So, how do you do a better job managing your investments, either on your own or with a financial adviser? About 70 people, keen to brush up their skills, have enrolled in the course I’m teaching at the University of Toronto’s school of continuing studies.
In the first week, we focused on the role of emotions. Behavioural finance shows that investors handicap their performance if they react impulsively to fear and greed or if they fall prey to overconfidence. I found interesting examples and useful lessons on reining in your emotions (or building in an overconfidence discount) in Jason Zweig’s new book, Your Money and Your Brain and an older book, Why Smart People Make Big Money Mistakes and How to Correct Them, by Gary Belsky and Thomas Gilovich.
In the second week, we looked at controlling costs. This is one area where investors have some degree of control. It’s hard to predict moves in the economy, interest rates and stock and bond markets. It’s hard to predict how fund managers will perform or how individual companies will perform. But if you can get a handle on your costs, you can improve your investment returns.
To keep costs low, you can avoid buying mutual funds with deferred sales charges and above-average management expense ratios. And instead of chasing hot fund managers, you can use passively-managed index funds or exchange-traded funds in your portfolio. Also, do-it-yourself investing with a discount brokerage account can reduce costs, as long as you don’t get addicted to trading online.
We also looked at the importance of marketing in the financial services industry. Companies can create demand for new products by manufacturing a crisis that needs the solution they offer. That’s all too common in selling retirement products and trendy new mutual funds.
An example of marketing hype is Manulife’s Income Plus, which talks about providing guaranteed income for life and all the upside of the markets. But at the website, you can barely find any mention of the high-priced guaranteed investment funds Manulife sells and the added cost of providing the guaranteed income for life. Maybe Manulife wants to leave “investor education” to commission-paid financial advisers, but too many of them push products without proper explanation. (Just look at Portus principal-protected notes linked to hedge funds. As the biggest seller of this product, Manulife had to pony up almost $240 million in refunds when the company collapsed.)
A low-key marketing campaign seems to be working for Steadyhand, a new fund company keen to differentiate itself from others (all too rare in a copycat industry). The president came from Phillips Hager & North, which has low fees, a limited product line and average performance, except in Canadian stocks and bonds where it outperforms. Here’s something I found at the company’s blog about its costs.
Providing top-notch money management at a reasonable price is what Steadyhand is all about. And our fee structure rewards clients that stick with us and grow their assets here. As their account grows, the fee is reduced and if they’re with us more than 5 years, it is reduced further.
I acknowledge that there are lower priced options out there, namely exchange-traded funds. But for truly active management, Steadyhand has few peers.
I’ve never had a formal contact with this new fund company, though I know their people are writing blogs and posting comments at other blogs (including mine). Blogs are a new marketing channel for many firms. There’s a trick to keeping them conversational and informative. You don’t want to read an ad masquerading as a blog.