Advertisement
Low-fee investing is smart, but be sure to spread your risk around
Related Smooth out your performanceSome companies will fail, new companies will start up, and most businesses will find a way around future setbacks and continue making profits. When you own most of the stocks in the market through a low-fee mutual fund like Mawer you’re so well diversified that you’ll be exposed to less risk from the companies that fail. Still, some people argue that too much diversification mutes investment returns, and they like to speculate with stocks.To me, speculating is when you take a position on a stock (business) or sector (banking, energy, etc). Those stocks are going to go up or down because of a multitude of reasons—economic news, company annual report findings, statements from CEOs, government policies, news reports, and so on. Why speculate? The only reason to speculate is because you believe you’ll get a better return selectively picking stocks, than if you just bought the market index. But historical data shows that when you try to beat the index you are taking on more risk.
Related: Rethinking diversificationHaving said that, there are people that successfully pick their own stocks and do well. You may be—or hope to become—one of those people. If it is something you are interested in I don’t want to deter you from trying some of your own stock picking and learning about investing along the way. Even if you try and later realize it’s not for you, you’ll become a better investor. My only caution is to be sure to start small with only a few thousand dollars. It’s not easy to recover from mistakes. You asked for a reference to a formula or a book. Here is a book, without much fluff. Author Grant Ross gives you a simple formula to follow and he explains how to track things. Grant is the e-book author of Destination: Early Financial Independence, available on Amazon and Kobo for $5.99. Allan Norman, M.Sc., CFP, CIM, Atlantis Financial/IPC Investment Corp.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Would swapping a house for cash from a corporation save on taxes? And is this tactic worth it in...
It’s a first among bank-owned discount brokers in Canada. With more banks likely to follow RBC's lead, what should...
Allison resold her Eras Tour tickets instead of going to the concert. The resale website asked for her SIN,...
Contrary to the conventional advice, taking more than the minimum RRIF withdrawal can at times save tax on your...
If you continue working in retirement, it could cause a clawback on your OAS. Here’s how to figure out...
Canadians with no children or siblings must consider estate planning alternatives. Here’s why trust companies can be a good...
The federal government’s capital gains inclusion rate increase has yet to become law. There’s a slight chance it may...
Canadians have reporting requirements for foreign assets, income and tax paid. Here’s how to claim each of these on...
A Certified Financial Planner provides perspective on the TFSA vs. RRSP question for a couple in their late 50s...
In retirement, some income is not subject to withholding tax, and you may potentially owe tax after filing each...