Trevor Abes: Writer

Tag: fiduciary

Young Canadian Investor #30 — Reasons to Hire a Financial Advisor

There are people out there in the world who are trained to manage other people’s money. They’re called financial advisors and a well-chosen one can serve a meaningful purpose in your life if you actually need the help.

Let’s begin by explaining how a relationship with a financial advisor generally works. It’s pretty simple: you hire one to handle your investments and help you build a financial plan and you pay them a fixed percentage of those investments— usually around 1%—every year for their services. Certain financial advisors will opt for a flat fee instead because they consider it fairer to be paid the same no matter the client they’re working with. Notice how that’s not the case with a 1% yearly fee, because the more you invest, the more that 1% will represent.

We’ve already learned about reasonable return expectations when investing in a diversified portfolio of stocks and bonds, so what could possibly make it worth it to give up as much as 1% of that return every year to have a trusty advisor by your side?

You don’t have the time. It’s totally understandable if your life and work don’t leave you with the time you need to learn how to invest, much less manage those investments in a confident way on a regular basis. When family and career are your priorities, you’ll be able to give your all to them by interviewing a handful of advisors to find the right one for you.

You don’t have the mind. In this scenario, you could have all the time in the world but zero interest in acquiring investment knowledge. For some, the subject is such a bore to the point of being upsetting and I get it. Everything is not for everyone, and it’s senseless to be ashamed of that. That’s why experts exist in any field who can help you for a reasonable fee. And in many cases, like tax planning, and wills and estates, you’re going to require a level of expertise that probably isn’t feasible to pick up by reading up on it over the weekends. In many cases, you want the confidence of a professional having done the thing right.

You can afford the convenience. The beauty of money is that it can buy your freedom. Just like you may be perfectly able to clean your house once a week, but choose to pay someone to do it to free up a few hours for family time on the weekends, the same can be said for the work involved with managing your financial affairs. If you’d rather be doing something else, and can pay an advisor to take care of your money, going ahead and doing that will add value to your existence.

Now, what qualities does a stellar financial advisor exhibit?

  • They should be a fiduciary, meaning they are legally obliged to act in your best interest. Most advisors in Canada are not fiduciaries but are ruled instead by the suitability rule, which leaves room for them to line their pockets by selling you funds with higher fees, even though you could buy cheaper ones and still meet your financial goals.
  • Expanding on the last point, advisors shouldn’t be able to sell you an investment fund with a higher fee—and a higher commission for them—even though cheaper options exist that serve the same purpose. That’s called a conflict of interest. It’s your money, so as much of it as possible should stay in your pockets.
  • Finally, and it may sound obvious, but your financial advisor should be on your level. You should be able to speak to them frankly about your goals with trust and without judgement and build a meaningful relationship over the coming decades. They should also explain everything they do with your money with patience and in layperson’s terms you are sure to comprehend.

If you put the points we’ve discussed into practice, you’ll find exceptional financial professionals to have in your corner and grow your money responsibly over time. On the flip side, if you’re more than willing to learn how to invest for yourself, there are plenty of books and videos out there to get you started. Consider my new book, Nine Steps to Successful Investing: A Guide for Young Canadians, to begin your investing journey and improve your financial health in no more than an afternoon.

I’m also available to teach you 1-on-1 over Zoom if you prefer.

Feel free to drop any questions in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #29 — Delineating Your Relationship With Money

As an investor, you’re somewhere between the person who doesn’t lose sleep over their investments and the person who can’t rest knowing they’re at risk of losing money. The former is able to take on riskier investments with the potential for a higher return. The latter will accept a lower return, so long as it means their money is protected from substantial loss. You see the trade off here. More security means less money in your pocket, and vice versa.

The key to making your investing life as easy on yourself as possible is recognizing where you fall on the spectrum and why. That way, you’ll hopefully be able to make adjustments to how you invest to make room for who you are. Let’s try and gauge where you stand with a couple questions.

Are you living paycheck to paycheck or are you able to save some money, however little, at the end of the month?

If you’re not able to save, investing is out of the question for the moment. Your basic expenses take precedent. If you’re able to save, it’s important to build up an emergency fund first—aim for a few months of expenses—before investing the remainder. Depending on your answer here, you may feel worried about putting your money to work in the stock market. While stocks offer you a positive expected return over the long term, they go up and down a lot day to day, which can cause investors to become distressed seeing the value of their investments move so wildly. The solution here is educating yourself about the stock market so you don’t get spooked by how it’s supposed to work.

Are you a saver or a spender? 

To put it another way, if you have a little cash in your pocket, will you end up treating yourself to a nice meal at your favorite mom-and-pop brunch spot, buying books, clothes, or your version of a treat, or will you stash the cash in your savings account? If the money is likely to disappear into instant gratification, you’re best advised to automate your savings and investing by asking your bank to transfer a certain amount of money every month into the appropriate accounts. We all have personal histories that determine why we behave with money the ways we do. If you can stomach it, go back in time and see if you can identify your money triggers and the patterns they nudge you into.

In my case, I buy lots of books and take pride in hauling 30 or so boxes of them around every time I have to move, so I have to keep that habit in check. I have a sweet tooth, meaning a considerable portion of my grocery bill goes to chocolate, sour gummies, and other such base pleasures. I also grew up fairly well off, while the last 10 years have been a struggle financially, making me prone to save all the money I have when I should be setting some of it aside to have fun and enjoy myself.

