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Friday, April 28, 2017

Why I Fear Investing

Posted by Tim Stobbs on April 10, 2013

You know that nervous feeling you get before you do something new, I get most of the time when I’m making my investment decisions.  Despite reading  a fair bit on the subject and having done fairly damn amazing on some investing decisions (doubling my TFSA value for example).  I still have no confidence on the subject.  I feel like a talented amateur at best.

Why?  I think perhaps I read some other blogs with more of an investing focus and my mind is like…I can’t do that.  I’m not that interested in investing as a topic, I like the results of investing, but reading theory and practice doesn’t do that much for me (other than make me want a nap).  So in the end I don’t write on it….heck the astute reader would notice I don’t even comment much on it.  Given I write a blog about money I think people assume I know lots on investing when in fact I think I have a lot to learn yet myself.

Yet I’m hitting an important brick wall in my plan to achieve financial independence.  I’ve got massive stream of money going into my investment accounts that if I don’t start making some decisions I’ll screw up the plan.  So after internal debate on the topic I’ve made some basic decisions on where I want to go.

First off, a little background theory.  In most cases people tend to have two different sets of portfolios: 1) the accumulation phase – where they are saving up for retirement and 2) the income phase – where they draw down their investments to live on.  The object in #1 is all about growth, while in number #2 the end focus is more about sustainable yield.  I’ve been struggling with the fact of my compressed accumulations phase how much risk should I take.  In the end I played around with some online calculators and came to an important conclusion: my rate of return means jack to my plan (for the most part).

Pardon!?!  It’s true, my saving rate is so high that even a really low rate of return doesn’t mean much to the plan.  Perhaps $50,000 difference at the tail end of seven years, which is fairly minor in the grade scheme of things.  So with that fully in mind I’m skipping the accumulation portfolio and jumping directly income portfolio.  Yes it may delay the plan if I screw up, but I have to get moving on my investing.  Not making a decision is worse than a wrong decision after all.

As I crawl up on my investing diving board, please try not to laugh too hard if I belly flop (a giggle is fine, but try to repress the laughing at my face).

So how about you?  Do you fear investing decisions? Why or why not?

Comments

19 Responses to “Why I Fear Investing”
  1. I logged on to my brokerage account last night and 3 of my 4 stocks were down.

    I have fear because I don’t have much money and I don’t have many years left to earn. I am at risk of being a senior who lives in poverty or having to rely on my children for things like prescription glasses and dental visits because I won’t be able to afford those luxuries.

    If I mess up I will become a burden. That is real fear.

    Some days I think that it would be less stressful to just leave my money in a high interest savings account and hope for a lottery win.

  2. Jacq says:

    I think it’s the subjectivity and conflicting messages/information.

  3. Elizabeth says:

    For me more research means the more comfortable I am with my decisions. If I am comfortable with my decision in the first place I am not constantly watching my investments and am less likely to pull out or change the plan when they hit a rough spot.

    (It helps that I find the theory behind investing fascinating.)

  4. George says:

    Complete confidence springing from years of experience :-)

    In my experience, even an income portfolio can have substantial capital gains.

  5. ziggy says:

    I think you know what you’re doing and you have the confidence. My advice however, given your horizon, would be to keep to of the market until the next recession begins. And then jump back in about a year following that. This will offer you both growth and a ridiculously high dividend rate given how the market cycles through recessions.

    best of luck whatever strategy you choose!

  6. handsfree says:

    That’s what we’ve done – building a dividend income stream from blue chip Canadian companies, the usual “boring” subjects – financial, utilities, pipelines and telecom mostly – we simply keep buying more as we’re able and tune out the fear-mongers. Basically companies that even if the share price takes a hit for whatever reason, we don’t worry about because odds are they’ll bounce back in time and it’s the dividends we’re after anyway. Since we started on this path (in 2009) we’ve enjoyed some very healthy capital gains and many dividend increases too. Put them on DRIP and it’ll help build itself.

  7. This is a great post and a very important topic for Canadians today.

    It’s so easy to by cynical about the stock market – worries of insider manipulation and other mismanagement issues aren’t particularly easy to dismiss in today’s world.

    I like handsfree’s post – boring and blue chip will usually win out in the long-run! DRIP is a tool that isn’t talked about enough.

  8. Some investing topics like puts and calls, are totally not interesting.

    What is interesting for me is long-term wealth preservation and income replacement which can both be achieved by index investing and dividend income investing.

    Then if you have a solid savings cushion JUST IN CASE, it’s all gravy from there.

    I DRIP every thing I do for dividends — saves you fees on buying more of the company’s stock, and your wealth multiplies like a snowball rolling down a hill.

  9. Jon_Snow says:

    I went through my finances last night, doing a rough calculation of my current net worth.

    I currently have 340k sitting in cash.

