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Three easy self-help tips to build a healthy portfolio

Like new dog owners, new investors often experience the frustration of not knowing where to start and where to turn for assistance.

Our family a couple of months ago chose to get a new puppy, who\’s pretty cute, adorable and, we quickly discovered, difficult to train.

The frustrating part was we didn\’t know how to start training him and our early attempts weren\’t very successful in preventing some poor behaviour. But to keep any not-so-desirable actions from being a habit, we hired an expert to come in to the home to teach us some fundamental training techniques and things started to significantly improve.

Similarly, new investors often experience the frustration of being unsure of where to start, if they\’re investing correctly and where to turn for help.

Here are some simple tips for new investors to assist build a well-behaved portfolio.

Do some research

Over the years, I have volunteered for Junior Achievement\’s Investment Strategy Program whereby the basics of investing are taught to students in Grade seven and eight. It is a wonderful program for young people and I would strongly encourage your children to participate if they have an opportunity.

There are lots of good resources for novice investors, however the Khan Academy is among my favourites. It is a great free resource with simple-to-use video lessons on multiple finance topics, from interest and debt to investment vehicles, insurance and retirement.

Keep it simple

There are so many different types of investment products with no shortage of pundits commenting about the state of the markets that it can all be rather overwhelming. This is why it is very important to help keep it simple.

A great first step is to use your savings to pay for down any debt, especially high-interest credit-card debt. Even reducing low-interest-rate mortgage debt ought to be viewed as a great investment.

For example, a five-year mortgage rate of 3.5% equates to a before-tax risk-free return of approximately five to six percent, which is 3 to 4 times greater than the average five-year GIC rate.

Also, look at setting up a TFSA and/or a RRSP account having a monthly contribution plan to purchase low-cost exchange-traded funds (ETFs). We advise ETFs instead of mutual funds for new investors simply because they offer lower fees, are simple to understand and strongly track their underlying benchmarks.

Unfortunately, many advisers continue to sell high MER funds with either front-end or back-end loads and very high trailers since that\’s how they would be best compensated. New CRM-2 disclosure rules will hopefully discourage this type of behaviour in the future, but they are not yet in effect.

Get help

It never hurts to obtain some advice, but bear in mind there are many different financial professionals with various qualifications.

For a do-it-yourselfer, a lot of online brokerages and ETF providers offer good quality advice about which ETFs to purchase based on your general risk tolerance. There\’s also a few new robo-adviser services being implemented in Canada that will help average investors design, build and manage their investment portfolios.

However, it\’s important to search for services that provide independent and conflict-free advice, and aren\’t simply using their technology to function out their very own financial products.

For investors who\’ve already started a portfolio, investment advisers could be good source when they want to maintain control but need some periodical advice. But remember that there is currently no fiduciary duty for advisers in Canada, so there is little to non recourse for poor advice because the ultimate financial commitment lies with the investor.

Finally, investment counsellors or discretionary managers who manage multi-million-dollar portfolios could be a good supply of education. We, for example, have provided investment 101 updates towards the children and grandchildren of family offices, multi-family offices and clients.

Martin Pelletier, CFA, is really a portfolio manager at Calgary-based TriVest Wealth Counsel Ltd.
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