November is Financial Literacy Month in Canada. In support of Financial Literacy Month, some of the best Canadian financial bloggers are posting blogs today that answers the question, "What is the best financial tip you can share with people?"
Well it's pretty hard to condense so many ideas, concepts, strategies, and perspectives into one defining "tip", but if I had to focus one area it's the concept of how much time you are willing to learn about investing. The process of determining what stocks, ETF's, or mutual funds to buy or sell is time consuming. There's no magic button, magic formula, or magic website. You can couch potato it and take a passive approach or you can immerse yourself in spreadsheets and research reports. Before you go down this road, you have ask yourself how much time you are willing to commit to the practice.
There's really one decision point to make at the outset of your investment journey. If you don't have the time to research to analyze companies, you're better off buying a basket of simple, low cost Exchange Traded Funds (ETF's) that diversify over key assets (stocks, bonds) and rebalancing 1-2 times per year. If you want buy stocks, you need to commit the time to learn and educate yourself about identifying the core drivers of wealth and how to read company reports and evaluate if companies are truly creating wealth for their shareholders. You also need to learn to establish a discipline to understand investor psychology, filter out the Bay Street noise and stay committed to your investment strategy in good times and bad.
To me this is the fundamental starting point. As much as I'm passionate about analyzing and identifying great well-run companies to invest, I know it's not for everyone. Each person has different strengths and priorities in their lives and it's all good. There's no single magic method to investing successfully. The sooner you can come to grips about how much time you can commit to investing, the easier it is to identify the appropriate strategy that will allow you to put you in a position to be successful. When I work with clients at the start, I always ask how much time they are prepared to commit to investing and from there I tailor the investment concepts that will be relevant to their needs.
What happens if you don't consider time commitment? Well, you will get lazy and resort to making decisions on a whim or even worse delegate or outsource the decision to someone else who may not have your interests in mind. Performance will suffer and then frustration will set in. It becomes a vicious circle.
So my financial tip that I would offer is before you start your investment journey, ask yourself honestly how much time you can truly commit to investing. Your answer and circumstance will go a long way to building a strategy that will suit your life and personal circumstances.