7 essential steps to help you become a better investor

How often have you taken the time to prepare a well-planned to-do list? And how often have you lost the energy to complete any of the tasks once you finished writing them down? Taking the time to research and meticulously plan is great—and important—but you also have to act on it. But that’s hard to do well if you’re not sure about the best way to execute your plan. To help, here are seven simple steps to help make anyone from the die-hard do-it-yourself trader to the a lazy couch-potato a smarter investor.

1. Keep it simple

We live in a strange paradox. Everyone works hard for their money, and yet a sizeable part of the population doesn’t have any interest in making the best use of that cash. Not everyone has the time, or even desire, to pick individual stocks and obsess about the market. Here’s a little secret: That’s OK. Investing is important, but it doesn’t need to be complicated.

Not convinced? Remember this: On any given day, thousands of highly paid, highly competitive traders, fund managers and institutional investors are scouring the market looking for bargains. It’s highly unlikely you’re going to spot the one company that’s undervalued. That’s where the Couch Potato portfolio comes in. It’s a no-fuss approach that will help you manage your own investments and it has a solid track record to boot. The premise is simple: since few if any money managers ever consistently beat the index, why try. Here’s your introduction to the Couch Potato portfolio. Being lazy will never feel better.

2. The secret to improved returns

Buy low, sell high is the mantra of every investor. Trouble is, few investors follow this simple bit of advice. When market volatility perks up, panic inevitably follows and that’s when bad decisions get made. No matter how much care you put into constructing your portfolio, it’s often your own behaviour that undermines your performance. Here are five simple steps that will help protect you from yourself.

3. Cut your losses

OK, so you lost money on a stock. It’s going to happen, but how you deal with those losses can have a huge impact on your portfolio. Any time a stock falls our instinct is to hold onto it in the hope it may rebound, but in some cases that could mean riding the company all the way down to zero. If the company no longer fits your investment plan or if you aren’t confident the stock will rebound any time soon, then your best option may be just to sell it and move on. More importantly, if the sale is in a non-registered account then you can claim the loss to offset some of your capital gains. That’s how you turn a loser into a winner.

4. Set your limits

Consider the following scenario. Yesterday, when you drove by a station yesterday the price was $1.00/L, but you didn’t need gas so you didn’t fill up. Today, with your tank on ‘E’ the price is $1.10/L. Now imagine that price changing by the second. Markets move fast, but you don’t have to be surprised when you go for your next fill up on stocks. Markets may set the price, but you set the conditions to determine how much you’re willing to pay to buy a stock (and how much you’re willing to accept when it comes time to sell). It’s called a limit order and they protect you from seeing your order filled at a price you didn’t expect. Here a closer look at why you should use them making a trade.

And if you are the sort who has set aside a portion of your portfolio to invest in individual stocks then our All-Star Stocks ranking is essential reading. Our Canadian picks are up more than 500% over the past 12 years.

5. Watch your fees

If you are in the market for a couch, most consumers would expect the more expensive one would be higher quality than the one they put together from Ikea. With investing, that’s not always the case. In fact, high-priced mutual funds frequently lag their lower priced counterparts. It’s not unusual for some funds to charge as much as 1% to the total management expense ratio (MER)—ground the fund has to make up before it has any chance of topping some of the cheaper alternatives. Here’s a look at the top mutual funds in Canada.

6. Get a discount

Cutting fees on mutual funds isn’t the only place where you should look for savings. Trading fees can be a significant drag on your portfolio as well. Fortunately, there are plenty of options if you’re in the market for a discount brokerage. Many now not only offer great low fees, but superb support with tutorials, research and anything else you’ll need to become an effective trader. This handy guide for discount brokerages should help you choose the best one for you.

7. Embrace the future

Robots may not have mastered roads yet, but they’re doing wonders for smaller investors looking for a professionally managed portfolio. Online portfolio managers—better known as “robo-advisors”—offer low-cost solutions even if you have only a small amount to invest. In some cases investors with as little as $5,000 can now get expert guidance. These new “robo-advisors” work by offering a set number pre-constructed portfolios composed of ETFs that are automatically matched to each investor’s needs. So if you’re still not sure you want to take a hands-on approach, you have a new alternative to consider.

Study up!

Think you’re ready to test your money sense? Back in Nov. we challenged editors from Maclean’s, Flare, Chatelaine, Sportsnet and more on their personal finance chops. Check out our Facebook Live video.

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