Tuesday Tip of the Week: August 22, 2017
Financial Advisors and Your Investments: Do they have your back???
As Financial Advisor week rolls along we will focus today on one of the key components of any financial advisory practice. As I have said many times, saving and investments are vital to achieving your goals in life. Many of my posts speak to the importance of budgets and savings and I full-heartedly stand by that. The reason that is so important to me is that it is what allows you to take advantage of opportunities such as investing for your future. Investing is a complex subject to many people. It is the job of your financial advisor or investment representative to guide you through the investing process. You have many things to understand when it comes to investing your hard earned money. In this post, I will be going over 5 things your advisor should be helping you with when it comes to your investments.
1) Know Your Goals
During the initial meetings with your investment representative, as much information as possible should be gathered. The reason this is important is that they need to know exactly what your goals are. They also need to fully understand your current situation. Simply put, a goal is where you want to be. Your current situation is where you are. In order to get you where you want to be from where you currently are an investment plan is necessary. Your representative should explain to you the feasibility of your goal given your current situation. They also need to explain to you the implications of working towards such a goal, be it taxes or otherwise. For financial advisors, their practice should be primarily based on “Goal Oriented Planning,” so understanding what your goals are is vital. Don’t hold back during this phase because communication is vital.
2) Know Your Risk Tolerance
I like to call it your investment personality. Risk tolerance is how you react to the conditions of the market. We all know the market goes up and goes down. That is common knowledge. Do you know how you react to that fact with your own investments? It is the job of the investment representative to test your risk tolerance with a series of questions that gauge your reactions to market volatility. Some people are not comfortable with the swings that take place in the stock market. Others have a greater tolerance for this volatility and handle the ups and downs. You must know where you stand on this matter as it will determine what you are invested in.
3) Know Your Time Horizon
As mentioned in point one, setting goals is the key to investing for your future. The main key to setting these goals and making the plan is knowing exactly how long you should expect to realize these goals. This is called your “Time Horizon.” Knowing your time horizon is vital because that, along with your risk tolerance, will determine what you are invested in. For goals with shorter time horizons like saving for a home, going on a vacation, or saving for an emergency fund, more conservative investments should be chosen. For longer-term goals such as saving for retirement, you can choose riskier investments, of course, based on your risk tolerance. It is the job of the investment representative to explain the implications of your time horizon on your investment portfolio.
4) Know the Investment
Based on your risk tolerance and your time horizon, your investment representative should help you choose the best possible investment for your money. You can invest your money in pretty much anything including bonds, stocks, mutual funds, index funds, GIC’s, and much more. Each of these investments is different and have their own positives and negatives. It is the job of the investment representative to explain the implications of each investment and how they relate to your own personal situation. Be very skeptical of anyone who promises you returns on your investment. It is impossible to predict the market so anyone who says they can get you a return is full of it. Simply put if they could promise you a return then why aren’t they a millionaire who is fully vested in this product?
5) Know the Proper Vehicle For Your Investment
As I mentioned a few weeks ago during investment week at Budget Boss, the investments are the items you put your money in. The vehicle, or product, is the basket that holds these items. The basket they are held in is important mainly because of the tax implications of each different product. Products such as a Registered Retirement Savings Plan (RRSP), is treated far differently than a Tax-Free Savings Account (TFSA). You have to know how you will be taxed on the growth of your investment as well as when it comes times to withdraw. You should also know about the possibility of government grants depending on what you are invested in. Products such as the Registered Disability Savings Plan (RDSP) and the Registered Education Savings Plan can provide you with free government money that will get you to your goals quicker. Your advisor should be well versed in all these products as not being knowledgeable of them can cost you a lot of money in the form of taxes later on.
Investments aren’t meant to be confusing and yet for some reason the industry makes them out to be that way. Breaking down exactly what you are invested and where it will take you is the job a good financial advisor/investment representative. You should also know what you are paying in the form of fees within your investment. You have to understand that they do not perform this service for free, but knowing exactly what they get paid is important. They should be very open and transparent about fees as it is understood that they do make some sort of profit. Again it is vital that trust be the main factor in choosing your advisor as it is this trust that will allow you to know exactly how you will reach your dreams of financial freedom.
Thank you for reading my post today on Financial Advisors and the role they play in your investments. Tune in tomorrow as Advisor week rolls on with a post about where I would never look for an advisor me and my family. If you have any questions regarding advisors and investments please do not hesitate to contact me at joe@budgetboss.ca. Have a great day friends!
“Knowing others is wisdom, knowing yourself is Enlightenment.” – Lao Tzu
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at www.budgetboss.ca