Saving isn’t always easy. Canadians just barely managed to set aside 4.9% of their income in 2014. So how can you make the most of your money? Here are some tips from Natalia Sandjian, National Bank financial planner.
You can start investing as soon as you can set aside $25 of your monthly budget. It’s wrong to think that you need a lot of money for it to be worth it. Or worse, that you need to pay back your debt before thinking of investing.
Guaranteed Investment Certificates (GICs), high-interest savings accounts, principal-protected investments, mutual funds, managed solutions… There are a lot of options that investors don’t always know about.
It’s the financial planner’s job to guide clients through the world of investing.
An investment that is not in line with your investor profile, particularly your risk tolerance, is definitely a bad investment.
The potential fluctuations of an investment that is too risky can create stress and volatility that can harm your short-term investment objectives. As for the consequences of an investment that is too conservative, they can be summed up with these two concepts: a high opportunity cost and a faster loss of purchasing power due to inflation. Making do with a slim 2% return without considering the investment horizon, for example, is a mistake. In addition, if the return on investment doesn’t make up for the increase in your cost of living, the capital’s life span is at risk… and outliving your capital is certainly the last thing that any investor wants.
What’s worse than just a bad investment? A lack of diversification, which does the most damage. We’ve all heard the expression “don’t put all of your eggs in one basket.” Diversifying your investments does not mean scattering them between several financial institutions. Rather, it means investing your assets in various types of investment products! Each investor should look for different types of investments, such as Guaranteed Investment Certificates (GICs) and stocks, both in Canadian and international markets.
Absolutely not! People seem to expect their returns to be the same as in the past – from 15% to 20% on GICs, for example – while ignoring the current economic climate of 25% mortgage rates and high inflation.
In general, people who have a balanced profile expect returns around 11%, while it is standard for net returns to top out at 5%.
Emotions are important, because they are a good indicator of risk tolerance. It’s all well and good when a client is comfortable with a volatile portfolio on paper, but if he leaves a panicked voicemail for his advisor every time there’s a regular dip in the market, it might be a good idea to update his profile.
The emotional factor can also make it difficult for clients to manage their investments. Financial planners often act as more rational, neutral intermediaries, to mediate clients’ emotions and avoid impulsively selling an investment during a downturn, for example.
Unfortunately, this is often the case. People come to see us when their finances aren’t doing well, when they are concerned about their level of debt or if they’ve tried to invest on their own, without success. They don’t automatically think to come see us when there are positive developments in their lives, like the birth of a child. This is unfortunate, because these events have significant financial impacts.
In financial health, an ounce of prevention is worth a pound of cure.
Financial planners have everything they need to develop an investment strategy tailored to their clients’ needs. Thanks to their expertise, they can help clients with retirement and estate planning and personal finance, all while considering the fiscal, legal and insurance aspects. Beyond planning, they also provide support and guidance. This relationship goes much farther than simple transactions.
Investing with different banks has nothing to do with diversification (which involves opting for different types of investment products). It just scatters your investments. It’s possible to invest all of your money with a single financial institution and take advantage of a diversified portfolio.
Or worse: not knowing it! Your investor profile is critical for good asset allocation. For many new investors, it’s a good idea to fill out the investor profile questionnaire with the help of a financial planner. It’s their job to make sure that clients understand, and that answers are consistent and coherent.
You need three things to be a good independent investor: solid investment knowledge, time and definite and sustained interest in managing your portfolio. This can be exciting at the beginning, but can become a burdensome task over time. In practice, very few people fit this profile.
Private Wealth Management, realize that you can increase the value of your assets, and those of your family. Discover this premium service.
The opinions in this article are those of the person interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For any advice concerning your or your business’ finances, please consult your financial advisor or another professional as necessary (accountant, tax expert, lawyer, etc.).
Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank of Canada.
The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information belong to the National Bank of Canada or other persons. Any reproduction, redistribution, electronic communication, including indirectly via a hyperlink, in whole or in part, of these articles and information and any other use thereof that is not explicitly authorized is prohibited without the prior written consent of the copyright owner.
The contents of this website must not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice. National Bank and its partners in contents will not be liable for any damages that you may incur from such use.
This article is provided by National Bank, its subsidiaries and group entities for information purposes only, and creates no legal or contractual obligation for National Bank, its subsidiaries and group entities. The details of this service offering and the conditions herein are subject to change.
The hyperlinks in this article may redirect to external websites not administered by National Bank. The Bank cannot be held liable for the content of external websites or any damages caused by their use.
Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of National Bank or its subsidiaries. For financial or business advice, please consult your National Bank advisor, financial planner or an industry professional (e.g., accountant, tax specialist or lawyer).