Several friends in the past month have, for one reason or another, asked me to describe my working day to them. I also used to get this question a lot during my time as a mutual fund manager.
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Recent market volatility has many investors wondering if now is a good time to alter their investments.
The short answer experts generally advise? It’s rarely actually a good time to make changes to your investment portfolio.
“Most investors who jump in and tweak their portfolios typically do it in response to market conditions and history has shown us this just doesn’t work out in their favor,” says Tony Molina, a CPA and senior product specialist at Wealthfront. “What often feels right when it comes to investing, is usually wrong.”
Though you may feel tempted to modify your investments when the market dips, you’re often better off leaving them alone for the long haul. The reality is, downturns happen but your money is safer if you ride out the storm. Just as quickly as the market can go down, it can also go up — and keeping your cash invested throughout these fluctuations is what helps your money grow over time. This is especially true when investing in index funds and ETFs.
But, we wondered, is there ever a good time to adjust your investments? Turns out, there are a couple conditions when it’s OK.
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While it’s typically best to leave your investments alone, you may want to change course if there has been a change in your investing goals’ time horizons, and consequently, your risk tolerance, advises Ivory Johnson, a CFP and founder of Delancey Wealth Management.
On one hand, you may find that you have extended the number of years until retirement and can take on more risk. Or, on the other hand, perhaps you’re retiring sooner than you thought and shortening that timeframe means that you need to put your money in lower-risk investments.
Using a robo-advisor is an effective workaround to avoid having to worry whether your investments match your risk tolerance. Robo-advisors have users fill out a brief questionnaire that helps them know how to best allocate your cash depending on your investment goals and the top robo-advisors will regularly rebalance your portfolio for you as needed.
Betterment, for example, will recommend a stock-and-bond allocation based on your goals and adjust automatically whenever you make a deposit, withdraw funds or change your target allocation. Betterment’s algorithms will also check your portfolio drift (how far you are from your target allocation) once per day and rebalance if necessary.
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The automated investing platform through SoFi Invest® automatically rebalances investors’ portfolios as well, but on a quarterly basis. SoFi is a good option for investors also looking for lending products as SoFi members receive a 0.125% interest rate discount on SoFi’s student loan refinancing and personal loans.
Johnson adds that he would generally change an investment allocation when a big event has taken place, such as a severe illness or a large economic windfall (like an inheritance). In both of these cases, an investor’s need for capital appreciation reduces, he says.
Molina agrees that a good time for investors to make changes to their portfolios would be in response to major life events. Specifically, he means events that put the investor in a position where they would need to access their investments in the near future (three or so years). Examples include marriage, a family emergency or as an investor nears retirement.
“This would be a good reason to reduce their investment risk or pull out their funds altogether,” Molina says.
Much of an investor’s decision to change their portfolio in this scenario depends on how soon they may need to withdraw their funds. “In general, if you need the funds within the next three years or less, you may want to consider changing your investment strategy,” Molina adds.
When it comes to investing in individual stocks, keep in mind that you should be using money that you are comfortable having tied up for at least the next five years. While individual stock investors are advised to hold for the long term (especially during times of volatility) in order to best maximize their returns, they may choose to sell a losing stock if it is more risk than they can handle and it generates significant financial loss. Investing in index funds and ETFs are an easy way to take on less risk and diversify your investments.
If you’re thinking of adjusting your investments, most of the time it’s probably not the best move for your long-term growth in the market.
The exceptions to this rule are if your time horizon and risk tolerance suddenly change. Another exception is if there has been a major life event where you no longer need your money to be invested, or where you could be better off financially with the cash accessible in your wallet.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Several friends in the past month have, for one reason or another, asked me to describe my working day to them. I also used to get this question a lot during my time as a mutual fund manager.
The investment business is really a 24/7, 365-days-a-year affair. Managers are always thinking about stocks, the economy, world events, even when they are not at the office. Everything impacts the markets. If you are not paying attention — always — you are going to miss something.
But in case anyone else is wondering how an investment professional spends their “working hours,” here’s a breakdown into five categories.
I wake up when a three is the first number on the clock. Part of the early wake-up call is a habit from my old competitive swimming days, but it is now work-related. Simply put, with access to information much easier for every investor these days, an early start is one of the only advantages an investor can get.
Company news — takeovers, acquisitions, contracts — typically comes out in the mornings. Having more time to analyze this news, rather than just reacting to it 30 minutes before markets open, can give you an edge. For example, suppose a company announces a takeover and that it is accretive to earnings. With enough time, you can run your own financial models, rather than just taking a company’s word for it. Advantage: early bird.
Not all news, of course, comes out in the morning. Earnings releases tend to be before or after market, but companies can issue press releases anytime, and there are always virtual conferences and conference calls to attend. The United States Federal Reserve might make an announcement, or the Bank of Canada. The past 18 months has also required investors to become COVID-19 experts, watching virus and vaccine news like a hawk. Basically, any piece of news can move markets.
