It's Your Money  

5 bad investing mistakes

The investment world is often a very confusing and difficult maze for the average consumer to sort through. With countless different investment options, it’s no wonder that many find themselves unsure of who to trust or what to do.

While you likely won’t become an expert in all aspects of the investment world, identifying and watching out for these major pitfalls can help keep your portfolio protected and your retirement on track.

1 – Being overly greedy. After years of impressive stock market returns like we’ve recently seen, it is easy to allow greed to take over and consider putting all of your money into the higher risk parts of your portfolio that have earned the highest returns.

Instead of allowing this basic human emotion to take control of your decision making, you should maintain realistic return expectations and keep a well balanced and diversified portfolio through good times and bad to smooth out the inevitable market volatility.

2 – Buying into bubbles. While this should be common sense, it’s a sin that is committed again and again during each market cycle. The “tech bubble” of 2000 would be a classic example as sound reasoning and rationale were thrown out the window as people kept buying these assets long after the valuations had gone through the roof.

3 – Allowing your pride or ego to get in the way. Do you think investing is easy? Are you confident that you’re smarter than everyone on Bay Street and Wall Street?

Even the most seasoned investment managers know that they will never understand every aspect of the marketplace and that they will be wrong some of the time. Check your ego at the door, ask for advice when necessary and ensure that your portfolio can withstand the hit if you make a bad choice.

4 – Trying to time the market. There is nobody who knows for sure what direction the stock markets will go all the time. So trying to base your decisions of when to put money in or take it out on market timing is a near impossible task and the costs of being wrong are huge.

Instead of trying to time the market fluctuations, consider putting money in on a regular basis (dollar cost averaging) and taking money out in a similar fashion (such as taking regularly monthly RRIF payments). Likewise, the ideas of moving everything to cash for a period of time can be equally costly and if you have a well-balanced portfolio that fits your risk comfort levels, you should have no reason to mess around with it.

It’s time in the market, not timing the market, which will lead to long-term growth.

5 – Choosing the wrong advisor. With most Canadians relying on advisors to help guide them through this complex world, the largest mistake you can make is picking the wrong person for that job. Outside of Quebec, there are no job title restrictions in place in our business so that means it’s up to the consumers to decipher what qualifications their chosen advisor really has.

For example, the average consumer may not know that a CFP (Certified Financial Planner) professional has taken a multi-year course and exam load to achieve that prestigious designation while someone else who has the title “Financial Planner” on their business card may have done nothing more than write a quick 45 minute life insurance agent exam.

While by no means exhaustive, the above list gives you an overview of the largest and most common mistakes that many Canadians make in managing their investments. Regularly review your own investment plan to ensure that you’re not committing any of these deadly mistakes.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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