The Question I get asked the most

What should I invest in?

Quick Answer: It Depends

If you go to a bank branch to get advice on what to invest in, your advisor will probably ask you some questions to determine your risk profile, and then her computer will produce a portfolio of mutual funds that has the bank’s brand name on them.


If you can start investing, going to a bank branch is not necessarily the worst place to begin. In the early stages, the most important impact on the growth of your investments has to do with your savings rate, rather than the rate of return on your investments.


However, did the investment decision you made at the branch during that hour-long meeting adequately account for your other financial and personal circumstances?


The investment decisions you make depend a great deal on other aspects of your life. Are you saving up to buy a car? A house? To send your children to university? For retirement? In other words, is the proposed investment for short, medium or long-term purposes? Do you have a pension plan? Do you have a mortgage or significant other debt? Etc.


Without knowing these sorts of details, it is premature to offer an investment recommendation.


Financial Planning: More than Investment Advice

Financial planners seek to address all aspects of your financial circumstances. This approach is referred to as comprehensive financial planning. The point is, your money is not a component of your life that can be considered in isolation from all the other aspects that make up your life. Rather, investment planning needs to be integrated with a comprehensive review of your financial circumstances.


Limits of Investment Advice from a Fee-for-Service, Advice-Only Financial Planner

In order to avoid conflicts of interest, I and other financial planners who operate on a fee-for-service, advice-only basis, have chosen not to become licensed for the sale of mutual funds, securities or insurance products. This necessarily imposes limitations on the degree of advice we can offer to our clients. By regulation, the ability to offer specific investment advice is tied to the possession of a licence to sell investment products.


So, with respect to investments, you will not hear me suggesting that you buy this mutual fund or that stock or bond. That doesn’t mean you cannot come to me for guidance on investments as part of a comprehensive financial plan.


Establishing an Investment Policy

One of the things that a financial planner will do is to take a look at the investments you already have and help you to understand the makeup of the portfolio, including how much that portfolio is costing you in fees, and then suggest an investment policy that makes sense given your situation. An investment policy includes, among other things, asset allocation, which has to do with the percentage to invest in equities (stocks), fixed income (bonds or GICs), and cash.


Man plans, and God laughs

The planner will also project likely returns from this portfolio of investments over the years. However, projections are not reality; these will need to be reviewed and revised as time passes. Changes in your life will make such revisions almost inevitable. As the old saying goes, “Man plans, and God laughs.” That doesn’t mean we don’t plan. It just means that plans are always subject to change.


Finally, since advice-only planners do not do your investing for you, depending on your needs and desires, you will be recommended a variety of avenues by which you can invest. These run the gamut from the Do-It-Yourself services offered at discount brokerages to full-service discretionary portfolio managers and several options in between. I will leave that discussion for another post.


Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, accounting or legal decisions.


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