Take 60 people and teach them all they want to know about investing, from mutual funds to stocks to portfolio building, in three sessions of two hours apiece. Some want to know how to retire early and how to talk to their investment advisers without sounding stupid. And a few are keen to start trading options and get in on all the hot IPOs, such as Lululemon, without getting squeezed out by bigger clients.
That’s my class, Investing for Beginners, which kicked off this week at University of Toronto’s school of continuing studies. It’s a challenge with so many people and knowledge levels and so short a time to work together. So, I’m using this blog to expand on what I can tell them and what they can learn.
Does anyone know of a really terrific, easy to understand introductory book on investing? I recommended three, Investing for Canadians for Dummies, Rob Carrick’s consumer guide to banking and investing and Derek Foster’s The Lazy Investor. Love to get more picks.
Is it better to send beginners to websites, like InvestorED and Morningstar, rather than books? Maybe the Internet works better than books since it’s interactive. Which websites would others recommend?
Here are some points I made in the first class. Don’t feel pressured to invest in stocks or equity funds. Start with safe GICs or high-interest savings accounts and use the interest to invest in more risky stuff. It’s like setting up your own principal-protected note, without the high fees.
Mutual funds used to be easy to pick, but they’ve become a nightmare of consumer choice. If you can’t make any sense of what to buy, go to your bank and ask for help. They have certified financial planners on staff and they sell other mutual funds besides their own. There still may be high-pressure sales and conflicts of interest, but not as much as with commission-paid fund dealers.
Don’t believe predictions. No one can forecast where the economy and stock markets are going with any degree of accuracy. Don’t make any buy or sell decisions based on one day’s trading action and the prognostications from media commentators.
Costs matter, especially when it comes to mutual funds. Management expense ratios are high and not coming down as fund sizes balloon. Always check the MER and recognize how much goes to the investment adviser. Demand service for money paid. Wouldn’t it be great if you could see a dollar figure for the amount going to your adviser each year on your fund statements?
I once sent a couple for a portfolio review with Warren Mackenzie at Second Opinion Investor Services. They owned 47 mutual funds, when all you need is about 10 to be diversified. The average MER was 2.41 per cent and they were paying $22,148 a year to their adviser for this overdiversification. The worst thing was that with their $900,000 portfolio, they could have gone to an investment counsellor and paid less than 1 per cent a year. I checked with them later and they were still with the same adviser, but trying to restructure and slim down the portfolio.
Muutal funds are like clothes in your closet. If you keep buying new ones and don’t clear out the old ones, you end up with clutter. Some advisers encourage this bad behaviour by always asking you to buy something and never suggesting you sell anything.