It’s likely that everyone putting money away for the future shares the hope that the funds will grow, stay safe, and be there when it’s eventually needed. While there is always some uncertainty as to how things will unfold that are beyond your control, we asked investment experts how to give your money the best chance to reach its full potential.
Have a financial plan: When it comes to wealth building, says Robyn Graham, head of wealth management at ETF Capital Management, a financial plan is a critical starting point. This will give you the framework to help you understand your financial goals, what they will cost, and then establish a savings and investment program to get there.
“It has to start with the financial planning, because once you’ve taken stock of where you are, only then can you set some realistic goals and put a plan in place to achieve them — then you will have comfort because you will be in control.”
Save, save, save: Once you have your financial goals in mind, another key step involves setting aside money regularly. Automating your savings so that a preauthorized amount comes out of your account each month prevents your lifestyle expenses from creeping into your “savings bucket,” says Nicholas Hui, a Toronto-based independent advice-only financial planner with Vave Financial Planning.
“Some people don’t invest because they don’t think they have enough money but it’s very possible to set up a regular investment program with a very manageable amount of money through a preauthorized savings program and before you know it, you’ve got that money working for you,” adds Graham.
Put those savings to work: Indeed, one of the most crucial elements of growing wealth over the long-term is a disciplined investment program, says Graham.
“Don’t be afraid to invest – because unfortunately, saving for retirement, if you keep it in cash or really low-income type stuff like GICs, it’s very hard to save enough to fund a 40-year retirement,” says Hui. “A key to being able to save and achieve your long-term goals is actually getting your money to grow, rather than just keeping it all safe,” he adds. As Hui notes, the greater risk is not in losing money as a result of investing in the short-term, but rather “running out of money when you retire.”
Focus on asset allocation: When it comes to investments, Graham says asset allocation is by far the most important decision because it will dictate the risk and return of the portfolio both in the short- and long-term. Ultimately, it’s essential that an investor’s portfolio is chosen and designed within their comfort zone.
“The important decision is how much equity exposure am I going to have in my portfolio? How much volatility can I tolerate if we have a market correction and where is my comfort zone for staying with that portfolio? The ‘staying in’ is going to determine my financial success,” she explains.
Hui notes that it is also important to be mindful of the fees you are paying for your investments, which may have an impact on your portfolio.
Revisit your plan: As life circumstances and goals change, Graham recommends clients engage in regular dialogue with their trusted advisor, in order to ensure the financial plan and investment portfolio are kept in line with their goals and risk tolerance.
Leave emotions out of it: No matter what amount of money someone is investing, the biggest detractor to long-term financial success is making emotional decisions based on what the market is doing, says Graham. This can often lead people to either chase returns late in the market cycle, or sell their portfolio during a correction.
“I try to get people to tune out what the media says, what experts say, and just focus in on what you can control because there’s a lot of things that you can control — and what you can control is just staying invested, staying on track in the plan and if you’re diligent, saving, investing over a long period of time, historically you’ve been rewarded with pretty decent results,” says Hui.