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Welcome to Safe Dividend Investing’s Podcast # 163 on April 11th of 2024.
Today, I will be answering 3 interesting investment question.
QUESTION (1)
HOW DO YOU KNOW WHETHER A FINANCIAL ADVISOR HAS INVESTED YOUR MONEY WISELY?
In Podcast #154, I announced a contest to select 20 stocks using $200,000 in “play money” that will generate the most capital gain and most dividend income over 12 months. While this contest was created as a learning exercise for those who have been hesitant about investing in the stock market, it is open to anyone who wants to test their investment skills. To make it a bit more captivating, the winner will receive $100 as an incentive.
SIX INVESTMENT BOOKS, BY IAN DUNCAN MACDONALD, ARE AVAILABLE FROM AMAZON.COM KINDLE BOOKS, THE FOLLOWING ARE THE 2 LATEST:
(1) CANADIAN HIGH DIVIDEND INVESTING -
In this 325-page book, learn how to select, purchase and build a portfolio of 20 Canadian strong dividend stocks. Summary records of 215 stocks are sorted in multiple ways, and each stock's unique page provides detailed scoring data and 24 years of price and dividend trend data. Released September 23.
(2) NEW YORK STOCK EXCHANGE'S 106 BEST HIGH DIVIDEND STOCKS -
In this 334-page book, there is a 2-page report for each company scoring 11 data elements. It also lists 23 years of historical share price and dividend payouts so that investors can judge the stock's reliability. Released December 2022.
A TRANSCRIPT OF THIS PODCAST IS AVAILABLE.
FOR MORE INFORMATION ON HIS 6 INVESTMENT BOOKS, 3 NOVELS, PAINTINGS, PHOTOGRAPHS AND DIGITAL ART VISIT www.informus.ca
Ian Duncan MacDonald
Author, Artist, Commercial Risk Consultant,
President of Informus Inc
2 Vista Humber Drive
Toronto, Ontario
Canada, M9P 3R7
Toronto Telephone - 416-245-4994
New York Telephone - 929-800-2397
imacd@informus.ca
PODCAST 163
SAFE DIVIDEND INVESTING
SAFE DIVIDEND INVESTING
Greetings to listeners all around the world. Welcome to Safe Dividend Investing’s Podcast # 163, on April 11th of 2024.
My name is Carmen MacDonald. Ian has laryngitis and has asked me to handle the podcast. I will be answering one interesting investment question.
In Podcast #154, Ian announced a contest to select 20 stocks using $200,000 in “play money” that will generate the most capital gain and most dividend income over 12 months. Go to the transcript attached to Podcast #154 for more details.
While this contest was created by Ian as a learning experience for those who are hesitant about investing in the stock market, it is open to anyone who wants to test their stock picking skills. To make it a bit more interesting the winner will receive $100 as an incentive at the end of 12 months. Request the Excel entry file, if you are interested in participating, at ianduncanmacdonald@hotmail.com.
The objective of Ian’s books, his website and his podcasts are to show all those seeking financial independence how to become informed, confident, successful, self-directed investors.
QUESTION #1
How do you know whether a financial advisor has invested your money wisely?
Never lose sight of the reality that a financial advisor is being paid by his employer to transfer as much of your money, as he legally can, from your pocket to his employer’s pocket. The skill of these salesmen is in making you believe that your money is being invested wisely.
You came to your financial advisor for help because your understanding of investing was limited, to putting money into a bank savings account. However, the clock is ticking, and you are not getting any younger. Everyone is advising you to start putting money aside for your retirement.
Did you ask ten investment advisors for proposals on how best to invest your money? After all, when you bought your last car, you went to more than one dealership.
No, you did not ask for competitive bids for your money even though it is much more than what you would risk buying a car. Furthermore, you do not have enough investment experience to sort their proposals for investing your money from best to worse. Also, doing a thorough vetting job is just too much work.
What most new investors do is ask their friends and family for an advisor that they could recommend. Not that your friends have a much greater depth of investment expertise than you do. They recommend someone they like.
It is difficult (but not impossible) to sell someone if you cannot establish a respectful, friendly relationship with them. When you meet your investment advisor, he will work hard at establishing himself as your new, trusted, best friend. He will assure you that he has years of successful investment experience and investing for your retirement is in his capable hands.
What you think about him is not important to him. What is important to him is his employer who is judging him on how much money he can convince new investors to entrust him with.
Your advisor will go through the motions of asking you questions so he can appear to be matching what he will propose to your needs. Is it just coincidental that he ends up suggesting that you place your money into exactly the same investments that his employer has told him to push this month.
Within minutes your savings will have been invested. You will have signed agreements t that you have given this investment advisor the freedom to do what he wishes with your money. The agreements will make sure that you have been promised nothing in the way of a return on your investment. You will know little about where your money was invested other then the investment advisor has told you it will grow and provide a good income for you in your old age. These words are meaningless. Retirement is probably at least one decade in the future.
You leave his office smiling because you know that you can check that one big item off your to do list. While, you know people do not work for nothing, it probably never occurred to you to ask how you were going to pay him for his services and what it would cost. If it did occur to you, you may have thought it would be impolite and crass to ask such a question of your new best friend. You convince yourself that it must be a negligible amount and not worth worrying about otherwise surely, he would have discussed it.
