Be honest. You probably do not understand investing or how to do it properly. Congratulations, you are normal and part of the majority of Canadians.
So we are are going to make it easier for you to understand investing. We will explain investing in relation to healthy living. And not only will you learn investing, you will also learn more about how to live a healthy lifestyle.
So read on.
1. Plan everything!
Whether you want to lose weight, train for a marathon or save up for retirement, you would need to have a solid plan. And remember that there are different ways to achieve your goals. For example, you do certain exercises if you want to tone up your arms and then do a different set of exercises if you want to strengthen your core.
So first, know what you want to achieve. From there, work on a plan on how to best achieve it. If you are saving up for retirement, you need to know what investments and risks to consider, how much you are going to set aside for it, and, of course, your time frame.
Write everything down. A written plan is always better because you can always revisit it in the future.
Bert Griffin, an expert on wealth planning and retirement planning, says that working with a financial adviser would be a good idea if you have complicated financial situations or if you simply do not know much about investments and anything financial.
2. Exercise regularly.
No matter what your goal is, you would need to work hard for it. That beefy guy at the gym worked hours and hours to get that body. Exercise is very important in keeping fit.
The same goes for your finances. You need to work hard and save regularly in order to succeed. You would need plenty of discipline when it comes to saving. You need to sit down and make a list of all your income and decide on a portion that you could save every month, or when the pay cheque arrives. This will ensure that you have something saved on a regular basis.
Other people think that they could wait until their tax refunds come in and then they put it all on a tax-free savings account or any savings that they have. That will not work because you are not building a habit to save. Instead, you are just like that guy who shows up at the gym when he feels like it and we all know he is not going to get buffed that way!
3. Eat a healthy and balanced diet.
Here is the thing about dieting: it is not the food that gets you down, but the portion sizes. Sure you need to cut down on junk food and eat more veggies, but it is never healthy to avoid something altogether, especially if it is your favorite food. This is why most diets have their cheat days, so that you will not feel deprived.
But first, you need to build a habit of eating healthy food, and then you can eat your favorite forbidden food on your cheat day provided that you do so in moderation.
The same thing is true with your investment portfolio. It should not be all high-risk, exciting stocks. You also need to put in blue chips and some fixed income bonds that are, admittedly, a little bit boring. On the other hand, there are higher risks investment vehicles that are more likely to grow your money.
If you want moderate growth without too much risk, try to maintain a portfolio of about 40% fixed income investments while the rest goes to equities.
4. Avoid risks that are not necessary.
In investing, as in exercising, over-eagerness can often lead to injury. Rather than prepping your body to be stronger and to have more stamina, you go straight to doing yoga or running. The result? You get injured.
New investors often have the same enthusiasm and they often put a dollar too many into risky investments. In the end, they suffer for it. Sometimes, inexperienced investors do not know any better and just buy too many shares of a single stock.
Always dilute risk by having a balanced portfolio, as we have described in #3. If you are not sure about what to do, consult a financial advisor.
5. Beware of silent killers.
What is the world’s top silent killer? It is heart disease. A heart attack can pretty much sneak up on you when you least expect it.
In investment, hidden costs are the silent killers. And these could be in the form of management expense ratios when you invest in mutual funds. It is hidden because you do not see a separate charge for it, as it is deducted from the funds’ returns. But you, the investor, pay for it.
And it is not just from the money they should be getting from the funds, but also in the growth of their funds. When you get a higher management expense ratio, you end up with smaller funds over time. For example, Bert Griffin relates that a mere 1.5% variance in MER for funds starting at $100,000 can mean a $66,000 difference in 20 years assuming that the funds earn 6% per year.
Griffin advises investors to reduce fund costs by having a discount brokerage account. Or you could hire a financial advisor to sift through the hidden costs for you!
6. Say no to steroids and other performance-enhancing supplements and drugs.
You have heard of athletes who get into trouble for using steroids and other performance enhancers, right? Well if you are investing, there is an equivalent to that.
Some investors are tempted to borrow money and invest the same into high-risk investments that promise monumental gains. But if something goes wrong, you can lose a lot of money in the process.
If you are just beginning to invest, then be sure to stay clear of leverage. It is just not worth it!
7. No fads, please.
If you are looking to lose weight, then you are undoubtedly no stranger to fads. No carbs, a lot of carbs, juicing, fad diets, etc. There will always be a new fad claiming to help you lose weight fast, perhaps without too much work and without too many sacrifices.
But these fads have never been known to work in the long run. So keep this in mind when you are investing. There are a lot of fads in the investment world, too. Remember dotcom companies were really hot in the late 1990s until the bubble burst? You see a lot of people investing in the same stock, commodity and fund and you think that it should be a winner. But this is not necessarily true. Just look back to 2012 when gold was an investment fad. People went online to buy your gold, there are booths in malls who want to buy your gold. Investors dropped their money in gold. If you were one of them, then you have just lost a third of your money!
Remember when we told you to have a plan when you invest? This is a good reason why you should. Stick to your plan, diversify and avoid the fads.
8. Weigh in regularly.
If you are looking to lose weight, you should be weighing yourself regularly. This way, you get to be more motivated. This is also a good way to keep track of how your efforts are paying off, or not.
With investments, you need to monitor your progress by looking at the key numbers relative to your investment, such as your annual rate of return.
This will also help you earn more in the long run. For example, if you see that a mutual fund is doing better than another mutual fund, you might want to transfer your money to that better performing fund.
9. Get help.
When losing weight or building bulk, the most successful people are often those who have a fitness trainer who can give them the right workouts and who keep them motivated.
In investments, you need to find the right professionals to help you wade your way through your investments. In Canada, you can hire a fee-for-service advisor who typically charges by the hour. Or you can work with financial planners and advisors who can help you get into the right investments.