There are many problems with our investment industry but the one that the regulators and media try to focus Canadians’ attention on the most – fees – is a red herring and is distracting investors from the real problem which is highly variable and unpredictable net returns.
Investing in the Casino
Regulators, the media and ETF providers would like you to think that the manager is irrelevant and if you’re going to invest in an asset class, you should obviously choose the lowest cost provider otherwise you’re just throwing your money out the window. This investment logic would be true if the two investment choices were sure to have the exact same risk/reward profile.
While this may be an accurate portrayal of most pooled investment products investing in the casino we call a stock market, it is most definitely not true when looking at alternative investment asset classes where the skill, knowledge and experience of the manager is crucial to your investment success.
Think of your last major purchase (car, house, gift for a loved one). Did you select the cheapest one you could find regardless of quality? I doubt it. I presume you looked at many factors to narrow down your choices, then selected the one that seemed to give the best value for your money. If this weren’t the case, we’d all be driving Yugos and living in yurts.
Unfortunately, because most of us are influenced by what we read and hear, we’ve come to believe that we should start our investment decision-making by looking at what it costs rather than narrowing our selection based on our needs and wants. Many advisors and dealers even compete for your investment business based on being the lowest cost provider.
Would you go with the lowest price with any other professional service provider such as a doctor? Do you buy everything at Walmart or dollar stores? Of course not!
Wants and Needs
Your investment portfolio choices are as, if not more, important to your family’s long-term happiness and health as the food you choose, the car you drive, the house you live in, etc. Therefore, it only makes sense to start your investment selection process by focusing on what you want/need from your investment portfolio.
For most of us, this means an investment that provides consistently positive and stable returns in the high single digit range with extremely little if any downside risk. Those types of investments require lots of work to find and manage and may cost more than run of the mill equity ETFs or balanced mutual funds, but that doesn’t matter. What does matter is how much your portfolio grows every year – in other words, your net return on investment.
If you’re interested in discussing an investment strategy to meet your needs, click here and fill out the form to get started.