Doing it yourself

Investing

Investing can be a fundamentally simple process. There is so much jargon and so much information flying around that it looks incredibly complex. For someone untutored about investing, fobbing the whole task off onto someone else is very tempting.

Don't do it! You can do it yourself by following these simple guidelines:

• Most news is noise. The biggest risk for most people when investing in securities is paying too much attention to the news. What is in the business news today is totally irrelevant if you follow the rest of these guidelines. If you want to read the business pages or watch ROBTV for amusement, that's fine. Just don't invest that way.
• If your time horizon is really short and money is being invested that will need to be used within a few years, STOP! Putting your house down payment in the stock market is folly. Don't make the opposite mistake either by underestimating your time horizon: A person starting to draw on an RRSP today may have 30 years of retirement ahead, so keeping that RRSP in cash is a mistake as well.
• You must be willing to take some risks. While you may do fine just buying GICs at your bank, you can do much better. Even the most conservative investor is well advised to own at least some stocks (although not individual stocks).
• Do not be stupid about taking risk. Historical evidence is that even aggressive risk-seekers get scant extra return from going wild.
• Write yourself an investment policy, using the sample on this website as a template. Very conservative investors should probably have 75% of their portfolios in fixed income like GICs or bonds or preferred shares and 25% in equities. Very aggressive investors should have 20-25% in fixed income and the remainder in equities. If you're in the middle, a 50-50 or 60-40 mix is quite reasonable.
• Make adjustments to the policy mix if your job, hence your salary, is highly correlated with one type of investment. Tenured university professors with generous indexed pensions probably should not own indexed bonds. Software engineers with vested stock options should lighten up on high tech stocks.