I’ve said it a million times but I will say it again. Having any investment discipline is better than having none at all.
The average individual investor follows trends. Which means they are often selling at the bottom and buying near the top. A 2010 study by Dalbar revealed that the average equity fund investor underperformed the Standard & Poor’s 500 by a whopping 5.31% annualized over the previous 20 years. That’s real money.
In my book “The Women’s Guide to Successful Investing,” I devote an entire chapter to developing an investment discipline that meets your risk tolerance and personality biases. For example, I tend to be a late adapter – I have yet to establish a Netflix account – and I don’t like to pay up for stocks. These traits are consistent with the value investing style. Growth investors are early adapters and are proficient in the latest technologies and aware of the most current trends; they tend to be comfortable running with the fast crowd. Value investors are more inclined to move against the crowd.
Of course, there are variations of the two disciplines I describe, but the point is: Both disciplines are valid. Both shine during different stages in economic cycles. And both will generate solid returns if investors remain committed to their chosen approach. Staying the course is key, yet the research shows that most investors give up right when they should consider doubling down.
When I have strayed from my own discipline, I have incurred epic losses. Here are three principles to remember:
• Do not take stock tips from people whose investing prowess is unknown to you – this is gambling, not investing. Over the years, I have acted on stock tips from complete strangers and interested parties yet ignored the recommendation of a world-class investor known to me. Talk about zigging when you should zag. I’ve made every mistake; I’d rather you didn’t. Buy what you know and companies you’ve researched according to your discipline.
• Absolutely do not, ever, chase stocks you believe you should have bought and didn’t. If you missed a stock a lower price and are distressed by watching it rise, resist the temptation to chase it. Professional investors understand the stock market is a tug of war between fear and greed. We want to buy from fearful sellers and sell to greedy buyers. Not the other way around.
Recency effect is the tendency to extrapolate the most recent trend into infinity. It keeps us from adding to holdings when markets are weak (the weakness will continue) and selling into strength (I will miss potential returns if I sell now). When the market is rising or falling, the longer it does so the greater the probability it will cease doing so (or revert to the mean), but the average investors has a hard time acting on this knowledge. When you’ve done your research, don’t capitulate.
• Learn to leverage your natural expertise and preferred discipline. Trust yourself. Investing, I have learned, produces a perpetual state of dissatisfaction. If I bought shares and they declined, I bought too much. If I sold and the shares appreciated, I sold too much too soon. But over the long term, we know that being invested in great companies we can own for a lifetime will cover many errors and produce compelling returns.
Investment Discipline is about being mostly right and requires courage and discipline. Don’t fall off the wagon. But if you do, get right back up, and get to work.
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Ontario Investing in Modern Schools
Capital Investments in Ontario’s Schools
Over the next 10 years, Ontario is investing nearly $13 billion in capital grants to modernize schools in the province.
This funding will help build new schools, and also help existing schools replace aging heating or air conditioning systems, repair roofs and windows, and install important accessibility features like elevators and ramps, and support the expansion of child care spaces.
Included in this funding is $1.4 billion for school renewal projects for the 2019-20 school year to help school boards provide safe and healthy learning environments for students.
Capital Investments for Child Care
Ontario is committed to providing families with more choice and convenience when it comes to accessing child care that works for them.
That’s why over the over the next five years the government is pledging up to $1 billion to create up to 30,000 new child care spaces in schools across the province to provide young children with a safe environment to learn and grow. Included in this commitment is nearly 10,000 child care spaces that will be built in new schools.
Study shows Race influences investment decisions
Race influences investment decisions: The report notes that of the roughly $70 trillion of financial assets currently under management, less than 1.3% are run by women and people of color.
<p class=”canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm” type=”text” content=”“A comprehensive data set of every venture capital organization and investor since 1990 shows that the industry has remained ‘relatively homogeneous’ for the past 28 years, particularly white and male,” the study notes. “Women represent only 8% of investors. Hispanics make-up just 2% of venture capitalist investors and fewer than 1% are black.”” data-reactid=”17″>“A comprehensive data set of every venture capital organization and investor since 1990 shows that the industry has remained ‘relatively homogeneous’ for the past 28 years, particularly white and male,” the study notes. “Women represent only 8% of investors. Hispanics make-up just 2% of venture capitalist investors and fewer than 1% are black.”
