Pattie's Blog: These 10 tips will make you a better investor
(AP Photo/Richard Drew, File)
Published Tuesday, October 30, 2012 11:10AM EDT
Last Updated Tuesday, October 30, 2012 11:14AM EDT
A few years ago I had a chance to sit down and chat with Satish Rai who is an award winning Portfolio Manager with TD Asset Management who oversees literally billions of dollars. I asked him what it would take to become a better investor. In David Letterman-like style he listed his Top 10 basics. While the markets change constantly, your strategy shouldn't and what he told me in the past is still relevant today.
1) Err on the side of caution
Take on less risk than you think you can tolerate. People only realize their true comfort zone when stocks or funds are going down.
2) Have a long-term view
Many people have far too short of an investment time horizon. Block out the hype from investment brokers and the media. Many investors get bored and for excitement gravitate to the higher volatility investments over more sensible investments. Avoid this as it will punish your portfolio.
3) Avoid over-confidence
People who have investing success early tend to have an inflated view of their investment skills. Time in the markets builds skill.
4) Appreciate the power of compounding
What may seem like a small annual return can add up over time. For example, a 6 per cent return results in a doubling of an investment's value in 12 years.
5) Taxes should be secondary to your investment strategy
Dividends, interest and capital gains all add to your wealth, even if they are taxed differently. The more tax you pay, the more money you've made, which is a good thing.
6) Use margin sparingly
Margin can allow you to take advantage of special opportunities but should be used with high-quality stocks, and never after a lengthy market rise. High margin levels accentuate the fear/greed emotions, move your focus shorter term, and margin calls actually force selling low after buying high. At the very least it's always preferable that investment income exceeds interest expense.
7) Know where you are going
If you don't have a plan, or you don't stick to it you likely won't get there. Having a well laid-out plan can help you avoid chasing winners or selling out of investments too early.
This is particularly important for Canadian investor at this point in time. The Canadian market is so concentrated in energy, materials and banks. So look outside Canada, get exposure to a variety of sectors.
9) Know what you are doing
Make investments based on facts, not rumour or gossip or tips. Always appreciate the risk you're taking. Discipline gives you the edge.
10) DO IT NOW