Sometimes, news you think isn’t so important gets picked up by a larger crowd, and stocks and markets can move erratically. There are rumours and facts to listen to and then decide if they are important. My Bloomberg screen can put out hundreds of press releases a minute. One could spend an entire day just reading these headlines, so quick decisions and time management often become crucial habits.
If I have learned one thing In my career, it is that company executives can lie, sometimes outright. At best, they are expert salespeople. At worst, they can be corrupt fraud artists. I have learned to not really rely on them. Numbers, on the other hand, particularly cash flow, are a lot harder to manipulate, so running data screens is a major part of my day.
I screen for all sorts of things, but start with the new highs from the day before. This gives me some new ideas to investigate, as I need to see what all the fuss is about. But screens can be done on pretty much anything, and I like to look at return on equity, sales growth, earnings revisions and dividend increases, amongst other data points. With 10,000 stocks in North America, screens at least keep the potential investment universe manageable.
Meeting with company executives is still important, but not for the reason many think. Generally, because corporate executives need to disclose all information to all investors, you are not going to get any juicy new information from repeated or one-on-one meetings. But it is important to meet a management team in order to get a feel for the company’s approach and long-term goals, and specifically whether you can trust them.
Managers and investors don’t need to meet with executives every quarter. Let them run the business. Many company executives, and fund managers, too, have decided these meetings are a bit of a waste of time, and prefer to let the numbers do the talking (see the prior point). I’ve been to thousands of meetings in my career, but I took fewer and fewer meetings as my career progressed, and had more time for real research rather than listening to a sales pitch. One caveat: I do like talking to the competition of a company I am researching. Competitors will tell you the flaws of the other company. Management won’t.
One needs customers, so whether you’re a portfolio manager, analyst or someone helping do-it-yourself investors, part of any investment professional’s day is spent marketing. Current customers always have issues, enquiries need to be answered and there are always new customers to win over.
More than half of my day as a portfolio manager during the financial crisis in 2008 was spent calming investors down, whereas I would have preferred to be spending that time trying to manage an imploding investment world. But it is a necessary task. If my customers all leave, there isn’t much point focusing on the other four points above now, is there?
Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also associate portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)
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With years of attention paid to educating older Canadians about protecting their money from fraud, it may be surprising that many younger investors have fallen victim to get-rich-quick pyramid schemes, bogus virtual currencies, and more.
Perhaps equally surprising is how New Brunswick’s financial and consumer services regulator feels Millennials are disinclined to take financial advice from a Crown corporation.
“We know this demographic is notoriously difficult to reach,” says Marissa Sollows, the director of education and communications with The Financial and Consumer Services Commission of New Brunswick (FCNB).
In an interview with Huddle, Sollows cites FCNB’s research, in addition to research coming from other provincial commissions, confirming Millennial investors are in some cases at higher risk of falling for poor investment pitches or making decisions without the right financial knowledge.
In the first nine months of 2021, 20 New Brunswickers reported losing nearly $711,000 in crypto investment scams, according to the Canadian Anti-Fraud Centre.
“When we started looking at this situation in New Brunswick, it became clear as we saw different trends in DIY investing and interest in crypto and that this was an audience that we needed to try and reach,” explained Sollows.
Sollows says Canadian investors in their 20s and 30s approach their finances from a different cultural perspective than their predecessors: research shows they are less likely to want to work with a financial advisor and want more hands-on control over their investments.
But Sollows says there is also fear that they don’t know enough about investing and are worried about losing money.
“To come from a regulator, we sort of recognized it wouldn’t work as well for this audience, who get their information from different sources and who have different levels of trust with those different sources,” said Sollows.
In an effort to respond with something meaningful for the Millennial segment, FCNB designed a new awareness campaign that was outside its traditional outreach. Where social media has hooked young investors on finance, FCNB decided to put more of its campaign resources on YouTube, Twitter and, for the first time, TikTok.
For Sollows, that meant focusing not just on what channels Millennials were getting their financial information from, but also trying to understand how they were interacting with those they perceived as “experts” and where that financial advice was coming from — whether legitimate registered online trading platforms, or somebody purporting to be an expert with a hot tip.
“There’s a much higher level of comfort, with the younger generation, with technology and with putting trust in their peers in these different online forums as opposed to going to a traditional financial advisor that their parents would have had more trust in,” says Sollows.
On Nov. 22, FCNB launched “The Right Recipe,” a new investor education campaign targeting Millennials and do-it-yourself investors with resources designed specifically for them.
FCNB campaign videos serve as explainers on a variety of topics–including fad investing, multi-level-marketing schemes, influencer scams, and high-risk investment products–while reinforcing the steps any investor can take to protect themselves and their money.