You have put your blind trust in this salesman and do not really understand what you are invested in or what gain you may or may not receive. You do not understand that you are just another sheep in the herd being fleeced.
Since you do not know what you are invested in or why these investments were chosen, you will never have a way to determine if your investment advisor has invested your money wisely or not.
As the months go by and if you take the time to look at your monthly statements, you might see that the total amount invested in your portfolio is dropping. At this point you may ask your financial advisor why your portfolio seems to be shrinking. He will advise you that this is not unusual and that investments go up and down in value. It is just the way things are in the stock market. You are told you must be patient and the portfolio will surely increase at some vague time in the future.
If the portfolio has been increasing, then you might pat yourself on the back for having chosen such a good investment advisor. You still do not really understand what you are invested in. You are just along for the ride. Since retirement is a long way off you skip looking at the statements every month.
The investment advisor may wine and dine you, if you have invested enough with him to justify the cost of entertaining you and making you feel special. This relationship can continue for decades. With you being totally oblivious to the fact that 2 to 3 percent of your wealth is being transferred to the investment advisor every year whether your portfolio has grown or not. If an acceptable return on an investment is usually about 5 percent, recognize that you are splitting this return with your advisor, if there is gain in the portfolio. If there is no gain your portfolio is like a balloon losing air.
In Ian’s first investment book, Income and Wealth from Self-Directed Investing, he tells the sad story of Miss Innocence, who gave her lifetime savings of $1,300,000 to an investment advisor. She retired and made the mistake of telling her advisor that all she expected to receive from her investments was $35,000 to live on each year.
A few years later, when her portfolio had shrunk below $1,000,000 she asked me to look at it. She was an 80-year-old widow, a friend. I looked at her monthly investment statements.
Her investment advisor was taking an income of $25,000 a year from her portfolio. He was making more trades in a month than I would make in ten years. Unbeknownst to Miss Innocence each trade incurred transaction charges over and above the flat percentage that he had told her he would charge for his services.
Miss Innocence had thought the $35,000 she was receiving was money coming from dividends. I quickly saw that every month he was selling off a piece of her portfolio to meet her monthly cash requirement.
At 80 years of age Miss Innocence fired her financial advisor and became a self-directed investor. She had owned several retail stores and was quite intelligent and computer literate. You would wonder how a successful businesswoman could have been so trusting, but part of the skill of being a successful financial advisor is in establishing trust and stringing along elderly clients with charm and diversions.
With Ian's guidance, Miss Innocence quickly learned where to find the information she needed to score stocks. She carefully chose financially strong companies with long histories of rising share prices and dividend payouts.
It took her a year to recover what the investment advisor had lost. Surprisingly her dividend income was now over $70,000 a year. She knew exactly what she was invested in and why the stocks in her safe diversified portfolio had been chosen because she had chosen them.
Initially she had a hard time believing that she was successfully managing her portfolio. Several times a week she would be checking each stock’s health. Now, several years later she confessed that she just assumes the dividend income will arrive and grow. She rarely does in-depth analysis of her stocks and makes few changes to her portfolio from one year to the next. .
Spend the little time it takes to learn to become a successful self-directed investor. Know exactly what you are invested in and why you chose to invest in it. It isn’t difficult. Successful safe investing is all about common sense and patience.
The question was. “How do you know whether a financial advisor has invested your money wisely?”. Unless you are prepared to spend the little time it takes to learn how to recognize financially strong companies that will provide you with a good dividend income, then you will never know whether your financial advisor might have invested your money wisely or whether your trusting naivety has robbed you of the financial returns you might have realized.
Don’t be a investment zombie, stumbling along blindly. You have a brain in your head. The investment advisor who is so anxious to get his hands on your money is no smarter than you are.
Think like a banker. Would a banker give you money for a mortgage without first investigating whether you had the financial capacity to repay that loan? Would the banker approve a mortgage without having verified that the house was worth far more than the amount they are lending?
They would not. So why are you turning over your money to an investment advisor without verifying that the investment is a financially strong investment with a decade or more of profitable operations.
Don’t buy into the shell game the investment advisors play in putting your money into so-called safe mutual funds containing hundreds of companies. The high number of stocks in it is supposed to protect your money no matter what the economy does.
Unfortunately, there are not hundreds of strong companies out there worth investing in. All the weak companies in a mutual fund will eat away at the strength of the strong profitable ones.
Furthermore, the financial advisor did not pick the companies in that fund. He has no better idea than you do as to the strength of the fund. He is basing his recommendation on the advertising that the fund company put out. These promotions are far from objective and they are slanted to sell that mutual fund.
Ideally, you want to invest in the best 20 companies your research points you to. 20 will give you adequate safe diversification plus be few enough that you can easily confirm that these are solid, growing, profitable, established companies. 20 stocks is also small enough of a portfolio that you will take the time to periodically monitor it to spot significant changes in their value.
If you are going to do this confirmation work, what do you need an investment advisor for? Without an advisor, you will Immediately be saving yourself thousands of dollars annually in fees, commissions and charges. You will sleep better at night knowing that you understand exactly where your income and wealth is coming from. No advisor is ever going to care as much about your money as you do.