Have you ever watched an episode of MacGyver (the original is from the 80's and apparently a remake is airing now)? If you're not impressed with what he can do with the random simple objects found within his reach, are you even human?
MacGyver only ever needed a handful of objects to fight crime and save the world. Well, I've got a simple tool kit for you too. Use these three easy but essential tools/concepts to set up your investment portfolio.
- Passive Investing: Stop making things complicated by trying to pick and choose stocks. The odds are that you won't be able to beat the market over a 20 year term, even if you're paying premium fees for "actively managed advice". Buying exchange-traded index funds that track the world markets gives you greater diversification at lower risk than owning individual stocks. Plus, it's passive - passive mean less work for you!
- Low fees: I've said it before, but I'll say it again. Mutual fund fees are killing your long-term returns. The average Canadian mutual fund fee is 2.4% annually, compared to roughly 0.2% for a portfolio of index ETFs. That 2.2% seems so small, but it's definitely not. (Don't make me show you the graph - again.)
- A Rebalancing Strategy (to keep emotions in check): Decide on an asset allocation that is aligned with your risk profile and goals, then rebalance your portfolio either a few times of the year or when certain asset classes exceed a threshold .The most important reason to have a solid rebalancing strategy is that it takes the thinking and emotions out of investing. See my post on how human emotions can ruin your portfolio. If you don't have the time, patience or discipline to do this yourself manually, hire a robot. Robo-advisers are a reliable and cheap way to get the job done.
If your investments were stuck on a falling airplane, they would pack these three items. With these tools in hand, your portfolio will survive any market turbulence and you'll be well on your way to your retirement destination.
If you're interested in "MacGyvering" your portfolio into a workable retirement solution, contact me at firstname.lastname@example.org.