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I've had a number of opportunities to sit down with Satish Rai, former TD Bank Chief Investment Officer and past colleague, and he shared his top five investing tips with me. Whether you are a veteran investor or rookie it never hurts to review some of the basics...
1) Block out short-term noise and focus on long-term investment goals. Market volatility is a part of investing and often emphasized by the general focus on short-term events. The good news is that you can reduce the stress of short-term investment fluctuations by maintaining a long-term investment horizon, preferably greater than five years.
2) To help reduce risk, your portfolio should be exposed to a variety of asset classes, industries and geographical locations to name a few. Since the Canadian equity market is heavily concentrated in energy, materials, and financial sectors, investing outside of Canada could provide some geographic diversification, as well as exposure to global industries. Wherever you decide to invest, make sure to consider the highest-quality investments available.
3) Quality endures. That’s why investment success largely depends on holding quality investments in a well-diversified portfolio. Whether dealing with equity or fixed income assets, quality and attractive valuation can be closely linked. Generally speaking, you should look for solid, well-managed companies with a competitive advantage, a history of growth and a long track-record of dividend payouts.
4) Err on the side of caution. It is surprisingly common for people to load up on risky, speculative assets when markets are up, only to panic and sell them when they’re down. This classic example of buying high and selling low is primarily driven by angst during market swings. Be aware of the amount of risk in your portfolio because you may only realize your true comfort zone when market performance falls. Avoid the pitfall of taking on too much risk by diversifying with various quality assets in order to find a comfortable risk profile. Taking a balanced approach should help you steer clear of having to make emotional decisions that are not on par with your long-term plan.
5) Confidence in your investment plan is critical. However, previous market timing profits and sheer luck can result in overconfidence, which will not necessarily translate into future investment success or expertise. Additionally, overconfidence can lead to decision making errors that tend to be very costly. Focus on time in the market, not timing the market as a way to build your skills and ultimately, your wealth over the long-term. Approaching your investments with the knowledge that you may not know as much as you think you know is a powerful step towards accumulating and compounding your wealth.
As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on Twitter @PattieCTV