2011 is over now and your annual statement is soon to arrive. Is your account up or down? Are you closer to retirement? What a great time to review your financial game plan. 

Even after being in the investment industry for more than 15 years nothing can be more depressing than reviewing your investment returns after a decade and only seeing a average return of only 3 or 4 percent.  

If this is you, you are not alone.

So now the question is should you change what you are doing and give up investing altogether? If this question is weighing on your mind here are some questions you should ask yourself and check out the infographic on investor behaviour below.

What kind of time horizon do you really have?
You may actually have more time that you think. Many feel their investment time frame is from now to retirement, but it can be much longer. Your investment income will have to continue for another 15 – 20 years during your retirement. If you have 10 years to retirement this gives you a total of 25 to 30 years.

Your risk tolerance many change as you retire but your need for growth and for income will continue.  This can allow for a higher risk/return than if you only expected to invest for 10 years.

What is your risk tolerance?
When things are going well many investors look for the best returns and overlook the real risk they take in the investments they own. Many investors take too much risk good markets because they feel good about their lives and the opportunity to make money.  Few look at the reality of fluctuations in their investments and if they are willing to except short term/mid term losses for potentially higher gain.

I have seen many invest in a “guaranteed” product because they feel their is little chance for loss. Even these vehicles can have short/mid term losses, and fees charged can almost wipe out the potential for a higher return.

In turn when markets are depressed investors take no risk at all because everything seems so bad. Even the best companies look bad when their share price is down 30 percent.

Do Know what You Own ?
No matter what investment vehicle you choose, be it stocks, bonds, real estate or a managed product like a mutual fund, do you know what is in your portfolio.

For many a managed portfolio is the preferred choice because they bring the expertise of professional money manager to take care of the day to day investment choices and investment research. 

Even though this maybe convenient it is still your responsibility as an owner to review the holdings. The more you know about what you own and how it is managed the more likely you are going to buy more in the future or sell it altogether because it is not a good fit for you.

Numbers Don’t Always tell the Story
The saying is “Numbers Don’t Lie” but the truth is, in the investment world, number lie everyday! 

Most investment products are sold on the basis of last year/last 5 years returns … but your actual return will be different. Why you ask … because your actual return has to do with when you made your deposit, how often you have made a deposits since opening your account and if you have withdrawn the money from your account.

Lump sums can affect returns too. If these deposits are added at low point it can make the return look better that it should, and if the deposit is done at the height of the market is can depress the return of your account.

Add to this  most investors want to invest more when things are good and avoid investing when things are bad and this can impact your returns especially in the early years. Check out this inforgrahic from wallstcheatsheet.com.

So as you are are reviewing your statements here are few things you might want to consider doing

  • Get rid of any thing that is not suitable for you. With all the market volatility in the last year you should have an idea of how your investments fluctuate in turbulent markets … maybe you should cut lose anything that is more volatile than you are comfortable with. (Make to review the fees and tax implications before selling anything!)
  • Keep fees low. Investing is not free, but are your fees in line with other like investments? Are there additional wrap account fees, trustee fees or transaction fees. And if so what do you get for the fees you are paying.
  • Make sure you are properly diversified. Diversification may not stop your account from bouncing up and down but should give you a better opportunity to take advantage of opportunities as they arise.
  • See your financial advisor at least once a year.  It is easy to track your progress with regular reviews. Most advisor provide this as part of fees they collect from the investments they sell, so take full advantage. If you want to meet more often … let your advisor know.

If after all this, you are happy with what you own and how it being managed then maybe you should consider buying more while things are under performing. We’ve all heard the mantra “Buy Low Sell High”, what a great opportunity. Invest in your RSP, TFSA or Cash Investment Account as if it was a pension plan regardless of current market conditions.

You will thank your self in the future. Any way all the best in 2011 and may you have great investment success!