Kingston Economic Development Corporation is investing $35,000 in 12 entrepreneurs in Kingston through their Starter Company Plus program.
There are millions of different investments you can buy, and they all require you to consider the same key tradeoff: risk versus return.
Generally speaking, the greater your investment’s potential returns, the more likely it could decline precipitously in value. When you’re looking to maximize your portfolio’s return, ask yourself: What would a big decline in my investments do to me?
The question requires a multifaceted answer — one that examines both how a dip in your portfolio would materially affect your finances and how you react emotionally to losing money.
Many investors have been able to answer that question firsthand of late. The broad stock market fell nearly 24% between January and mid-June, and many individual stocks and more volatile assets, such as cryptocurrencies, fared far worse.
If recent market volatility hurt a little more than you thought it might, consider taking a moment for some introspection, says Christine Benz, director of personal finance and retirement planning at Morningstar.
“A lot of people entered the market in 2020 and 2021 simply because it was going up,” Benz tells CNBC Make It. “Now’s a good time to take a deep breath, step back and think about what’s the appropriate amount of risk to be taking in your portfolio.”
Here’s how to make sure you’re investing with the right level of risk, according to market experts.
Back to the central question: What would a big decline in the value of your portfolio do to you?
First, a dip in your portfolio would materially affect the rest of your financial picture. That’s called your risk capacity. If you’re years away from a long-term goal, such as retirement, short-term dips in your portfolio aren’t necessarily a very big deal because your investments have decades to recover.
If your goal is in the near future, however, a big loss could derail your plans. If you had some of your portfolio earmarked for a down payment on a house this year, for instance, you may not be able to afford a 24% drop.
Second, how would a big loss in your portfolio make you feel? The answer is, of course, bad — but how bad? “Grimly checking your brokerage account every morning” bad or “selling every investment you own in a full-on panic” bad?
Investing pros call your ability to stick to your financial plan in the face of investment losses your risk tolerance. It’s fine to feel panicky when big red numbers start to fill your portfolio page, says Brad Klontz, a certified financial planner and financial psychology professor at Creighton University. But if you let that panic drive you to rash financial decisions, you could potentially do real harm to your finances, Klontz says.
“Who doesn’t panic? If you’re on a roller coaster going down and your stomach is flipping, that’s normal,” he says. The problem arises when “it makes you want to jump off the ride or never ride a roller coaster again.”
If market’s recent shakiness hasn’t affected your financial plans, then your only next steps are to stay the course. But if you deviated from your plans or never had a plan in the first place, it’s time to get your portfolio on track.
Start with your risk capacity, suggests Benz: “Consider what you’re trying to accomplish and your proximity to when you need the money. It may be that you need sub-portfolios for different goals.”
Generally, younger people saving for retirement can invest that portion of their portfolio predominately in a broadly diversified array of stocks, Benz says. They offer higher long-term returns than other types of assets, but also tend to come with more risk.
For short- or intermediate-term goals that are one to three years out, “consider adding safer assets like cash, short-term bond funds and U.S. government bond funds,” Benz says. From there, she adds, consider how you’ll react to losses in the future: “Risk capacity doesn’t matter if you’re going to upend your well-laid plan when you’re uncomfortable with the losses you sustained in the short-term.”
Plenty of online questionnaires can help you determine your tolerance for risk. Examining your behavior during the recent downdraft can be an equally useful yardstick, experts say.
“If I’m not comfortable in this kind of up-and-down market, I need to remember that and put in protections so I don’t feel this way next time it happens,” says Kelly LaVigne, vice president of consumer insights at Allianz Life. “Because it will happen again. And you’ll feel lousy again.”
To avoid the kind of panic you may have felt in the first half of the year, consider ratcheting down your allocations to riskier assets like stocks and cryptocurrency. You may also want to consider investing in a fund that manages allocations for you.
“An all-in-one fund, such as a target-date fund, can help remove you from the equation and let the product do the heavy lifting,” Benz says.
A financial advisor may be able to help on that front too, says Levine: “The biggest thing is to make sure you don’t follow your gut and pull out of the market until you talk with someone who can help you with your allocation.”
Kingston Economic Development Corporation is investing $35,000 in 12 entrepreneurs in Kingston through their Starter Company Plus program.
These micro grants will aid in the growing of the local startups in getting their feet off of the ground alongside business training and personal coaching for business owners.
According to Rob Tamblyn, Business Development Manager of Small & Medium Enterprises – the pandemic as resulted in many Kingstonians pursuing their own businesses.
“We are proud to be able to offer support and guidance to them through the Kingston Economic Development,” said Tamblyn.
The wide array of businesses that will benefit from this grant span from tattoo and spa services to contracting and driving schools, he said.
“Since the pandemic, we have certainly seen an uptick in the number of inquiries from people who are wanting to go into business for themselves.” Tamblyn said, explaining the need for funding.
Kingston Economic Development Corporation was created with the mission of supporting the Kingston economy through providing mentorship and funds to a variety of business enterprises.
Little Friday is one of the twelve businesses in the spring cohort, Soren Gregersen and Ciara Roberts, co-founders of the new video production company, spoke to the Whig about the program.
Officially opening it’s doors in February of this year, Gregersen and Roberts heard of the Starter Company Plus Program from a business that participated last year.
“We’re going to spend the money on (Search Engine Optimization) to get some online presence and a bit of money on gear so that we can up our production value and capacity,” Gregersen said, referring to the vitality of a virtual presence in early stages.
“We’re fortunate in Kingston to be able to offer two separate cohorts, one in the spring and one in the fall.” Tamblyn said. “So we’re able to inject $70,000 into startups or existing businesses seeking to expand.”
