I read a lot and often come across ideas and concepts that are not really explained to my satisfaction. Here are some things that I often think about.
Beating the Index
Many financial writers and advisers are touting the benefits of the passive investing strategy of an index-based portfolio for low cost and good performance. When they state that it is difficult to beat the index, are they comparing index funds just to managed portfolios – specifically, actively managed mutual funds?
What about a portfolio that holds only individual stocks?
Related: How much does it cost to build a portfolio of individual stocks?
There are several stock picking strategies you could choose such as:
- Dogs of the Dow
- Hounds of Bay Street
- Beating the TSX
- MoneySense magazine’s annual All-Star’s list
These usually post excellent long-term gains and returns that regularly beat the index’s annual returns – often by a significant amount.
Do what you love and the money will follow
I am a big fan of self-help books, but statements such as this really frustrate me. The goal is to identify your life’s purpose or passion and focus all your intent on achieving this goal to be happy.
While I am in awe of those people who know from an early age what they want to do with their lives, I’m not really one of them. I’m not like the American Idol hopefuls who gush, “This is what I was born to do. Singing is my whole life!” In fact most of us aren’t born with one clear passion. This is a strong concept that can set up an incredibly intimidating standard by which to evaluate your options.
Related: When doing what you love doesn’t pay the bills
Just what is my passion?
There are things that I like to do. There are things that I can do really well. I have a diverse range of interests and talents. Some of my favorite activities are reading, sewing and doing jigsaw puzzles, but I can’t think of one career choice that any one of these would incorporate, let alone make me financially secure.
It is hoped that most people enjoy or are interested in most parts of their job, and sometimes you just have to do what you have to do because you need the income.
You can build an active life after work, instead. Focus on the various interests and causes you find compelling. Concentrate on the things you do really well and that make you smile.
Related: How to earn more money
Don’t let the quest for the “one and only” mythical passion derail you before you get started. You are not destined for failure if you don’t find it.
The price/cost is too high
Why is it that people don’t want to pay for good service? Most professionals will tell you that when they attend any type of gathering, people will ask for free advice.
Why do people think they can do a job just as well?
“I paid the plumber $200 and all he did was replace a washer. I could have done that!” But you didn’t do it. How much water and money did you waste while your tap was dripping?
“My car wouldn’t start. I had to pay the mechanic a bundle and all he did was tighten the contact on the battery!” After you cranked the ignition several times did you open the hood and look blankly inside before calling a tow truck?
“This new financial advisor just put my money into index funds. What am I paying him for when I could have done that!” Did you put all your money into Nortel during the dot.com bubble? Did you transfer your entire portfolio to a savings account when the market crashed? Did you jump from fund to fund, chasing returns? If so, you probably lost a lot more that the fee you are now paying.
Related: How the behavior gap affects investor returns
Often you can pay once and get valuable information to enable you to continue on your own in the future – you change the washer yourself, check the car battery, do your own tax return, and confidently proceed with a financial plan.
Other times you have to consider the knowledge and expertise of the professional and pay the price. Sure, you can learn to do almost anything, but think about whether you want to take the time to be proficient enough?
My husband knows how to change the oil in his car (for that matter, so do I), but we now choose to pay to have it done for us instead.
Don’t just go for the cheapest. Go for the best you can afford.
Related: What’s busting your budget?
Final thoughts
Like the readers in the old National Enquirer ad – “this enquiring mind wants to know.” I think about human behavior and what so-called “experts” want us to believe, and I wonder, why? I don’t often get good answers.
