Are you better to manage your investments yourself or should you select an investment advisor to assist? How do you choose the right advisor?
What is your allocation between investing in stocks or bonds? Should you diversify outside of Canada? Do you want to own stocks and bonds directly, or purchase a mutual fund that owns those assets?
Investing, like other important areas of life, requires decision-making. Let’s consider a couple of useful techniques that might assist with your decision-making.
A simple option is the pros-and-cons list. Compare your reasons for going ahead with a decision to those of why you shouldn’t.
You can enhance this list by giving a certain weight to specific criteria. For example, you could evaluate different advisors based on their communication ability, tax knowledge, or location of their office.
Emotions can be significant in decision-making, especially the fear of making a mistake.
You may prefer to own a select number of stocks, but what happens if one or two of those stocks perform very poorly? Are you better to own a mutual fund that owns hundreds of stocks in order to spread your risk?
Yes, this is safer, but it eliminates the possibility of investing heavily in a few stocks in the hope that one of them might have an extraordinary appreciation in value.
Decisions should be made based on what makes the most sense given your circumstances, combined with the information you have to evaluate your options at the time of that decision.
After you have made a decision what is your gut feeling? If you aren’t comfortable with your decision, go back and reevaluate the alternatives.
Decision making is in important part of investing. Better decisions will result in better outcomes.
Peter Watson is an agent of, and securities products are provided by, Aligned Capital Partners Inc. (ACPI). ACPI is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Peter Watson Investments