Setting a goal is not the main thing. It is deciding how you will go about achieving it and staying with that plan. – Tom Landry
With National Football League training camps opening up next month, I'm reminded of the wise words of the great former Dallas Cowboys coach and Football Hall of Famer Tom Landry and how this applies to a successful investment strategy.
While the late Mr. Landry was a great innovator as a football coach, he also was able to coax maximum effort out of his players and provide motivation and encouragement that allowed them to succeed and win two Super Bowls. A good financial adviser can provide this same type of guidance and coaching in helping clients navigate market volatility and stay the course to reach their investment goals.
As the past month has taught us with Britain's decision to leave the European Union and the resulting global market volatility, investors face emotional challenges in staying disciplined.
Research by Vanguard found that missing just the 10 best trading days can result in an annualized return of minus 11.32 per cent compared to a gain of 1.66 per cent by staying in the market and riding out the volatility (see chart below). Consistently and over time, the investors who do well are often those who stick to their long-term plans and are rewarded for their patience.
"Our research shows that financial advisers can add significant value by implementing certain relationship-oriented strategies through holistic financial planning, discipline and guidance rather than trying to consistently outperform the market," said Atul Tiwari, Vanguard Canada's managing director.
The role of a financial adviser has evolved from simply picking stocks to put into a client's portfolio into more of a coach who counsels clients on the benefits of a particular strategy, helps address their emotional needs and steers them through turbulent periods. Kind of like how the role of a football coach has evolved from simply drawing and calling plays to motivating his players and enabling them to succeed.
Here are three principles that apply to not just football but investing:
You need the right tools.
To be a great coach, player and investor, you need the right tools. One of those are exchange-traded funds (ETFs). They are a great way to broadly diversify your portfolio and keep costs low, leaving you with more money in your pocket.
The popularity of ETFs has really boomed in Canada over the past few years, with assets surpassing $100-billion recently and more than 400 ETFs available on the Toronto Stock Exchange. This strong growth has accelerated over the past few years, as investors see the benefits of ETFs due to their low fees, quick diversification and the ability to buy and sell them like a stock.
"Many ETFs offer the benefit of low investment fees, which impact your return and add up over time," said Mr. Tiwari. "Studies have shown that low costs are the best predictors of future performance."
Choose a game plan and stick to it.
Emotions are part of investing and sometimes it is difficult to filter out the noise and negative headlines, stay patient and position yourself for success. But choosing a goal with your financial adviser and staying disciplined in following it – whether that's paying off debt, saving for retirement, or transitioning into the deaccumulation phase of life – is a key pillar of investing success.
You can't win them all, but having the right program helps.
Even Tom Landry lost a few Super Bowls. But history has shown that the market rewards discipline, diversification and patience over the long term.
It is impossible to beat the market all the time, but having a long-term outlook with clear goals and not overreacting to short-term events will win out in the long run. It may even get you into the investing hall of fame.
Thane Stenner is portfolio manager and director of wealth management of StennerZohny Investment Partners+ within Richardson GMP. He is a founding member and chairman emeritus of TIGER 21 Canada and author of True Wealth.