To retire better, toughen up as an investor.
With the deadline for contributing to a registered retirement savings plan for the 2018 tax year coming up on March 1, Canadians will be thinking about buying investments in the weeks ahead. The results of a B.C. Securities Commission survey to be released Thursday suggest that most will be too retiring in how they go about it.
Just 30 per cent of the 2,915 people surveyed last month thought the term “investor” described them well. More people thought the term saver described them well, which isn’t a bad thing. But saving for retirement won’t cut it – you have to think like an investor.
Almost everyone is an investor, even if they don’t think so. If you once put $100 in a bank mutual fund, you’re an investor. Investing is not a matter of how much you have; it simply means buying into an asset with the expectation of making a profit.
Investors take ownership of their investments. They know the costs they pay and the risks they face, and they understand how their returns compare against both comparable products and relevant benchmark stock and bond indexes. If they can’t effectively manage on their own, they get help as required.
It’s the investment industry’s fault that so many people don’t see themselves as investors, even though they plainly are. Investment firms want to work with rich people for the most part. So they provide cues to attract this clientele and, at the same time, repel people of lesser means. A great example is the common use of “wealth” in firm names.
Investment companies can argue that having the word wealth in their brand is both aspirational for people with small amounts of money and reassuring to wealthier individuals. But they too often either marginalize small accounts with lesser service and higher fees, or reject them outright.
The connection between wealth and feeling like an investor is clear. In the BCSC survey, just 24 per cent of people with a portfolio under $50,000 thought of themselves as investors, compared with 70 per cent of people with $500,000 or more and 50 per cent of those with a portfolio of $100,000 to $250,000.
More men in the survey than women described themselves as investors. As noted in a recent column (tgam.ca/advisers-women), a lot of women feel disregarded by the investment industry.
The BCSC survey results suggest that people who consider themselves investors take better care of their finances:
- Almost nine of 10 people who consider themselves an investor said they understood the risks and benefits of their investments, compared with 62 per cent for those who did not identify as an investor.
- Almost three-quarters of those who identified as an investor thought they had a good understanding of the fees they pay, compared with 42 per cent of non-investors.
- Almost 85 per cent of investors said they know what their investment goals are and are on track to meet them, compared with 48 per cent of non-investors.
Rightly, the BCSC worries that people who don’t see themselves as investors don’t take proper care of their investments. To fix this, we have to get everyone who owns investments to adopt the investor mindset.
Investors are active participants, not spectators. They get involved because they know their retirement and other goals will depend on a good investing outcome. Start the process by looking at what you own – mutual funds, exchange-traded funds, stocks, term deposits or whatever – and trying to understand a few key points. You want to know why you own something, how much it costs to own and how well it’s working for you in terms of blending risk and returns.
Investors are not shy about asking questions. They understand that investing in something means you own a bit of it and thus have a right to know all pertinent details. When they don’t get a clear answer, investors never defer. They keep probing until they either get the assurances they seek, or a reason to make a change.
To retire better, think like an investor.
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Rob Carrick