Tilting the Field to Your Advantage or Be a Nervous Bull
Last month, I wrote about 5 things to avoid to not put a serious dent in your retirement savings. This month, I thought to take the opposite approach—5 things to do to tilt the field a little bit to your advantage.
Let’s face it, investing is hard for most of us. We are emotional beings who are driven by the 2 opposing forces of fear and greed. We hear that our neighbour/co-worker/golfing partner is doing well and just made a big score in the markets and we want it. But as soon as we jump in, things seem to go against us and we begin to fret over every gyration in the market. Fear takes over; we soon panic and sell.
1. Don’t let your emotions rule your investments. This is the simplest thing to say, but the hardest thing to do. The best investors learn to be dispassionate about their portfolios and learn to put volatility to their advantage. This does not mean to simply go all in on the markets and just hang on (buy and hold); you must have a properly constructed portfolio with the right equity weight that is in tune with your stomach for volatility. Know yourself.
2. Have a properly constructed portfolio. If you can’t stomach volatility, then take that into account when building your portfolio. It might lead to lower longer-term returns, but if you can sleep better, it’s worth it.
3. Imitate the experts, don’t reinvent the wheel. Look at what the big boys are doing—CPP, Ontario Teacher’s Pension, etc. They have the PhDs and CFAs on staff, and they make most of their information publicly available. As the investment landscape continues to grow, more and more alternative options are available that in the past could only be accessed by large institutions.
4. Be very wary around commission-oriented salespeople. Know how your advisor is compensated. Are they compensated on selling you financial products? The very best of us struggle to be impartial when a sales commission is on the line. Sales commissions aren’t all bad, but they make it very hard for someone to truly have your best interests at heart. Look for fee-based advisors that are paid the same no matter what you invest in.
5. Finally, don’t be a Perma-Bear. It’s easy to be bearish. It’s “cool” to be a contrarian—always pointing out reasons why things won’t work out and why the markets are about to crash. I get it. I can fall into this trap way too easily. This can lead to massive long-term underperformance as you sit in cash waiting and waiting for the next crash. If you have a properly constructed portfolio (see Point #2) you will weather the next storm in the markets. The best line I have seen on this is “It’s better to be a Nervous Bull than a Confident Bear.”
This is not an exhaustive list, but if you start here you can tip the investment playing field a little bit your way.