Be CFO of your own future

How you invest your money is a matter best guided by your personal objectives and timeline – not the day-to-day chatter from the markets and media or what your friends are doing.

Establishing an investment strategy is one of the most foolproof ways to establish your financial focus. A strategy defines the kinds of returns you expect, as well as the level of risk you are willing to take with your money. It can also reflect other personal goals, such as a desire for socially responsible investing. Tax considerations will also shape your strategy, depending on whether your investments are growing tax-free within an RRSP or using after-tax dollars.

A crucial factor in your investment strategy is how close you are to your goal. When your objective is many years away – retirement, for instance – you can typically take more risks to try achieve higher potential returns over time. On the other hand, short-term goals such as saving up for a new house, starting a business, or expanding your family, may call for a more conservative strategy to make sure the money is there when you need it. So, your RRSP may be invested for longterm growth, while your home reno fund might be invested in assets that deliver a set interest rate, with very low risk.

Some Zen for your investment decisions

Emotions can steer people to make common investment mistakes. There’s often a sense of urgency to “get in” on a hot stock or market, even though prices may actually be about to peak. Fear can often lead people to sell when prices go into decline, even though a particular investment may be fundamentally good, but simply undervalued right now.

By staying true to an investment strategy that fits your goals and temperament, you can always feel confident that your decisions are serving your long-term interests. Your financial advisor can help you develop a strategy and stick to it.

When developing your personal investment strategy, ask yourself:

• How much risk am I willing to take in exchange for potentially higher returns?
• What will my investment portfolio be worth at retirement based on my assumptions?