Tin Cup, Bull Durham and What I Believe… About the Investment Industry

For those of you that love sports movies you recognize the names, Roy McAvoy and Crash Davis as the stars of Tin Cup and Bull Durham. Now you must be wondering why I would try to relate these straight shooter type of iconic characters to something as confusing as the inner workings of the investment industry.
The short answer is because it was very clear to people what these two athletes believed about what they did best and they aimed to make their decisions based on those beliefs. This was highlighted by each of their legendary monologues in their respective movie roles. You should be able to look at your financial advisor and believe you are receiving the same type of direct message.
I am no movie star nor pro athlete, so unfortunately my soliloquy will not be quite as entertaining nor exciting. However, it will include some important details about the investment industry so you can ensure you are focused on the right topics when evaluating your investment advisor, robo-advisor platform or your personal investing approach.
Investment Returns
Numbers are easy to understand for every person old enough to purchase the many different types of securities available to investors today. Therefore, you should pick your number that you are willing to accept as a reasonable rate of return when you choose to invest. Once you have this number in mind, ask your advisor the rate of return they plan to achieve for you.
Do your numbers align with your advisor? Do you understand exactly why or why not there is a difference? Most importantly though, did they explain to you exactly how they plan to achieve that rate of return? Do you believe that is an attainable number based on their explanation of their plan?
Math and History are Important
Ensuring future investment rates of return for any single security or asset class is simply not possible. All future rates of return are based on speculation by yourself or your investment advisor. In this context speculation means you have a belief in an educated guess, but still a guess, that the factors you are basing your anticipated future returns will remain the same for the entire term you plan to invest. Truthfully, we have no better indicator of future returns than how those investments have performed historically.
Does the history of your investment plan support your investment return number? Use math to calculate the historic number for your investment plan, and does that number meet or beat your investment return expectation? If it doesn’t why would you believe factors have changed so much to ensure you meet your return expectation?
Investment Risk
The investment industry continues to get more and more complex each year due to the strategies and products the industry is creating to manage risk. As in every industry, innovation is great when it works but it does not always work well. You should strive to understand the specific risks you or your investment advisor is taking with your money. But let’s do this in a way you can understand and relate to easily.
Some questions to ask yourself or advisor would include the following; what is the annual average, best and worst rate of return I could expect with this type of asset or security? How often does the worst-case scenario happen? Is your money protected today from that worst-case scenario? If so, do you understand exactly how it is protected in that scenario?
Investment Timelines
Risk and return are always closely correlated with investment timelines. This correlation is necessary to ensure you are meeting your financial goals when investing. Ensure you understand the time between making an investment deposit and the day you plan to withdraw that money in order to fulfill your goal.
You should be willing to accept a lower rate of return for a shorter investment timeline, however the longer the money is invested should allow you to aim for higher investment returns.
Principal Protection and Volatility
Before you move out of an asset class such as cash in order to invest in an asset class with the possibility of a higher return than the current near zero cash return rates, you should consider how important protecting your initial investment is to you. This means how upset will you be if the balance in your account drops below your initial deposit value?
If your answer is very upset, then you need to ensure you are well diversified among multiple asset classes. You should also be sure you and your advisor understand whether these varying investments or asset classes move in the same direction or opposite directions during events that cause movement in the price of those investments. Your return expectations may have to be adjusted lower if you are this type of person but not always if your investment timeline is long enough.
If you believe you would not be upset if the value in your account dropped below the initial deposit amount temporarily, this means you believe you can handle some volatility. This means you don’t mind if your account goes up or down as long as over the long term it is positive and meets your return expectations. Be aware that if plans change and you need some of your money earlier than you initially intended that you may have suffered a loss and actually have less money than what you started with in your account.
Continuing Investment Education
You should decide whether you are the type of investor that needs to understand every detail of your investments or simply places complete trust in the person or digital platform that is making your investment decisions. Regardless of which type of investor you are, you should ensure there are resources for you to learn more about your money if you wish to do so.
The most important financial education you should strive for is to ensure you understand exactly how your money is invested today, why is it invested that way, and how you are protected in case of a major downturn in the one or all of the multiple asset classes you are invested in.
This education should be provided to you in the format that works best for you. If you prefer reading, does the firm your work with have written material to share with you? If you prefer conversations, can you book a time to chat with your advisor over the phone or in person? If you prefer, consuming video content on your own time is there something that you can watch and learn from?
Investment Management Fees
Over the past number of years there has been many ads, articles and opinions shared about the evils surrounding investment management fees. The greatest risk we have with investment fees is that we do not understand them and therefore, they cause us to not reach our investment return goals. Ensure the fees are clearly communicated so you can be confident in understanding the total fees you pay each year.
The most important consideration is value when it comes to paying any fees. Therefore, you should always ask and understand exactly what the fees are for the investment firm or financial institution you choose to trust. Once those fees are understood, you should also assess whether or not these fees will hinder you so much that you will not achieve your desired investment return.
Your net return after management fees should be the most important thing to you as an investor. However, it is ok to check the industry and ensure your firm’s fees are comparable to its competitor’s fees that provide the same type of service as the firm you are currently working with.
Disclaimer & Legal
Any views or opinions expressed on this website are solely those of the Representative, and do not necessarily represent those of Gravitas Securities Inc. (GSI). The information contained herein was obtained from sources believed to be reliable, however, the accuracy is not guaranteed. This site is not deemed to be used as a solicitation in a jurisdiction where this representative is not registered.
www.precedencecapital.ca/legal-privacy-policy
Todd McLay is currently licensed in the following jurisdictions: British Columbia, Alberta, Saskatchewan, Manitoba, and Ontario.
Todd Bergstresser is currently licensed in the following jurisdictions: British Columbia, Alberta, and Saskatchewan.
GSI advisors are currently licensed to sell equity securities, bonds, mutual funds, GICs and other securities that are subject to available regulatory exemptions. Your advisor may also offer insurance related products. These services are not offered through Gravitas Securities Inc., however, your advisor is duly registered to provide these services under applicable insurance legislation and the dealer approves such activity to be conducted outside of the dealer.