Covid-19 lockdowns and uncertainty translated into a meteoric rise of online DIY investment platforms and trading apps, leading many to investment possibilities for the first time at the touch of a button. Others are getting their advice on social media and choosing instead to test unconventional methods. But, as Sollows points out, these often “prey on FOMO” (fear of missing out) on advertised payoffs.
The rise of “finfluencers” (a specific type of influencer who focuses on money-related topics) have made full use of platforms like TikTok, Instagram, and YouTube to get the attention of young investors. Couple that with Millennials increasingly willing to devote cash on decentralized cryptocurrencies and hot stocks – with much of that advice coming at them through social media – and you’ve got a scene rooted in familiar tones.
Interactive Investor, A UK online investment service published a July survey showing more than half of young investors surveyed in the UK who have purchased cryptocurrency like bitcoin or dogecoin have done so using credit cards, or even student loan money.
More unconventionally, users of Reddit have made headlines swelling into pump-and-dump schemes targeting low-cost stocks for small companies. Money inflating the value today might be worthless tomorrow on a pre-planned selloff, leaving young investors holding pennies of worthless stock days later.
Trendy concepts like “Impact Investing,” where a company gathers investment intenting to “generate measurable, beneficial societal and environmental impact, alongside a financial return,” have gotten young people to invest money for the promise of helping a greater good, which often leads to confusion and no return for the investor.
“It’s the same old scam,” according to Sollows, who says it’s just wrapped up in different wrapping paper with a different story around it.
“We’ve seen this kind of thing happen with ‘green investing’ in the past when renewable energy and so on was becoming really popular. The scammers would follow the headlines and build pitches around it.”
On the flipside, Sollows says there’s a need to help young investors navigate many of the legitimate online platforms out there. She hopes FCNB can be a trusted resource to help Millennials make some of their first investment decisions, especially when going the DIY route.
“The Right Recipe” depicts a fictional brewmaster who has heard a lot of financial tips over the years.
He’ll tell you that everybody knows someone who’s made a bundle in the markets. He figured if his customers could do it, why couldn’t he? The example allows the user to follow his investment journey, for better or worse, through videos. That journey is everything from “listening to some rando’s advice on social media” to letting “FOMO be his guide” and blindly “following the latest investment trends.”
In addition to campaigns like “The Right Recipe,” FCNB also offers investment updates and fraud alerts emailed directly to those who sign up on its website and provides a variety of financial literacy topics through both in-person and through virtual presentations. Those sessions are offered to workplaces, classrooms, and the broader community, covering topics ranging from financial literacy and budgeting to investing to fraud prevention.
For navigating the investment learning curve and the possible pitfalls for young investors, Sollows believes the campaign would be a success if people used the information and experience of the brewmaster to instead follow their gut instead of social media when the offer seems too good to be true.
“If you’re being offered some crazy returns on things, and they’re telling you, ‘Oh, I can guarantee you’re going to make this much money and it’s so easy you don’t need to understand it — In any other aspect of your life, if somebody said that to you, would you keep the conversation going or would you walk away saying, ‘No thanks, I’m good.’”
FCNB’s The Right Recipe campaign will run until mid-February, in both English and French on most social media platforms and at: therightrecipe.ca.
Tyler Mclean is a Huddle reporter based in Fredericton. Send him your feedback and story ideas: [email protected].
She’s interested in helping women take charge of their finances and advance in their careers, but her people skills have launched her into the digital side of transforming wealth management.
Casciato was able to wed both aspects in her last job. Given that women are expected to control 31% of the wealth in Canada by 2024, but the industry’s leaders and advisors still don’t represent gender or diversity equity, she was pleased to be able to increase the number of women leaders in BMO’s frontline contact centre roles from 20% to 45% They lead teams of 15 to 20 customer service – or investment – specialists and now are all women of color.
She’s also been the executive sponsor for BMO’s North American Customer Contact Centre’s Diversity, Equity and Inclusion Council and a member of BMO’s employee-run diversity, equity, and inclusion board of directors. She’s pleased that they’ve started mentorship programs and done virtual events, and she often gets to speak to increase awareness about diversity, equity, and inclusion and getting more people engaged. “I get a lot of value in watching women succeed,” she said, “and truly feeling like I’ve helped them.”
Casciato now is head of the section that oversees customer service and sales, but is also driving BMO’s digital transformation across its wealth business. She said her role is “to meet the clients in the way that they want to be served – and, increasingly, they want to be served digitally. For my business, which is self-directed investing, they want to have the best possible platform and servicing that they can have because they are do-it-yourself investors.”
That also means providing them with the ability to connect with the help they require. “Increasingly, I see that as being more digital than phone,” she said. “My experience in the broader wealth business has taught me that for some pieces – particularly when you’re dealing with high-net worth individuals and family offices – there’s a relationship component that’s really hard to replicate digitally. So, we need to be prepared to meet our clients where they are, to have the digital capabilities and continue to have those – face-to-face virtually through technology – relationship pieces with another human because that’s important when you’re dealing with people and their money and advice.”
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