Lack of diversity in the industry makes it difficult for investors to tackle their bias, leading to decisions that could cause them to lose out on money.
“I’ve observed investors leaving money on the table because they underestimate the value of funds managed by people of color and women,” said Daryn Dodson, founder and managing director of Illumen Capital.
“At the top level we’d expect about $35 trillion to be allocated differently if women and people of color were representative relative to the full talent that we’d expect just by the distribution of population,” Dodson explained. “So we feel like this is a massive problem.”
While lack of diversity in the industry is partially to blame, it isn’t the only reason investors are less likely to place money in funds run by minorities or women. Dodson says that people also have an “inability to see value when race and gender are present.” It’s clear this bias needs to be addressed, as Dodson explains that reducing bias can “lead to higher returns” when it comes to investing.
The study also found that asset allocators have difficulty gauging the competence of racially diverse teams. When assessing strengths and weaknesses, investors were able to better predict future performance for white, male-led funds than funds run by women or minorities.
And paradoxically, investors exhibited more bias towards racially diverse teams with stronger performance, choosing to give greater benefit of the doubt to weaker teams.
“At stronger performance levels, asset allocators rated white-led funds more favorably than they did black-led funds when evaluating investment skills, competence, and social fit,” the report noted.
But the researchers couldn’t clearly determine why that might be the case, positing it might be down to the fact that investors hadn’t had enough experience with diverse teams.
Solving all of these problem isn’t just a matter of increasing diversity among leadership of institutional investors.
“Investing experts advising on the study believe that research, awareness-raising, professional training, and coaching as well as intentional changes to long-time industry practices, can improve the future make-up and impact of the investment community, changing the power dynamic to one that is more equitable and culturally significant,” the study noted.
How to invest up to $1m by Retirement
Investing is always a good idea, even if you don’t have many investing years left until retirement. There are three factors that will ultimately impact your overall savings: the amount of money you have to start investing today, the number of years left, and the level of risk you’re willing to take on.
If the number of years is insufficient to grow your portfolio, then you could try and make up for that by investing more money or taking on a bit more risk. However, I’m going to assume that in the vast majority of cases, investors can’t simply just increase their level of investment overnight.
That leaves the level of risk as the factor that you could most likely adjust to help to try and improve your overall returns. However, that doesn’t mean you have to invest in penny stocks or ultra-high-risk investments. Instead, I’m talking about choosing growth stocks to help get your portfolio to your desired goal rather than investing in dividend stocks.
Why growth stocks could be the better option
While dividend stocks may be a good way to slowly grow your portfolio over the years, growth stocks can provide double-digit returns if you’ve found a winner. That may be easier said than done, but that’s where the risk comes in. Consider a stock like Canada Goose Holdings (TSX:GOOS)(NYSE:GOOS), which has been one of the top growth stocks on the TSX in recent years.
The stock has generated some terrific returns since its IPO, but it has had some pretty big bumps along the way as well. From January through until the end of July, the stock had risen by a modest 3.7%. However, that includes a very steep decline after a bad quarter sent the stock reeling. In 2018, Canada Goose stock soared a whopping 50%.
As you can see, there can be a lot of volatility in your portfolio from one year to the next. That’s the risk with growth stocks, but a good stock like Canada Goose is still a good bet to rise in value over the long term.
Let’s take a look at how investing in a growth stock could help get you closer to your retirement goal.
A sample model
If you have at least $100,000 to invest in today, and a growth stock like Canada Goose were to even average returns of 17% per year, you could hit the $1,000,000 mark by the end of age 64:
To earn a 17% return on average is by no means a guarantee, even if you do find a good growth stock. While Canada Goose could be a good investment today, in all likelihood, you may need to swap it out for another growth stock at a later point in time. As good as Canada Goose stock may be, I wouldn’t assume it will be a lock to produce 17% returns every year.
That’s where it’ll be important to re-evaluate every year which growth stock may provide the most potential or which industry might provide the best option for investors.
However, as you can see from the above table, taking on some risk could be a way to help accelerate your returns. A good compromise could also be to find a dividend stock that pays a high yield and that can provide a decent return as well.
There are many paths that you can take, and knowing what kind of return you’re going to need to be aiming for is one way to at least help point you in the right direction.
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