With this kind of title, you may think I will write about two different topics. I would either write about the next big bank or insurance company to fall down or the next big company or industry where making money will have never seemed to be so easy. Since we read about the apocalypse every day, we are always expecting bad news and desperately searching for that stock or that fund that will take out the red ink on our investment statement.
Most of my clients are looking for the same thing and I don’t blame them. We all hate loosing money and we all feel that we could finally found an investment making double digit returns. However, this is more fiction than anything else. In fact, the next big thing in the investment world is not even related to the stock market.
Play with stuff that you know
We all wish that our investment would earn a stead 8% years after years. And if we do and our brother-in-law made 9% during the same period, we get pissed and we want to switch our investment over his broker / financial advisor. However, those are things that nobody controls. If you advisor is telling you that you will make X% guaranteed within the next 5 years, that is complete BS. The only thing he can mention is “yield expectation”.
However, there are things we know and we can control on our investments. There are two major thing that I think will be the next big thing in the investment industry: Fee management and Tax efficiency.
We all know that our government won’t change is tax practice all of a sudden by 15%. We have been paying taxes since I don’t even remember when and we will keep paying this way for a while. When you think about all massive investments that must be done in the health care system, on roads and structures and all the liquidity required now to save the US financial system, we will surely keep paying taxes. Therefore, by optimizing your investment according to taxes, you might save much more than you can actually earn by switching your investment around. The key is to keep a well diversified portfolio that is tax efficient.
This is exactly the same thing with MERs and trading fees. Regardless if you have EFTs, mutual funds, stocks or bongs, there are always trading fees charged here and there. In Canada, management fees are really high and it will definitely become a main issue in the future. If you are able to save 0.5% in management fee, that is being added to your investment yield right away. Then again, compounding interest will make its magic with this additional yield.
Next week, I will write two other post on fee management and tax efficiency in your portfolio so you can get some trick to improve your situation.
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