financial literacy and self-awareness of cognitive biases that can cloud our decision making. Passive investing is a powerful and effective strategy but it can be more powerful and fulfilling when we are more engaged in the process.
A lack of practice leads to a lack of commitment that provides very little feedback. As a result there is a greater probability that we will not develop the skillset, literacy, or self-awareness to make successful investment decisions.
Investment coaches are different from financial advisors
This strikes at the heart of what I do as an investment coach and what makes investment coaching so fundamentally different than a traditional financial advisor. My job is to get people I work with to engage in the process of investing and I do it through hands on training, constant engagement, and finally providing my client with meaningful and timely feedback through coaching conversations.
When someone works with me, they are making a time and financial commitment to develop their skillset for making investment decisions and my role is to enthusiastically engage them through coaching conversations about a real-time investment issue and formal education and practice. By taking this approach to nurture these financial behaviours I have found that this can have a more profound effect in the development of a person’s financial literacy.
So for me that small little sentence tucked away in Mr. Thaler’s book crystallized my raison d’etre. Who would have thought?
Aman Raina, MBA is an Investment Coach and founder of Sage Investors, an independent practice specializing in investment coaching and portfolio analysis services. This blog was originally published on his web site and is reproduced here with permission.
Billly and Akaisha Kaderli, RetireEarlyLifestyle.com
By Billy and Akaisha Kaderli
Special to the Financial Independence Hub
All your ducks are in a row. You have saved and carefully invested for years, and the personal discipline is about to pay off.
So why is there apprehension in the bottom of your belly? Let’s be honest. There is risk involved, and the future no longer seems certain or familiar.
“What if I forgot about something?,” you think, and start going over every plan you have made.
No one likes to admit straight out that they are afraid of retirement. Why, that sounds silly! But changing your life from one of being focused on work duties, raising a family, paying bills, and receiving that dependable paycheck every week to one of the virtually unknown has its own set of stresses. You’re being dishonest if you say it’s not a big leap mentally, emotionally, or financially.
Sometimes you have to take a leap of faith
Lack of confidence often underlies questions disguised as logistics on how to retire. Sometimes, one must simply take the leap of faith, making a companion of the ever-present question “What if?”
If you have spent your whole life building security and providing that same security the best you could for your family, then stepping into the unknown world of retirement is like jumping off a cliff. Even if you’re as prepared as you think you are.
Sure, we can distract ourselves with dreams of endless golf, or margaritas on an exotic beach somewhere, but when it’s quiet, we find ourselves looking over our shoulders, wondering whether some forgotten component is lurking just out of sight.
“What if I run out of money?.” you whisper to yourself.
Perhaps your personal fear mongering nemesis is health care in retirement, your portfolio balance or even something as simple as boredom. There can be great comfort gained from all of one’s time being planned out months in advance.
To expect retirement to be free of hitches or snags is unreasonable. There are no guarantees in life. None of us knows what the future will bring, and this is true whether you’re working or retired.
In our experience, how to contend with the fear factor in all its guises is an important point worth addressing. Fear keeps us on the defensive, often preventing us from taking positive action or noticing opportunities and the support that surrounds us. Let it be said that if you are afraid, it is more difficult on all fronts to have a successful retirement.
“What if … ?”
The “What If” syndrome is all-pervasive. It attaches itself to every aspect of your life. However, living life through the eyes of fear only amplifies that uncertainty. If you wait for that perfect time to do something, you may discover that it never arrives. Looking back over your life, you might see all of the missed opportunities for great adventures and memory-making that you set aside in your pursuit of that ever-elusive feeling of security.
So what do you do? Fear never leaves us, but the fortifying of our confidence helps us to cope. Find ways to transfer your talents and abilities to your new life. If you must, make a list of your strongest traits. Enumerate your interests and the ways you can best satisfy them.
Check out the phone book, the local library, or your weekly event newspaper for groups to join, ongoing education classes being given, or chances to volunteer somewhere that lets you offer your expertise in something. Exercise. Stay connected to society. Try something new. Following these suggestions will bring strength to your new life, expand your mind, and build up your spirit. From here, you will gain much-needed self-assurance, making it easier to surmount any obstacles you may encounter in your retirement.
We have heard so many suggested new years resolutions over the last couple of weeks but believe it’s worth piling on two more for Canadian investors. We hope not but suspect we’ll be highlighting the same resolutions for years to come.
Chalten has been open for business for less than a year but already we have seen some very concerning consistencies in the portfolios that we have reviewed, the two biggest and most concerning being high fees and lack of diversification. For 2016 we recommend Canadian investors address both issues.
Slumping loonie boosted foreign equity funds
On Tuesday, Morningstar Canada released preliminary data for 2015 on the performance of its 42 Canada Fund Indices which measure aggregate returns of funds for various standard categories. Continue Reading…
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By Aubrey Basdeo
