Here’s some tough love from your investment adviser: You’re not saving enough, you’re not engaged enough in your finances and you’re too in love with your losing investments.
Those are a few of the responses submitted by people in and around the advisory community when asked to provide some blunt, hard-nosed feedback to investors. Ever wonder what advisers are really thinking? Then read on.
Warren MacKenzie, president and CEO of Weigh House Investor Services:
Low returns are a fact of life.
Sick of bonds and term deposits with yields of 2 per cent and stocks markets that keep clawing back your gains? Mr. MacKenzie has no good news for you. He’s been reading books such as This Time Is Different: Eight Centuries of Financial Folly, by Carmen Reinhart and Kenneth Rogoff, and he’s come to the conclusion that standard estimates of 7- or 8-per-cent rates of return for a diversified portfolio are out of touch.
“When I meet with clients to do annual reviews, I’m redoing their plans at 4-per-cent returns,” he said.
Mr. MacKenzie believes Europe’s economic and financial problems are going to weigh on global stocks markets, and that interest rates will remain low. He sees 3.5 per cent as an attainable return from a diversified portfolio of bonds or bond funds, including government, corporate and high-yield bonds, over the next five to eight years. And he thinks 7.5 per cent is attainable in Canadian stocks over the next seven years or so, but only for those who can tolerate big ups and downs.
Ellen Bessner, a lawyer at Cassels Brock & Blackwell LLP who defends advisers and investment firms:
Your adviser does not control the market.
Ms. Bessner believes too many investors have an unrealistic view of what their adviser is supposed to do for them. They see the adviser’s job as mainly to make money, and they expect to have success in all kinds of market conditions. “Both of those assumptions are wrong,” she said. “Advisers don’t have control over the market and while they will do their best to make you money, there is no guarantee.”
Here’s Ms. Bessner’s job description for advisers: “To look at your personal financial situation and pick suitable investments, given that situation. And to make sure you’re diversified appropriately.”
Nancy Woods, investment adviser with RBC Dominion Securities:
No one bats a thousand in investing.
Mistakes will be made in the selection of investments, Ms. Wood said. “Out of 10 stocks, I expect five to keep up with the market or be average, two or three to be stars and two or three to be dogs. Hopefully, the stars will outweigh the dogs.”
A related bit of blunt advice from Ms. Woods is to stop coddling your losing investments. Keep money-losers only if you can answer yes to questions such as:
-Is it playing the part in your portfolio that you originally intended?
-Is it paying you a dividend to make holding onto it worthwhile?
-Is there sign of a recovery?
-Is there no opportunity elsewhere to put those assets to better use?
Marc Lamontagne, founding partner at Ryan Lamontagne Inc. in Ottawa:
Don’t fall prey to bag lady syndrome.
Mr. Lamontagne has encountered a small group of wealthy retirees who suffer from what he calls “bag lady syndrome,” or the fear of ending up with nothing.
“Some retired clients will repeatedly ask me if they will run out of money even if they have over a million dollars in investable assets. This leads them to living below their means. They will spend the interest on their investments, but never the capital.”
Jim Yih, an Edmonton-based financial educator who runs financial programs in the workplace and is the author of the Retire Happy blog:
You’re not pulling your weight, Mr. and Mrs. Client.
