How to choose your investment philosophy

The last two years of market returns have left many investors quitedisillusioned. When the market reached its bottom on March 9, investorssaw their hard earned savings and investments fall from the highs of2007 to levels not seen in Canada since the earlier part of the decade.

 

The last two years of market returns have left many investors quite disillusioned. When the market reached its bottom on March 9, investors saw their hard earned savings and investments fall from the highs of 2007 to levels not seen in Canada since the earlier part of the decade.

 

Even though the market has had a tremendous run-up since then, investors are still questioning if investing in the stock market through different vehicles is worth it, or if they will be better off putting their money to work somewhere else, such as real estate or just simply leaving it in the bank. Many may say that investing is like gambling -- it’s all luck and they’re not interested.

 

That couldn’t be further from the truth.

Most people choose to invest to attain a goal, whether it's investing for retirement, their children’s education, or just simply to keep up with the rising costs of living. Individuals invest to better their position on their way to achieving their desired goals, which is not gambling. It is a means by which people can get from where they are today to where they want to be in the future. Investing is using the vehicles necessary to get you from point A to point “B on your economic road map. The numbers usually decide what risks you need to take, how long you will have to invest for in order to achieve your goals and which investment you will choose to help you succeed.

There are other places an individual can deposit their money such as real estate, which should be a part of a diversified portfolio. However, at times real estate at times can be more illiquid than stocks or mutual funds -- if at some point you need to access money and thus need to sell some real estate, the process is a lot longer and more difficult at times to do so. On the other hand, if you own mutual funds or shares of large companies that trade frequently on an exchange there should be no problem to get out. Thus, real estate can have its drawbacks like anything else. If an investor can afford real estate alongside other vehicles such as stocks and bonds, that is the ideal situation.

If an investor has a long time horizon then they should not be worried about the day-to-day ups and downs of the market. In fact, an investor with a long-term approach wants the market to remain low for an extended period while they accumulate assets at low prices. Therefore, if you are a young investor, or an investor with many years to reach your goals, you should continue to add to your investments regardless of market sentiment or movement -- as long as you are investing in good quality products.

Investors that have a shorter-term horizon must monitor their situation more closely to see if their goals can be attained in a shorter time period. The rule of thumb is that the older an investor is, the more fixed income (e.g. bonds, debentures) they should have in their portfolio.

 

However, this is just a rule of thumb. Sometimes investors cannot attain their goals by purchasing just bonds. If the rates of return on bonds are not high enough to achieve one's target, then these investors must purchase equities to hopefully obtain the extra growth to reach their objective. This is where an investment advisor can help you design a portfolio to best suit an investor’s needs.

If an investor is going to own equities as part of their diversified portfolio, they should own best of breed equities. When you purchase these investments, set your targets as to when you will sell and then stick to that number. You don’t have to be an active trader to make money in the stock market but you must be disciplined. If your investment should fall in value but the fundamentals of that investment are still intact, don’t panic...buy more. Especially if you have a longer time horizon. Panic selling is the worst thing an investor can do, and unfortunately we have seen plenty of that in the last year and a half.

If you have any questions
regarding the above article or are looking for an Investment Advisor to help
you with your portfolio, please send me an email at asmall@dundeesecurities.com. I
will be glad to speak with you!


Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro Canada.

 
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