Each year, the corporation provides $35,000 in micro grants for each cohort to local businesses with funding from the Government of Ontario. Business owners are able to receive up to $5,000 based on the strength of their business pitches, decided on by a panel of community judges.
Accepted participants not only receive funding, but also attend a week-long virtual boot camp covering market research, digital marketing, small business financing, and hiring practice to ensure that each entrepreneur is set up with the resources and information for success.
Roberts told the Whig that the boot camp and additional resources offered by the program has been invaluable. “It gave us a week to really sit down and put pen to paper on what we wanted little Friday to be about.”
“We focused on figuring out long term goals, marketing strategies, and marketing sales forecasts (in the boot camp)”
The pair has been receiving one on one coaching from business experts where time is allotted to get specific on obstacles that arise in the early days of business.
Interested start-up owners can apply to the Fall 2022 cohort from now until September 11 through the Invest Kingston website.
A pair of initiatives aimed at attracting high-skilled jobs to the region have captured the attention of the federal government.
On Tuesday, Minister of Innovation, Science, and Industry François-Philippe Champagne sat down for an interview with CTV News London to discuss the growing electric vehicle (EV) sector and other high-tech industries in southwestern Ontario.
“I don’t know if you’ve been following me!” joked a surprised Champagne when asked about rumours that aerospace company Boeing is considering a significant investment in London and the surrounding region.
He says talks are ongoing with Boeing about further investment in Canada — and confirms this region is in the running.
“London has the key ingredients that you [need] to attract this type of investment in the industry,” the minister explains.
Boeing is one of the largest aerospace design and manufacturing companies in the world.
Champagne suggested he is targeting investments that reduce the environmental impact of the aerospace industry, in particular, greener propulsion.
“What we’ve done in the automotive sector I dream of doing in the aerospace sector, which is greening the industry,” he adds.
Earlier in the day Champagne was joined by London North Centre MP Peter Fragiskatos on a tour of Toyota in Woodstock, Ont. focussed on EV investments and technology.
Fragiskatos says the federal government’s ongoing push for electric vehicle and component production in Ontario brings high paying jobs to the region.
“We’re talking about close to $40/hr plus benefits, particularly in this economy its jobs like that that are going to get people through,” says Fragiskatos.
In June, the City of St. Thomas announced the purchase of a 325 hectare (800 acre) parcel of serviced land in the community’s northeast corner aimed at attracting an EV battery plant.
Champagne was aware of the shovel-ready property and enthusiastic about the opportunity.
He believes the EV industry wants to reduce the carbon footprint of battery production, making Ontario’s mostly renewable energy hydro grid very attractive.
“I would applaud what is being done in St. Thomas, and certainly that is the type of creativity that we need,” he says.
I have been doing this work for a long time. Nearly 30 years. And over that span I continue to see people make the same, preventable mistakes, over and over.
Here’s my Top 10 list of unforced investment errors.
1. Getting your financial advice from social media. If you have a question about money, what makes you think your equally uniformed friends have the correct answer? People with accounting questions will consult an accountant. People with medical concerns will seek out a doctor. But people with investing questions turn to Facebook or TikTok. It’s nutty.
2. Believing in fairy tales. Yes, I understand the allure of instant riches. Especially if someone is promising outsized returns with no risk. But huge returns with no risk is a fairy tale. Or a scam.
3. Being a perpetual GIC investor. Guaranteed Investment Certificates have their role in financial planning, but if you find yourself continuously rolling over your GICs at maturity because you don’t know what else to do then what you end up with is a permanent string of low-paying investments. On an after-tax, after inflation basis you are almost certainly losing money. How safe is that?
4. Buying on greed. If the reason that you want to buy an investment is because it is showing impressive past performance and you want to get in on the action, chances are very good that you are not making a rational investment decision. And if the investment has already gone up by that much already chances are that its too late.
5. Selling on fear. If the reason that you want to sell a quality investment is because it is showing disheartening past performance and you want to get out to avoid the pain of loss, chances are very good that you are not making a rational investment decision. And if the investment has already gone down by that much already chances are that it’s too late.
6. Confusing investment costs with losses. Buying the lowest cost investment is not the same thing as buying the best investment. If you can replace the diversification and investment decision making process at a lower cost, you might be on to something. But buying an investment only because it is cheap is a good way to end up with junk.
7. Overthinking. You really don’t need to wait until you master the nuances of a covered call strategy or do up a 200-column spreadsheet with correlation analysis before you take action. People can get overwhelmed by the choices and end up paralyzed into inactivity. Simple is usually better than complicated. Just get started.
8. Overconfidence. This one is a biggie. Way too many people think they know what they are doing with their investments, but that’s only because they don’t know what they don’t know. The tricky part is few readers will recognize themselves as being overconfident, just like everyone thinks that they are an above average driver. But if the roads are filled with great drivers, why are intersections with four way stop signs so difficult for people to figure out?
9. Burying your head in the sand. Sometimes financial decisions cause great angst, and the way that some people deal with money decisions is by not dealing with money decisions. Ignoring the situation might be a coping strategy, but it’s not going to get you anywhere. Unpleasant jobs are a fact of life. Pretending that they don’t exist doesn’t make them go away, and procrastination can allow small problems to fester into big ones.
10. Confusing wants and needs. You may want a shiny new toy right now. But you still need to eat when you get to retirement. A high consumption lifestyle is fun, but draining your retirement funds to finance it is short-sighted.
These preventable mistakes are well-known. Even so, I can assure you that people all over the world will continue to make all of them.
But you don’t have to be one of those people.
Brad Brain, CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.
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