{"id":707,"date":"2016-12-14T17:35:27","date_gmt":"2016-12-15T01:35:27","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=707"},"modified":"2016-12-15T07:12:23","modified_gmt":"2016-12-15T15:12:23","slug":"the-two-crucial-success-factors-that-often-elude-investors","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/the-two-crucial-success-factors-that-often-elude-investors\/","title":{"rendered":"The two crucial success factors that often elude investors"},"content":{"rendered":"

There are two crucial success factors that often elude investors – \u00a0the ability to<\/strong> save<\/strong> consistently and the discipline<\/strong> to stick with a saving and investment plan over time.<\/p>\n

Successful investing is a long-term proposition. \u00a0In the short-run financial markets are very unpredictable, gyrating\u00a0to a complex and increasingly-interconnected information flow that changes by the second. \u00a0Sentiment and trendiness rule the short-run as markets oscillate around a more predictable long-term relationship\u00a0between risk and reward. \u00a0As the great investor Benjamin Graham once said:<\/p>\n

\u201cIn the short run, the market is a voting machine but in the long run, it is a weighing machine.\u201d<\/p><\/blockquote>\n

Furthermore, we believe that most investors are confused about what it is that is difficult and what it is that is straightforward\u00a0about investing. \u00a0Let’s start by looking at some essential yet straightforward steps for creating\u00a0a sensible portfolio that should put you put you in a good position to achieve long-term investment success:<\/p>\n

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  1. Decide whether you’re going to do it yourself or do it with the help of an advisor<\/strong>. \u00a0While it may seem obvious – you want to ensure that if you do choose\u00a0to work with an advisor that they will act in your best interest. \u00a0In Canada, the vast majority of advisors are not required by law to work in your best interest – that doesn’t mean they won’t, but be aware – Robb Engen addressed this issue in a recent piece on Jonathan Chevreau’s Findependence Hub –\u00a0Commission-based advice & suitability: a dangerous combination<\/em><\/a><\/li>\n
  2. Decide how much risk to take.<\/strong> \u00a0Risk is most effectively assumed by exposing your portfolio to broad asset classes with different risk characteristics. \u00a0For example stocks are riskier than bonds but that risk is usually rewarded with higher returns over the long run. \u00a0 Your portfolio should be allocated to different asset classes so that it’s appropriate for your risk profile. \u00a0And we don’t just mean you take a questionnaire and allocate according to your score – your allocation really has to reflect your specific financial situation taking into account both near and longer term goals.<\/li>\n
  3. Pick what type of securities or funds in which to invest<\/strong>. \u00a0A sensible\u00a0portfolio should be diversified effectively across geographies, industries and other dimensions of risk.<\/li>\n
  4. Pick investment products that keep costs\u00a0low\u00a0<\/strong>– compound interest is a modern miracle – costs work in the same way but against you and the other side of that miracle is a curse. \u00a0For example, mutual fund fees in Canada are among the highest in the world – that can take a huge dent out of your nest egg over the long run.<\/li>\n
  5. Trade only when necessary<\/strong>\u00a0 – Trading should be kept to a minimum and is really only necessary when the portfolio strays too far from its target allocation, you have new savings to invest \/\u00a0you need to withdraw funds, or your situation has changed by a magnitude that requires a new allocation.<\/li>\n<\/ol>\n

    So go create a low cost diversified portfolio that suits your risk profile and trade when necessary to rebalance back to target – it’s actually very straight forward. \u00a0There are wonderful products on the market for both do-it-yourself’ers and those who want to work with an advisor. \u00a0The merits of such an approach are evidenced in\u00a0volumes of peer reviewed academic literature, in the publicly available records of investment fund performance and anecdotally from scores of investors.<\/p>\n

    Unfortunately it’s easier said than done.<\/p>\n

    While the investing side as described above may, on the surface, seem fairly formulaic and mechanical, it doesn’t properly address two extremely important elements that are essential to long-term investing success.<\/p>\n

    The first may seem obvious but is not easy – saving<\/strong> – without\u00a0money to invest in the first place it’s hard to benefit from a long-term investment plan! \u00a0But saving is really hard. \u00a0It forces you to ask yourself some tough questions:<\/p>\n