Ellen Roseman: Advice for novice investors
- March 25, 2009 8:50 AM |
- By Ellen Roseman
Money Talks is a daily business column from CBC radio.
Ellen Roseman is a business writer at the Toronto Star.
(Listen to the original audio of this column.)
The stock market has bounced back this month. But many investors still have big losses on their equity holdings and retirement nest eggs.
This has led to some soul-searching. Among the questions being asked by investors are the following: What could I have done to avoid big losses? Did I have the right advisers? Was I actively involved in the decision-making or did I delegate too much to someone else?
Here’s some advice for people asking such questions.
One, your best defense is a balanced portfolio. This means having enough money in income-earning investments to counteract at least some of the decline in stock values.
The age rule helps you ensure a portfolio is balanced and can stand up to stock market volatility. Subtract your age from 100. The result is the most you should invest in stocks.
If you’re 25, for example, you can have up to 75 per cent of your savings in stocks and equity funds. You have time to wait for markets to recover and rise again.
But at age 65, you have less time to wait since you’ll need to use some of your savings for retirement income. A 35 per cent stock allocation is the maximum you need.
Two, investment advisers should help you get the right mix of stocks, bonds and cash. It’s their job to help you stay diversified. If you’re not getting advice on asset allocation, start looking for a new adviser.
Remember this important fact. When investment sellers are paid by commission - and most are - they often focus on selling you the investments that pay them the highest fees. They want to increase their bottom line as well as yours.
Unfortunately, equity funds are much more lucrative for sellers than bond funds and money market funds. Advisers make even less selling guaranteed investment certificates and high-interest savings products. As a result, clients often get shortchanged.
Three, you should be an active participant in making investment decisions. This is your money at stake. No one cares as much as you do about keeping your nest egg safe and growing at a reasonable rate without excessive risk.
Don’t be afraid to ask questions, especially about how an investment adviser is paid. Insist on your right to get answers in plain language, free from jargon or vagueness.
And if your adviser is not in touch with you regularly by phone, email or in person, make a switch.
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