Canadian Finance Blog

Are you taking care of your investment portfolio?

Posted: 30 Aug 2011 02:00 AM PDT

So many studies are suggesting that over two thirds of Canadians do not know how their money is invested. That’s a clear sign people are not taking care of their investment portfolio. In my travels, I find the same conclusion. I always get people asking me about what they should do with their portfolios and how they should invest it? My response is always the same "What are you invested in?" Most people reply with "I don't know, my advisor takes care of that."

Why are so many people in the dark when it comes to their portfolios? Are you taking care of your investment portfolio? I'm sure everyone has their own excuses and theories but here are some of my candid thoughts:

Do we rely too much on financial advisors? – Here in Canada a lot of people still work with financial advisors. When it comes to investing, there is no shortage of ideas, philosophies, products and opportunities. For the average person, it’s hard to digest all the information out there so who can blame people to hire advisors to look after your investments. I recently sat down with Samantha who after a divorce, was now responsible for something her husband looked after for the past 17 years. It was intimidating, scary and the only solution seemed to be to find an advisor to help her manage and invest her RRSPs and investments. She did not feel capable of doing it herself so she hired an advisor to do it all for her.
Is Buy and hold causing us to ignore our portfolios? Buy and hold is the predominate strategy preached by the investment industry. I don't have any legitimate statistics on this but I figure 80% of the industry preaches a buy and hold strategy. Although I understand the merits of buy and hold, some people misinterpret buy and hold to mean buy and forget about it. The truth is buy and hold has some flaws.
Maybe we are just busy people. Most people I talk to are really busy with life, work, kids, family, activities, etc. There is no shortage of things to do and most people's to do lists continue to grow as opposed to shrink. Maybe that's one of the reasons people tend to neglect their portfolios – they just don’t have time to deal with it.

Any other thoughts on why people are disengaged from their investment portfolio?

Nobody cares about your money more than you

As a financial speaker and educator, my goal is to teach people about money, personal finances and investing so they increase their knowledge. My hope is this knowledge translates to action because my underlying philosophy is very simple. I believe that nobody cares about your money more than you care about your money. Good advisors might care but they can't care more than you. Worse yet, not all advisors care about you. And some advisors care more about their commission’s than what's right for their clients.

My preference is that people to take control of their money and from an investment perspective, that includes knowing what you are invested in. If you buy crap and you hold crap, you will always have crap, which is the one thing you don't want in your portfolio because it stinks. So how would you know if you own crap or not if you have no idea what you own? With all the investments out there, is it possible that some of it is crap? Maybe too much of it! Take control and find out what you own and why you own it!

Does this mean you have to do it yourself?

Chances are do-it-yourself investors are more engaged than those that use financial advisors to manage their investment portfolio. Technology has made it easier than ever to manage your portfolio yourself. Go open an online brokerage account and you can start buying, selling, trading and managing your portfolio. It sounds so easy but is it?

In an article in the Toronto Star, Dan Hallett, Director at Highview Asset Management, believes that "most investors don’t do well on their own. It’s not an intelligence thing by any means. It’s partly knowledge, but more than anything, it’s discipline."

I happen to agree with Mr. Hallet. To do it yourself, you not only have to have the means to trade like an internet connection, brokerage account and money, but you also need knowledge, time and the passion to stay engaged. As Mr. Hallett suggests, it's all about having discipline. You have to have the discipline to keep up to date, and to stay disciplined to a strategy, a plan or a framework. You have to stay disciplined to reviewing your strategies and managing the portfolio. As a result, many people would not make good investors.

Taking care of your investment portfolio does not mean you have to do-it-yourself. In fact, most people are not geared to be self-investors. Using advisors is fine but you still have to stay engaged because nobody cares about your money more than you.

If you are working with advisors, make sure you have a management strategy as well as a communication strategy in place. How often will they contact you or you contact them? What will do you want to know about your portfolio and how often will your portfolio be reviewed? What will trigger changes and why? Even if you use and advisor, it is your responsibility to stay involved. You should still know what you own. You should still look at your statements to see what you money is doing. And you should never be unwilling or afraid to ask questions. If you don't care enough to do these things, who will?

Are you taking care of your investment portfolio? originally appeared on Canadian Finance Blog on August 30, 2011.

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