Guest Blog Post by Dean Ksionzyk; Wealth Advisor for ScotiaMcLeod
In these times of low interest rates, volatile investment markets and constant negative news stories, many people are surprised to find that most indices and bond portfolios have done very well in the last year. That’s right! People are still making good returns. Ask yourself if you are following these steps to get the most out of your money…
1. Have a plan. There is a big difference between having a portfolio and having a plan. A plan is all about the strategy. In order to get somewhere without going off track, you need a roadmap. Know what you are trying to accomplish and how you intend to get there.
2. Know your time horizon. You need to determine if these funds are needed by the business and when. Is the company expanding and in need of these funds for acquisitions and expansion or are these truly surplus funds to provide for the owners retirement? Short term funds need to be very low risk, as you would have little time to recoup any losses. A longer time horizon expands your investment options.
3. Know your risk tolerance. Ask yourself “could I sleep at night if the portfolio dropped?”. Risk is closely related to the amount of time you have to invest. A longer time frame allows for more fluctuation. Understand the possible downside, as well as the upside.
4. Generate income and Reinvest it. Compound interest has often been called the “eighth wonder of the world”. Making interest on your interest can accelerate the growth in your portfolio. Many large Canadian corporations even allow you to reinvest your dividends to buy more shares, often at a discount. Creating a stream of income that is constantly adding to your portfolio can also reduce the volatility of your investments.
5. Keep your costs low. With interest rates near all time lows, keeping your costs in check is even more important. Understand what you are paying for your investment advice and portfolio management. There are many different cost structures and some are more transparent than others. You are paying for your management, but do you know how much and what you are paying for?
6. Be Tax Effective. Being able to deduct the fees you pay for your investment advice and earning tax efficient dividends and capital gains can make a very big difference in what truly ends up in your pocket. Interest, dividend and capital gains all add to the return on your portfolio but all have different tax rates. After tax return is what you really have at the end of the day.
7. Diversify. Take your mother’s advice and “don’t put all your eggs in one basket”. A properly diversified plan reduces the risk, as different investments will react differently as market conditions change.
8. Consult a Professional. There may be investment options or insurance strategies, especially as a business owner, that could increase your after tax income, protect your capital or aid in the transition of the business. Be sure to choose a professional who will listen to your needs and create a personalized plan that reflects the goals of you and your business.
9. Always consult your accountant. Before making a major decision on your investment strategy, discuss it with your accountant or have your investment professional contact the accountant. Your advisory team needs to be on the same page to ensure they are all working towards the same goals.
IT’S YOUR MONEY. MAKE THE MOST OF IT!
For any questions please free to contact me at http://advisors.scotiamcleod.com/dksionzyk