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The Value of Professional Advice

As the weather turns pleasant, the whole business of making and keeping
New Year’s resolutions may be a distant memory for many investors.

As the weather turns pleasant, the whole business of making and keeping New Year’s resolutions may be a distant memory for many investors. The solemn striking of the clock at midnight on December 31 often means committing to improving one’s lifestyle by losing weight, exercising more, or drinking less. Looking back over months of icy roads and volatile markets some investors could probably have benefited from resolutions targeting their financial health as well.

Just as many individuals endanger their well being with bad habits, numerous investors suffer from ill-advised practices that are detrimental to their wealth. I have included below some investment resolutions that can reap benefits quickly. And when combined with an advisor who can help investors stick to them, many happy and worry-free
seasons will follow.

Easier Said Than Done
Everybody wants to be healthier, and many people want to be wealthier, but it’s just not that easy. Most of us are creatures of habit and discover that making permanent changes in our behaviour is surprisingly difficult. We need every possible mental crutch at our disposal to help us stick with a new regimen; so we establish mental road signs, such as New Year’s resolutions, as behavioural aids.

To make matters worse, our commitment to change is sometimes tested by those who ignore prudent behaviour to their apparent advantage. Then, there are those who follow it to their apparent detriment. Winston Churchill lived to age 90, fortified by an ample supply of champagne and cigars, while author and jogging enthusiast Jim Fixx died of a heart attack at age 52. In the financial world, the investor who sunk every penny into Apple shares ten years ago watched her investment multiply over forty-fold while an internationally diversified equity portfolio lost money. *

The isolated examples above may test our faith but should not encourage us to abandon a proven set of prescriptions of investing in a diversified portfolio and rebalancing annually back to our optimum asset mix. By continuing to abide by this process, we will improve our odds of having a successful investment experience.

10 Investment Points
So, for those who would like to potentially take back control of your financial and personal destinies, here are ten investment-related resolutions that will hopefully result in greater long-term wealth:

1. I will not confuse entertainment with advice. I will acknowledge that the financial media is in the entertainment business and their message can compromise my long-term focus and discipline, leading me to make poor investment decisions. If necessary, I will turn off CNBC and turn on ESPN.
2. I will stop searching for tomorrow’s star money manager, as there are no gurus for the long term. Capitalism will be my guru because with capitalism there is a positive expected return on capital, and it is there for the taking. And for me to succeed, someone else does not have to fail.
3. I will not invest based on a forecast—whether it is mine or anyone else’s. I will recognize that the urge to form an opinion will never go away, but I won’t act on it because no one can repeatedly predict the future. It is, by definition, uncertain.
4. I will keep a long-term perspective and appropriately consider my investment horizon (i.e., how long my portfolio is to be invested) when determining my performance horizon (i.e., the time frame I use to evaluate results).
5. I will continue to invest new capital and work my plan because it is time in the market—and not timing the market—that matters.
6. I will adhere to my plan and continue to rebalance on an annual basis (i.e., systematically buying more of what hasn’t done well recently) rather than “unbalanced” (i.e., buying more of what’s hot).
7. I will not focus my portfolio on just a few securities, or even a few asset classes, as diversification remains the closest thing to a free lunch.
8. I will ensure my portfolio reflects my goals while only taking risks worth taking.
9. I will manage my emotions by learning about and acknowledging the biases and cognitive errors that may influence my behaviour.
10. I will keep my cost of investing reasonable.

Finally, just as new contracts rely on estimators who have a working knowledge and general expertise to help achieve successful bids, most investors can probably benefit from having a financial advisor to remind them about their New Year’s resolutions and keep them on track toward a more prosperous future.

Money Does Not Come With Instructions
It has been said that money does not come with instructions. The pursuit

and capture of wealth can all be for naught if it is not carefully managed today and down the road.

Perhaps the greatest value an advisor can offer is the ability to help a client see things objectively and to keep things in perspective and on track. What may seem like a great impulse idea one day can quickly turn into a bad decision. The best advisors will help you create, protect and distribute wealth.

Here are five important questions to consider when choosing or evaluating an advisor.

1. How long has the advisor been in the business? Is he/she fully qualified with a good understanding of your business and personal circumstances? As well as possessing the necessary professional accreditations, he/she should have a sound practical knowledge of wealth management and all its associated activities, such as tax, accounting, succession and insurance-related issues and have access to a team of experts in those fields for specific help.
2. Does the advisor fully understand you and your goals? Is he willing to take the time to first listen carefully and only then offer ideas that reflect your needs? Is your advisor growing with you or is complacency an issue?
3. You may want to be very involved in the management of your wealth and have it front and centre all the time. Or, you may prefer periodic reviews on how you are progressing towards your goals while ignoring the day-to-day market fluctuations so you can concentrate on your business. Does your advisor understand and reflect these personal preferences?
4. Is the advisor willing to clearly explain all fees and performance benchmarks early in the conversation in a transparent manner? Who does he/she work for? (The right answer here is : You). Will he commit to being accessible and to meet at pre-arranged times for investment portfolio reviews throughout the year? Will he come to you?
5. Will the advisor provide you with a written Investment Policy Statement as part of your overall Wealth Plan?

When you are working with the right financial advisor you will have have more time to enjoy your personal and professional life, knowing that your investments and personal interests are well looked after – always with a clear focus on where you want to go.

In future issues of Aggregates & Roadbuilding, I will examine other important topics to help you make the most of your years of hard work creating wealth and ultimately distributing it.

* Globally diversified portfolio represented by MSCI World Index performance. As of November 30, 2010, the ten-year annualized compound return (gross dividends) for the index was -1.78%. MSCI data copyright MSCI 2010, all rights reserved.

Jim Sanderson is a wealth advisor with 25 years of experience in the investment services industry. The Jim Sanderson Group of ScotiaMcLeod, specializes in helping successful individuals and companies in the aggregate and road building industries across Canada create and distribute wealth. www.jimsandersongroup.com or e-mail: jim_sanderson@scotiacapital.com