What better time to take stock of your stocks than spring?
We spoke to portfolio managers and advisers to find out what changes investors should make to get ahead this year in the investing game. Here are five simple moves that could give your bottom line a boost.
1. Think time frame, not return.
Twenty per cent is better than 8 per cent, right? Believe it or not, return isn't everything, says Clay Gillespie, a financial adviser and portfolio manager for Rogers Group Financial in Vancouver. Instead of always going after the big money – and possibly losing your principal – it's important to remember exactly what you're investing the money for.
"You want to invest based on what you're trying to achieve, not the rate of return," says Mr. Gillespie.
In other words, if you sell your house and want to use that lump sum to purchase your dream home in two years, investing in a venture capital trust – which invests in small, growing companies – is obviously a risky move, despite the possibility that you might hit the jackpot.
If you actually need the money in a couple of years, consider putting it in a high-yield savings account instead, says Mr. Gillespie. You might not get rich that way, but that's not the point. At least you'll have the money to keep a slate roof over your head.
2. Just join your company's matching program already.
If someone were to approach you and say, "Here's 50 bucks," you'd be a fool not to take it, right? So it's amazing that many money-savvy employees forgo signing up for their employer's pension and registered retirement savings plan (RRSP) programs that match contributions, often up to 50 per cent.
Say you've decided to invest $250 each month in the defined contribution plan. The employer kicks in an additional $125 – or $1,500 a year. For nothing.
"It's like giving yourself a guaranteed raise," says Cindy Crean, managing director on the private client side for Sun Life Global Investments in Toronto. "I know some people look at it and say, 'I don't think I can afford it,' but it's one of those things. You pay yourself first and you don't miss the money."
Sure, some plans require time and patience to wade through, but do yourself a favour this year: Take two hours and read the material, or ask someone in human resources or a financial adviser for help. The program's default setting is usually too conservative for most investors, Ms. Crean warns, so find products that give you the risk-and-return ratio that's right for you.
3. Quit worrying about everybody else.
You know what's boring? People who yakety-yak at parties about how much their investments made last year. At least, that's how Paul Harris, partner and portfolio manager for Avenue Investment Management in Toronto, sees it.
"People are always saying, 'I made this much money on this penny stock.' They never tell you how much money they've lost," he says.
So stop thinking about how successful everyone else seems to be, block out the noise and stay on a steady course with your blue-chip, boring-but-reliable portfolio. Slow and steady might not make the headlines, but it makes for a better long-term plan.
4. Stop drinking the company's Kool-Aid.
You love working for your employer. Heck, you're even willing to invest your hard-earned salary in its shares and take stock options. Just be aware that you could be playing a dangerous game if that company stock makes up too much of your portfolio. Not only would your investments be in serious trouble if the company tanked one year, there's also a chance you'd be out of a job. A double whammy.
Instead, this is the year to take a look at your portfolio and be sure you're as diversified as you should be. In other words, if your company's shares make up more than 10 per cent of your portfolio, consider spreading the joy.
5. Give tax trepidation a rest.
No one wants to pay capital gains when cashing in investments, but if you've ever held back from unloading a losing stock just because you're worried about paying the taxman, it's time to rethink your strategy. "It's the tail wagging the dog, right? Taxes should be a secondary consideration," says Ms. Crean.
But it's an investing problem that Mr. Gillespie has often seen over the years, particularly with new clients who have come to him with portfolios overweight in a few securities. When he brings up selling them to diversify, some investors balk. "They never want to sell because of the tax bite," he explains.
Mr. Gillespie, however, has found a way to get through to even the most reluctant tax avoiders: He assures them that even if they pay the tax, they probably won't notice a difference. He says he discovered years ago that the main reason investors worry about taxation is that they don't know how they'll pay for it.
So he now explains that the investment will pay the tax. He sells the investments, calculates the tax, and places the money aside to pay it.
No muss, no fuss. And no wagging tails, either.