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15. Plan your portfolio, then stick to your plan
Eric Kirzner, the John H. Watson Chair in Value Investing at the University of Toronto's Rotman School of Management, says investors should develop a strategy for allocating their money among different types of assets. A common mix, for instance, is 10% cash, 50% fixed-income investments (such as bonds) and 40% stocks. More aggressive investors may want to boost the stock component, more conservative investors may want to reduce it. But whatever asset allocation you decide upon, stick to it. Once a year or so, move money around to get back to your original split. This keeps you on track and prevents you from chasing the latest investing fad.
16. Be cheap
Many of our experts made the point that costs matter more than most people realize. "Paying 2% a year for investing advice may not look like much, but 20 years later you've lost one third of your investment," says actuary Hamilton. You can evaluate the cost of a mutual fund by looking at its management expense ratio or MER. Many funds charge 2.5% or more, but you can find many excellent funds with fees of 1.5% or less. So find a good fund with a low fee and neither objective will be compromised.
17. Forget last year
What a fund did over the past year is totally irrelevant to what it will do over the next year. In fact, top performers in one period usually lag behind in the next. As a result, there's no surer recipe for dismal returns than chasing last year's winners, says Kelly Rodgers, president of Rodgers Investment Consulting in Toronto. "When choosing a fund or a manager, look for consistency through many years."
18. Ignore your portfolio — selectively
Smart investors avoid looking at their portfolios too frequently. "Frequent reviews — such as daily — make you overly emotional and they can cause you to make unwise decisions," says U of T professor Kirzner.
19. Keep it simple
All of this investing advice may sound rather complex. In fact, if there's one common misperception among investors, it's the notion that an effective investing strategy has to be complicated, involving a dozen or more mutual funds and constant fine-tuning. None of that is true. "Keep your investment program simple," says financial author Cohen. "Remember that the financial industry is a fashion industry focused more on selling a never-ending stream of baubles than on helping you build wealth."
The MoneySense Portfolios offer a smart way to construct a great portfolio in just 15 minutes a year. If they don't appeal, find a good, cheap balanced mutual fund and funnel your contributions to that fund. (For the names of some good funds, check out Suzane Abboud's annual mutual fund rankings.) A balanced fund automatically divvies your money up among stocks, bonds and cash so you don't have to worry about micromanaging your portfolio.
20. Look for the right fit
"The first thing you should ask a prospective financial adviser is to describe the kind of client he or she likes to work with," says financial author Cohen. "If you don't fit that description, keep looking."
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