Money & Career

How much do you know about your financial health? Six investing tips

How much do you weigh? Do you wear glasses? I’ll bet you can answer these very basic questions about your physical health - but how much do you know about your financial health?

How much do you weigh? Do you wear glasses? I’ll bet you can answer these very basic questions about your physical health – but how much do you know about your financial health? Many of us have investments of some kind – especially if we are saving for retirement. The thing is, most of us don’t really know where that money is invested – instead, we give all our money to a bank, fund company or financial planner and trust them to make all the decisions. In short, it goes into a black hole and we keep our fingers crossed that we have enough to retire on and won’t be eating cat food out of a can in our dotage. Seriously – ask the average person how much Canadian stock they hold and chances are you’ll get a blank stare.

Now, I will admit up front that I am this kind of investor – I am really good at saving and putting aside money, but not so great at keeping on top of where it’s invested.

Then today I read this article about a former banker in New York, Gordon S. Murray who wants to change how most people interact with their investments. To do that, he’s co-written a book (with Daniel C. Goldie) to help investors take charge of their money.

Murray’s background is important here – he spent years selling investments to folks like you and me and came to realize that we’d be better off managing our investments on their own. In fact, we’d make more money in the long run. The book is called The Investment Answer – it was Murray’s long-time dream to write it and when he was diagnosed with terminal brain cancer he turned to Goldie to help make it happen.

The writers give five tips to investors who have their head in the sand when it comes their investments:

  1. Hire an advisor but make sure he or she is fee-only and earns no commissions from mutual funds or insurance companies;
  2. Divide your money among stocks and bonds, big and small, value and growth;
  3. Divide that up by domestic (Canadians) and global (the rest of the world);
  4. Decide whether you’ll invest in “active” or “passive” mutual funds – your advisor should be able to help here.
  5. Sell your winners and buy more losers. Hard to do, say the authors, but it will improve your returns in the long run.

While I think these guys are oversimplifying the formula a bit (deciding between active and passive – especially in this market – is not an easy decision and even the top investors in Canada are divided on the subject) – they have one major point: most of us have our savings in some kind of investment and it’s up to us to understand or at least do our homework to know where our money is and how much we’re paying our advisors for their services.

Murray and Goldie’s book is great, but I think there are some smaller steps you can take to get a grip on your investments, before diving into the details. Here are just a few:

  1. Find out how your advisor is paid and decide whether or not that pay structure makes your comfortable taking advice from him or her.
  2. If you don’t have an investment advisor and you aren’t happy with how your portfolio is performing, then shop around for a new one – ask your friends whom they use and interview a few up front before you decide. Click here for a few questions to ask to get you started.
  3. Read all of your financial statements as soon as you get them, from the bank and from your investment advisor (anywhere you have money).
  4. Communicate regularly with your advisor (one or twice a year) – and expect him or her to communicate with you on a regular basis.
  5. Read up on fees – how much is it costing you to own your investments?  
  6. Read more – financial web sites, investor education sites – there are some great places to learn about markets and how investments work. In fact, next week, I’ll post a list of my favourite financial sites to get you started.