Investing: The glamour of Financial planning

Case Study

"She thought she was investing"

A client received a $100,000 divorce settlement in 1984. She put all of it into GICs at the bank.

When I met her in 2000 her account had grown to $121,000. Not bad, but if she had been in equities since 1984 her account would have been well over $300,000 by 2000 and close to $600,000 by 2008 and even with the downturn her account would be worth $360,000 -- more than 3 times the original

She lost money simply because she was not in the Equity market.

"Hey she didn’t lose. She has $21,000 more than she had when she started!"

We have to look at the real damage inflation caused by reducing her purchasing power.

In 1984 her $100,000 have bought her a house and a car with money left over!

In 2000 her $121,000 would have bought her--a good down payment on the house.

That is the damage real inflation can do. The only way to beat inflation is with Tax Smart Investing and that begins with quality Investment Research using Equities.

Many people suggest that Warren Buffet became the richest Investor in the world by using a buy and hold strategy.

What Mr. Buffet actually does is find good companies that are in his opinion undervalued and he buys those companies, regardless of what the stock market is doing.

Quality companies properly run will always produce good results over the long term.

There are all kinds of things to put your money in, real estate, precious metals, foreign exchange, Bonds, GICs. The only one that has consistently produced above average returns is EQUITIES. A individual stock carries a great deal more risk, than a well diversified and balanced basket of stocks -- known as a portfolio. This will always produce more stable results over the long term. This includes downturns, recessions and currency crises.

Currently it is short term or day traders who are making money in the stock market. Those who bet one day the market will be up and another day the market will be down. Short term speculation can be very profitable (IF YOU KNOW WHAT YOU ARE DOING!)

Putting money into any kind of investment should be determined by your desired return and your time frame. The longer your time frame the greater chance of hitting your desired average rate of return.

Jumping in and out of the market is a fool's game. "You must target your portfolio to beat inflation, GICs can’t do that.

There are many ways to invest: “Buy low sell high”.

Unfortunately the average person buys high and sells low. Chasing return---last year's big winner! That's the recipe for loss. If you construct a diversified balanced portfolio within your risk tolerance you will not panic when the markets are in turmoil.

When everyone else is selling in a panic. You are buying or just holding and when the market is on fire buying like crazy you are selling or holding all depending on your game plan.

"Sometimes best thing you can do is nothing."

Did you know that you can own Warren Buffet's portfolio as a mutual fund? Yup. It mirrors Mr. Buffet's holdings almost exactly.

Or you can do your own Investment research and create your own diversified and balanced portfolio.

The Stock Market

It’s called the market because that’s exactly what it is. A list of goods you can buy with the idea of making a profit, by reselling at some point.

When corporations need to raise cash to conduct business. They will offer a part ownership in the business with (common and preferred equity shares) stock.

When a company first comes to the market with a new offering. This is called an I.P.O. or Initial Public Offering.

They do this to a strict formula and must meet the requirements of the exchange they intend to list on.

A stock exchange has very strict rules that must be met before a stock can be offered to the general public. These rules are in place to protect the public. People must have faith in the exchange and the Stocks that are being sold, otherwise the system would collapse.

Once the initial public offering is dispersed the company makes no further profit from the sale or purchase of their stocks.

Stocks increase or decrease in value in a secondary market of investors and speculators.

The stock market is world wide, linked together. Most countries have at least one stock exchange and a number of countries having multiple exchanges.

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Corporations and Governments also raise capital with the sale of Bonds.

These are savings vehicles that pay very low guaranteed rates of return of interest income.

Using GICs for a long term investment guarantees your loss each year.

For long term retirement savings using a GIC is a
Guaranteed Income Catastrophe!

Labour Sponsored Funds

These funds offer huge Tax postponement,(especially if placed inside an RRSP), but constant poor results over the last decade have made them a a very poor choice.

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