    Let’s just say my regard for my investing skills is not high. :)

  10. GCAI says:

    I have a question for
    @handsfree @monster and @ Mochimac

    if you DRIP everything (great idea btw) how do you create income that you can use to live?
    I have finished with the accumulation phase and now am faced with generating cash to pay living costs – not all of which are covered by non-DRIPped investments. Or is the DRIP intended only for accumulation?

    Short aside on DRIP – I received five (5) Bell shares decades ago as a gift which were DRIPped (and ignored!) the account now holds 200+ shares and annually generates approximately 3x the original capital investment – only wish I had had the foresight to do this with more investments earlier on.

  11. @GCAI – I’m not an expert by any means when it comes to maintaining a portfolio of stocks.

    In my life away from being the ‘Monster’, I’ve largely avoided reliance on dividends to supplement my income; significantly boosting the impact of the DRIP tool. I’ll start to convert those over once I approach retirement.

    Of course, this is my own choice/opinion and might not be shared by others even at my own firm.

  12. Tara says:

    I don’t feel confident at all about what to do with my portfolio. I am hearing so much conflicting information I am paralyzed. I really need to do something though, as my portfolio is extremely heavy in equities and I would like to retire in 5-10 years, which I imagine is unwise. But bond returns are so low that I am afraid they will drop my return too low to meet my goal. What to do, what to do…

  13. Be'en says:

    How were you able to double your investments in TFSA?

  14. Alex in Virginia says:

    I stopped being “antsy” about my stock picks once I made the mental and strategy shift to dividend stock investing.

    Since about 4 years ago, I have evaluated stocks through the filter of their dividend yields (along with other fundamental factors, of course, to “ensure” they can keep paying that dividend). The financial value of each stock has become to me defined by the dividend it is paying me.

    If I have a decent profit on the price of the stock, I’ll cash that out. But I don’t fret about price drops. (“It’s the dividend, stupid.”) As I keep adding to my investment accounts, I am measuring my portfolio by the aggregate dividends it pays and by my average dividend yield.

    It has worked for me. No more fear of clicking that “buy” button.

    Cheers…

    Alex in Virginia

  15. handsfree says:

    I’m not normally a conspiracy theorist – but I do put stock into the idea that the financial industry wants people to be fearful (little to no promotion of DRIPs and frequently contradictory “theories” and articles in the main stream media).

    Fearful people think it’s all just too hard and thus buy the easy pre-packaged solutions the industry has to offer (which generates a nice income stream for them, no guarantee for you). But if you just look at the top holdings of most broad based mutual funds (and ETFs for that matter) and buy those same companies directly (usually the same boring blue-chips), keep them fairly balanced (don’t derive the bulk of your dividends from any one company) you’ll be well ahead.

    When I’m ready to retire – I’ll simply remove the DRIPs I need to in order to live off the income stream (rather than the income going to buy more stock). Keeping at least a few going would be handy though for inflation protection (everyone has a fear – mine is inflation).

  16. Dave S says:

    Gentlemen. ladies: What about term deposits???? You do not get a break on income taxes but the risk factors are, way lower, than stocks. There is plenty of risk in this world and one ought to think of Europe and the Euro: one also ought to think about the U.S. which has a very bad set of bung ups in the political process as each party will not, seemingly, enter into a compromise even if the country is falling apart. That is why there is going to be very rough times for the future as far out as one can see.

  17. L.T. Smash says:

    Canadian Couch Potato – all you ever need to know, and need period.

    http://canadiancouchpotato.com/couch-potato-faq/

    Even provides some model portfolios, from simple to very complex. You can adjust to your liking once you become more familiar.

    http://canadiancouchpotato.com/model-portfolios/

  18. Loonie Lover says:

    Tim,
    I get what you’re saying about the two phases of one’s portfolio, but I’m not sure I completely agree. The two phases you describe are not entirely mutually exclusive. The key, I figured out a few years ago, to having an income stream large enough to support myself in retirement (which will come from dividend-paying stocks) depends on two factors: 1. How much money I can invest through the years, and 2. How long ago I was able to start (relative to my retirement age).

    Even if you are able to skip right to the “income phase”, you’re actually also still in the accumulation phase, as long as you’re achieving your income phase through dividend-paying stocks. Until you need to withdraw some of the money you’re making from dividends, you’re still accumulating “new” money – just mostly through dividends, instead of capital appreciation. (Obviously, I’m assuming that you’re re-investing the dividends.)

    That’s great as far as that goes, but arguably more importantly, if you’re able to invest in blue chip dividend stocks while you’re still contributing to your savings, you’ve got a long time to see your dividends increase. The longer you leave money in a stock, the higher your return on your _original_ investment, assuming that these companies are increasing their dividends, of course.

    You are in an enviable situation!

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