Author who offers independent reviews of portfolios shares his wisdom
Don Macdonald
Sun
Here are 10 tips, provided with the help of author Warren MacKenzie, to help consumers avoid becoming victims of an investment scandal. MacKenzie runs Second Opinion Investor Services, a Toronto firm that offers an independent review of portfolios, and is the author of book The Unbiased Advisor.
1. Only deal with representatives who are licensed and have proper credentials. Find out about their education and professional accreditation and ensure they are registered with your provincial investment regulating agency. Check to see if there have been decisions against the person by searching the regulator’s website (for mutual fund, insurance reps and financial planners) and the Investment Dealers Association of Canada for (full-service stockbrokers).
2. Use your common sense. “There’s no such thing as an investment that pays a higher rate of return without higher risk,” MacKenzie said. Ask yourself why you’re so lucky to get this great opportunity. The expression is hackneyed but true: If it sounds too good to be true, it is too good to be true.
3. Get another opinion on an investment product or opportunity from an objective source. It could be another adviser, someone at the bank or a trusted friend or family member with knowledge of investing matters. And try taking a step back and asking yourself: how would a bank or a sophisticated investor analyze this? Where is the risk?
4. Be highly suspicious of any time pressure — it’s a red flag for fraud. “Don’t ever feel that you have to do this or you’ll lose the opportunity,” MacKenzie said. “Pressure to make a decision quickly is always a bad sign. There will always be another opportunity.”
5. Make sure your portfolio is diversified and never put more than 10 per cent of your nest egg in any one investment.
6. Be wary of tax-avoidance schemes. A product should have investment merit above and beyond any tax-sheltering angle. While you want to be smart about minimizing taxes on your portfolio, be prepared to pay your fair share. And, by the way, if someone is willing to break the law to help you evade taxes, what’s to stop them from breaking the law to take your money?
7. Ask yourself how well you understand the investment that’s being pitched to you? Could you explain it to a family member or neighbour? Or are you just taking what’s being told to you on faith?
8. Stick to large, well-known investments. Don’t get involved with obscure private companies and schemes.
9. Be patient, not greedy. The idea is to get rich slowly by protecting your capital and investing prudently. Consider this: $20,000 invested at a rate of eight per cent a year, with monthly contributions of $250, will turn into $245,000 in 20 years.
10. Realize the importance of your savings to a secure and happy retirement. Focus your mind and take the relatively small amount of time required to shepherd your savings properly. You owe that to yourself and your family.
