What you need to know about your investments

It seems to me that people take their investments for granted. In the sense that most people default to the conclusion that their money is being looked after in their best interest. But I don’t think that’s always the case, in fact it might rarely be the case.

If you ask someone ‘Nike vs Adidas’, ‘LeBron vs Jordan’ or ‘Mac vs PC’, everyone has their own opinion and reasoning for one over the other (Nike, LeBron, Mac). When asked about why someone is with their financial institution, most people don’t really have an answer. Maybe it’s who they had an account with since childhood, their parents bank or it’s who their employer recommends. But in more cases than not, most people really don’t spend any time looking into their options.

So why is this the case? The first thing that comes to my mind, is it can be intimidating. It’s tough to have a strong opinion about something that isn’t taught to you. At least, people shouldn’t have an opinion about something they don’t know about. But when the topic is your financial future, it’s important enough that everyone should have confidence in their choice. Your financial future is too big a thing to not have an opinion or say about it.

I’ve put together a list of things I believe are important to know about your investments to help you ensure that your money is working in your best interest. These are questions you can ask your financial advisor and they should be able to provide you with informative answers.

Remember no matter what your current knowledge about investing is, everything can be explained simply. If your advisor is throwing complicated terms at you or you feel like they’re not answering your questions fully, chances are there’s something they don’t want you to know. If you’re not comfortable and confident in your fanancial advisor: DON’T SETTLE! This is your financial future after all.

1. How is my money being invested? 

It’s important to know how your money is being invested. Warren Buffett never invests in a company he doesn’t understand, even if that means missing out on great opportunities. He doesn’t speculate with his investments and I think this is important for your own peace of mind. If I’m invested in a company or industry that I understand and believe in then I’ll be okay when the stock price fluctuates. No matter how good a company is, the stock price will always fluctuate and just a tip, praying doesn’t help. You should know where your money is being invested and why it’s being invested there.

A healthy portfolio should be diversified and contain a mixture of stocks, bonds and cash. The ratio of each should reflect your risk tolerance (low, medium or high) and how far away you are from reaching your financial goals (younger = more risk, older = less risk).

2. What do you charge and what do I get for that fee? 

High fees over your investing lifetime can take a lot of money out of your pockets so it’s important to know what you’re paying in fees and how it compares to the competition. Every financial institution has access to the same markets and returns should be comparable so really fees can make a big difference. Find out what’s included in your fees, on top of financial planning you could have access to tax and retirement planning, insight into how to make your RRSP and TFSA’s work for you, life insurance needs or other services. If you’re okay with paying a fee, make the most of it.

There can also be investing options for you that don’t carry high fees. Mutual funds are actively managed funds but they haven’t been proven to provide higher returns than low maintenance index funds, as explained in Millionaire Teacher. You don’t need to pay high fees for a great return, so ask questions and make sure you know what the best options for you are.

3. Am I on track for my retirement plan? 

Make sure you have a plan in place for how you want your retirement to look like and what the plan is for you to get there. This should include making regular contributions (a little from each paycheque), maybe a yearly lump sum contribution and a conservative interest rate. Retirement may seem like it’s a long way down the road but the longer you have to prepare for it the more comfortable you’re going to be (both in terms of your financial situation and blood pressure). 

Establishing good financial planning habits early on can pay dividends (literally) and become so routine you won’t even notice how much you’re saving.

4. Is this my best option for investing? 

Make sure your money is working hard for you and it isn’t just in an account that will be paying the bank high fees. This is your hard earned money so if you and the bank are making the same interest rate off your money, there’s a problem.

Make sure your risk assessment makes sense for where you are, your return will play a huge part in your overall portfolio. If you’re behind in where you should be for your financial planning the automatic instinct is to contribute more money, but before doing that, make sure you’re getting a good return. Even a 1% difference can make a huge difference in the long term. Successful investing is meant for long term gains not overnight riches.

If you’re not satisfied with high fees, low returns or poor service, you can invest on your own similar to how a financial institution would manage your own money. Although investing on your own takes some research and understanding, it may be worth it if it’s something you’re interested in. But make sure your focus is investing not speculating.

If investing yourself isn’t your cup of tea but low fees are, there are low fee financial advising options that make a lot of sense (if you’re curious about this, don’t be afraid to ask).

5. What sets you apart from your competitors? 

By having a conversation and having your questions answer you should be able to determine if your financial advisor and current situation is the right one for you. You should feel confident of your choice and hopefully be able to strongly recommend your choice to your family and friends. It’s your hard earned money, your savings, your financial future, and ultimately your choice. Make sure you know why you’re making it.

Asking the right questions should give you an insight into how your money is working for you and provide confidence in the process. Understanding how your investments work isn’t a huge commitment or responsibility and I believe just sitting back and hoping everything is okay isn’t the right way to approach this. Your financial future isn’t something to leave up to chance, it’s up to you to ensure you’re going to have the future you want and dream of.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.

About the Author

Derek Condon, CFP®

Derek Condon is a Certified Financial Planner and Mortgage Advisor specializing in financial planning, investments, wealth-preserving insurance, mortgages, and others. I help my clients with a variety of goals. From someone who is just starting their investing journey to a retiree managing their wealth. From a first-time home buyer to someone refinancing to get their very best mortgage. And, of course, everywhere in between.