An investor checklist for 2023
The first month of the New Year is officially behind us. Traditionally, this is the time when all our well-meaning resolutions are forgotten until next January rolls around, and our old habits start to rear their ugly heads. For investors, it can also be a perfect time to take stock of your investment habits, and decide which ones you want to hold onto – and which ones you’d rather let go of once and for all.
This is especially true this year, given everything we’ve all been through over the last while. Three tough markets in just five short years. The first in 2018, which gave way to a solid recovery inside of a year. The second in 2020, which saw a Covid-inspired drop of 38% followed by a complete recovery within three months. And finally, 2022, which gave us a 25% dip that has yet to be fully resolved.
Bear markets are always tough. But three difficult years back-to-back has left most investors feeling like they’ve gone 10 rounds with an Olympic boxer. Since we can’t control what the markets are going to do, what are the things we can control as investors, that could help us navigate these turbulent waters?
Make a plan (and stick to it!)
First, we can make sure we have a detailed, comprehensive and long-term investment plan in place, which projects our progress based on reasonable assumptions and our anticipated savings rate (or withdrawal rates for those of us who are already retired).
If you work with an advisor, your plan should also be updated every year, to tally your actual results, rate of return and progress towards your goals against your estimated financial projections.
Adopt a clear investment policy
Second, we can make sure we have an investment policy that’s reliable, and specifically designed to keep us out of trouble when the going gets tough.
While the speculators fight over pot stocks, SPACs and NFTs, a sound investment policy will make sure you stay balanced and invested in things that actually have a rational basis for their prices. If you’re retired and drawing on your portfolio for income, this includes making sure you have at least three years of income available in short-term bonds or GICs.
Know your costs
Lastly, we can make sure we’re fully aware of any fees or other costs that are associated with our portfolios, and that those costs are both fair and reasonable. If you’re working with an advisor, the fee for comprehensive planning, custody, regular reviews, transactions and co-ordination with your other professionals should be somewhere around the one-percent mark.
Consistency + time = success
If you don’t have all three of these basic ingredients in place, it might be time to take the steps necessary to bring those missing elements into your financial life – whether you do it yourself or with an advisor. When it comes to stocks, success is a question of routine and reliability over time, not picking the next hot stock or sector.
Fortunately, over time, there’s almost nothing more reliable than the markets. In the short term, it’s the random, unpredictable and often terrifying gyrations that tend to make the headlines. But in the long run, the prices of stocks will always eventually follow earnings. And as earnings rise, ultimately, so too will the markets.
Being clear on what you can (and can’t) control, having an investment plan and policy in place, knowing what your costs are and understanding your progress relative to your plan will all help keep you consistently on track, regardless of whether the markets are up or down.
It’s pretty much the same story as with all the other good habits we know we should be doing, like exercise or eating well: in the long run, consistency always pays off. Carefully mapping out – and sticking to – a reliable, evidence-based plan will help you keep your financial resolutions, build some healthy new investment habits, and stay on course long enough to let the odds work in your favour.
This article is supplied by Alan MacDonald, an investment advisor with RBC Dominion Securities Inc. Member–Canadian Investor Protection Fund.