If you're just getting started investing and are wondering how to go about it, follow along in our beginner investor mentor program.
Weeks ago, we ran an investing contest. The winners were classified in to three categories: advanced, intermediate and beginner.
The winner of our beginner category, who can be identified only as Lorna from Winnipeg, has talked with her mentor, Tom Hamza, twice now. You can see the live, public, online discussion they had in the first week here: .
Lorna's mentor, Tom, is the president of the Investor Education Fund, which helps people make effective use of financial information. The fund was established by the Ontario Securities Commission, the province's securities regulator, and is funded by OSC enforcement settlements.
Join the next discussion
Join us in the Week 3: Beginner Investing Discussion at noon on Thursday, May 21. You can get a headstart by submitting your question here .
Week two's online discussion is below.
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Sonali Verma, Globe Investor: Hello, everyone, thanks for joining us for Week 2 of the mentoring program. Our beginner investor, Lorna, has been busy over the past week. Lorna, tell us about it.
Lorna: This past week I have spent more time reading about investing (particularly ETFs), the role of the investment adviser, and come to the conclusion that I never want to undertake investing on my own, but what I really want is to have more information and knowledge so that I can have those educated, knowledgeable discussions with my adviser.
I did have a conversation with my adviser about when I want to retire, how much money I will need to require, and, probably, most importantly, that I want to discuss with him in greater detail how we will measure the performance of my investments. These are conversations that I should have had before I engaged him as my investor; however, it is never too late to begin.
Sonali: Tom, now that Lorna has been asking her adviser some tough questions and started understanding ETFs, what do you think she should be thinking about next?
Tom: Hopefully the conversation with her adviser has helped her map out what her investments need to do over the coming years- and helped her adviser understand them better too. I would hope that her adviser has started to put together a fair benchmark portfolio to compare against year over year as well.
I realize that her relationship with her adviser is a new one, but I would advise trying to look backwards to see how she has done historically. It will provide a good comparison looking forward. Sites like will help you understand how you've done in the past -- you'll need your statements over several years and you should take a long view to get proper perspective. Look back over 5, 10 and 15 years if you can and put together a picture of how you've done.
You might be surprised- our natural tendency is to think that we've done better than we have because we remember the winners and forget or ignore the rest. Plus, we often don't take fees into account and they always will have a big impact on your returns if you aren't conscious of them.
Take that information and it will probably galvanize you into action. To start with, it would be an excellent conversation to have your adviser go through your portfolio with you to explain what is there and why.
Keep a close lookout on mutual funds and have your adviser compare them with benchmarks over 3 or 5 years. Has their return exceeded what an ETF would have returned over the same period? Equally, challenge your adviser if you find yourself in a wrap account -- they can eat up a lot of fees.
Go through your portfolio with your adviser and understand how it was built, and what the costs are. Challenge the adviser to demonstrate how the more expensive products like mutual funds have performed versus the market. Make sure that you are comfortable with what is in your portfolio and always look at things from the perspective of, "how has this performed, does it fit my risk profile, and how much does it cost."
This would be a good next step.
Lorna: How do I measure portfolio performance?
Tom: Great question. Despite the resistance that you may get, brokers can give you the long-term performance numbers of your portfolio. If they can't, then you have to ask yourself how they judge your portfolio's performance. Although they don't disclose the performance numbers up front despite the obvious value to you, they are available, even if it can take a few days for them to get.
Your adviser should be providing this information. I've also referenced a site that can help you - - if you need to figure this out yourself.
When you have the number over a period of time, you can't just look at it in isolation. You need to compare it with a similar portfolio to yours. If you compare your portfolio with a portfolio of benchmarks that is roughly similar to yours, then you have a standard to get a rough comparison. It gets more difficult if your portfolio has changed over time (which it should, over the long-term), but your adviser should be able to help you create a model portfolio to compare against.
Lorna: What kind of conflicts of interest should I be aware of when working with an adviser?
Tom: We've summarized the conflict in this article: .
Most advisers are hard-working, well-meaning professionals. However, you need to be aware that they work with an incentive system that encourages them to sell certain products- and these products may not always be the ones that make the most sense for you. If the broker is incented to offer a certain fund, then they often don't have the time to compare it against other similar funds while simultaneously servicing hundreds of clients.
When you know this, it can sometimes shed light on why certain choices are made, especially when it comes to high-cost products that may be causing your performance to lag.
Sonali: Tom, we have a question from a reader.
Hayley Angus writes: I was curious what your opinion was on ETF's and their expected gains over the next five years as the market (hopefully) continues to improve. Do you feel that they would provide good value and growth as MERs are low?
Tom: Low fees are a good thing and ETFs have low fees. The direct comparison to ETFs are mutual funds, and numerous academic studies document that the vast majority of actively managed mutual funds trail market performance over the long-run. Picking those outperforming mutual funds is an extremely difficult thing to do.
So, if you can mimic market performance and trail it by less (because you have lower fees), that is a good thing for your portfolio. Keep an eye on ETF fees and don't blindly accept that they are universally low. In general though, over the long run they make a lot of sense.
Take a look at this as it has great links to further reading.
Sonali: Tom, thank you very much for all your time and expertise. Thanks to everyone who joined us.
Lorna: Thanks very much for your time today. Today's discussion has given me additional things that I need to think about, to read about, and to talk to my investment advisor about. I'll start doing my homework immediately.
Tom: You've got to always be mindful that this is your money. If you aren't happy with the service, don't stay. Here is a that can help you determine the service that you are getting.
If you aren't happy, then take action. It is not that hard to switch. Make sure that you do the homework when you look for another adviser- interview at least 3 and ask difficult questions- use this
Remember that nobody is doing you a favour by managing your investments - they are getting paid. You need to make sure that you are getting the service that you need and should not be shy about moving if you have to.