Unless you have the background, investing comes with a bit of a learning curve. We know we need to save and invest money for big purchases and retirement, but most of us don't start off as savvy investors, and many people think investing is complicated.
But it really doesn't have to be complicated. Investing and managing your money can be very simple. There are many model portfolios that offer a blend of diversified investments. All you have to do is pick the one that best suits your investment objectives, risk tolerance and time-horizon. Then invest and re-balance it once a year. That's it!
At a certain point, you might have reasons for wanting to redirect your investments. You're not necessarily satisfied with the returns. You might be paying too much in fees. You haven't heard from your advisor in more than a year. Or you may have become a more confident investor.
Whatever the reason, you may want to change where and how you're investing your money for retirement, or for some other long-term goal. After a few years of investing, you're probably more knowledgeable and you may have questions. I know I did, and I wanted to redirect and manage my money. These are the five questions I asked:
1. Where Is My Money Invested?
I don't mean the name of the institution that's holding and investing my money. I mean where is it invested? Is it in equities, mutual funds, exchange-traded funds (ETFs) or bonds? Knowing where your money is being invested is an important step in answering the next question.
2. How Much Am I Paying in Fees?
A report from the Canadian Centre for Policy Alternatives found that high mutual fund fees could cause Canadians to work for as much as 11 years longer than expected, or to retire with less money. When I started looking into my investments, I found that I was paying 2.72% in fees! That doesn't sound like a lot to pay when you're paying someone to invest your money, but here's another question to consider.
3. What's My Actual Rate of Return?
Have you read all the paperwork that came with your investments? I didn't. I just went online, took a look at historical returns for my investments and then ignored them until I started reading my annual earnings report.
I found out that I was paying more in fees (2.72%) than I was earning (less than 2%), meaning I was losing money. I was upset, but mostly with myself for not knowing. Now that I had this knowledge, I made the decision to move my money and do self-directed investments, which means investing on my own without the help of an advisor.
4. How Much Would I Pay in Fees and Penalties?
Fees are a constant when it comes to investments. When you move money from one institution to another, you pay fees. If your investments have a set maturity and you break it, you can face penalties based on the amount invested, type of investment, etc.
There are ways to negate some of those fees, so research before you move your money.
5. How Easy Is It to Move My Investments?
Moving the money is usually easy. Most institutions have forms you fill out, email and send to your institution of choice. Then you sit back and wait for the completed transfer.
Making the decision to redirect my investments was a big one. But if you feel confident you've gained the knowledge to self-direct, then it might be time to take control of your investments.
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