In the end, if you can afford your indulgences while saving enough to buy yourself the future you want, you’re on the right track.

How does living in a capitalist society and having to make money to support yourself make you feel?

Are you happy to rise and grind every day to compete and earn your place in that society, or are you hell-bent on avoiding the rat race and forging a different path?

Let me know in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #28 — Why Stocks Go Up and Down

If you look up your favorite stock’s price on TMX and continually refresh the page, you’ll probably notice that the price fluctuates moment to moment and wonder why. Well, what it comes down to are buyers and sellers, the former looking for the cheapest price per share possible, the latter looking for the most expensive, according to their views on what the business underlying the stock is worth.

Bullish, as opposed to bearish. See below.

What happens is that a random buyer’s price coincides with a random seller’s price, triggering a transaction. They happen to hold similar views on the value of the underlying business so they’re able to do business with each other. What one investor is willing to pay is what the other is willing to receive. Now, if their agreed-upon price is a few cents higher than what the stock last traded at, you may notice a jump in price when you refresh the page, especially if a considerable number of shares changes hands. The same goes if the agreed-upon price is lower, possibly leading to a cheaper price on the next refresh.

Moment to moment stock price fluctuations also reflect the decisions of thousands of buyers and sellers acting on their financial needs. Having a view on a what a company is worth and how much you should pay for its stock will help you make a more informed investment, but if you need the money to pay hospital bills, you’re going to sell no matter what. Same goes for car repairs, a house extension because more babies are coming, or taking a trip somewhere to decompress if you really need to chill.

Longer term, though, and we’re talking decades, stocks go up —i.e. have a positive expected return on your money—because they reflect the value successful businesses create for their customers. A profitable track record is generally reflected in a higher stock price, and vice versa.

One nice thing here is that, while businesses are founded and folded every week, economies as a whole tend to grow over time, meaning the successful businesses outweigh the losers overall. So if you invest in a portfolio of stocks meant to represent every economy across the globe—at least those with public stock markets—you can partake in their growth and make yourself some money.

You can achieve this by investing in a diversified portfolio of index funds that own every publicly available stock in the world, or at the very least a representative sample. Have a look at my short guide to investing for young Canadians for step-by-step instructions. I’m also available to teach you 1-on-1 over Zoom if you prefer.

The hardest thing about investing is wrapping your head around the terminology. Even if it’s not with my help, don’t shy away from educating yourself and facilitating the fulfillment of your financial goals.

To end, it’s important to point out that there’s no way to know for sure why a stock moves up or down in the short term. There’s no electric sign somewhere announcing that Suncor stock dropped because investors are bearish, as opposed to bullish (see above), on the price of oil, or Canadian Tire stock rose thanks to consumers growing increasingly comfortable with doing their home improvement shopping in packed stores. All financial analysts ever have are educated predictions based on available information.

The only thing we know for sure is that the better a company is at making money and funding its own profitable growth, the better the chance that its stock will soar and make its shareholders wealthy.

Feel free to drop your questions in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #17 — Why I Write With Young People in Mind

It may or may not be obvious by now, but as a young person time is still capable of being very kind to you. It can still heal all your non-lethal wounds, just by letting it pass, because you have so much of it still to spend.

Go forth and get yours, lil cub.

When it comes to investing, having healthy time reserves is essential to actually making money. Stocks have a positive expected return only over very long periods—somewhere around 7% per year for a globally diversified stock portfolio over a couple decades—but they’ll go up and down unpredictably year to year. You’re in a fantastic situation here because, as a twenty- or thirty-something, you can simply keep investing and let those up and down years eventually add up to money in your pocket while you focus on living your life.

Another reason I’m interested in helping young people like myself invest is how boring all this stuff can get. I happen to be someone who’s blessed with an appreciation for economics, personal finance, and business analysis, but 90% of the people my age that I know can’t take more than a few minutes of investing talk without their eyes going glazy. I think it feels like work or grade school, something you’re obliged to partake in without particularly wanting to. My intention with Young Canadian Investor is to convey basic investment knowledge in accessible language to hopefully knock that 90% down in a meaningful way.

One more point worth mentioning is how nonurgent it can feel for a 27-year-old to put money away they’re only going to use 10-30 years from now. It’s much more enticing to splurge now than to delay gratification for your future self by investing 40 of those $60 in your wallet. And make no mistake, you should splurge to a degree. Life is short and it’s a gift meant to be savored. You just want to take steps to continue savoring comfortably well into your old age, and investing is one way to ensure that happens by minimizing your chances of going broke.

Being young is only full of advantages if you know how to recognize them. I’m just here to point one of them out for you. It’s the same reason I wrote my little book, Nine Steps to Successful Investing: A Guide for Young Canadians. I wanted to make it easier for people my age to cushion the expansive futures before them with more financial security, at least compared to not investing at all. Feel free to give it a shot and to ask any questions you may have in the comments.

And I do mean any, no matter how basic, because we all gotta start somewhere.

I’m also available to teach you 1-on-1 over Zoom if you prefer.

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

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