Why Investing Is A Lot Like Weight Loss

I have been investing for over 25 years, and I know what it takes to be a successful investor. What I had not realized was how similar the actions and beliefs relating to investing were so close to the choices and thoughts related to weight loss.

Have you ever tried to lose weight? I have. Earlier this year I committed to a change in lifestyle I assumed would be an entirely physical undertaking. I was wrong. Even just to get to the starting line of weight loss, you have to get the mindset right.

After losing 20 pounds, I can tell you that successful investing looks a lot like successful weight loss. Obvious likenesses between the two aside — expensive products, conflicting “expert” advice, confusing strategies — there are three similarities that will see you through to the investing finish line.

You have to play the long game.

When I started to lose weight earlier this year, I weighed myself every day — sometimes twice a day. The results would throw me into various tailspins. It’s working, I have to buy all new (smaller) clothes! Or, it’s not working, no more food today!

And then I remembered how when I had started investing, over 25 years ago, I used to check the stock market almost hourly. I had to know what exactly was going on with my stocks. If they were going up, I was euphoric, and if they were going down, I was devastated. Should I sell everything? Should I buy more?

Not only was it unproductive, but it was a ridiculous waste of valuable time.

The daily or weekly (even monthly) fluctuations in your investments are just noise. Ignore them. Focus on the big-picture, long-term trend. For me, that is up for investments and down for weight. If that is working, relax and go for a walk or play with your kids.

You have to automate as much as you can.

The number one thing you can do to create a successful habit, and this includes starting to invest, is to automate as much as you can. Automation means little or no decisions, and in the case of investing (or losing weight), this is a very, very good thing.

Automating means a certain amount of money is deducted from your paycheque or bank account each month. And that you track your investments in a portfolio tracker. It also means you have annual review with yourself or a fee-only planner. The initial effort in setting up your automated contributions is the hardest part. After that? Rebalance once every few years and just follow the plan. Relax, go for a walk, play with your kids.

You have to believe in a future you.

How old are you? Are you going to be alive in 30 years? In 40 years? I am 43. I believe I am going to be alive in 30 or 40 years. I don’t want to be sick, diabetic or obese. I want to be healthy, and I want to be wealthy. That means taking steps today (no pun intended!) to prepare for a future me.

When I am 75 and living a still-active life, I don’t want to depend on the government for a few hundred dollars a month. I don’t want to have to ask my children for money. I don’t want to be consumed with regret about the choices I made in my forties.

What does this mean?

To have a decent apartment in my 80s, I have to take a pass on purchasing a new iPhone every year. And I have to put even a small amount of money each month into a well-diversified, low-fee investment. If I am doing that then we both know what I can do: relax, go for a walk, play with my kids.

It has never been easier — or as important — to start investing. What are you waiting for?

This post was originally published at The Huffington Post.

$29,207.38 In Fees …and she didn’t know. (sad face)

ETFs vs mutual funds Canada

Imagine paying almost $29,207.38 in fees and not even knowing it.

That is what happened to one of my neighbors, let’s call her Kellie.  

Kellie is 51 years old and in 2009, she inherited $250,000 from a family trust.  A few months later, as the money was earning less than 1% in a high-interest savings account, Kellie had the opportunity to attend an investing seminar at Investors Group.  Kellie was charmed by the knowledge the mutual fund representative seemed to have.  He was quite convincing that his firm was an expert in investment management – backing his claims up with charts and the significant assets under management (AUM) of Investors Group.  She didn’t understand all, but she was confident that any money she invested with IG would be well managed.  When she asked about the fees, she was told not to worry, she would not pay any up-front or direct fees for her mutual fund purchases.  

Kelly was relieved to have this taken care of and agreed to purchase: 

  • $125,000 Investors Canadian Large Cap Fund
  • $125,000 Investors Bond Fund 

Recently, Kellie began to notice that her annual returns were a few percentage points lower then the index returns, which were published regularly in the Globe & Mail. 

Unfortunately, her suspicions were right.

The Investors Group mutual funds representative had sold her funds without explaining one little detail: the outrageously high MER fees. Ugh, it makes me so grumpy when advisors do this.

I sat down with her and together we unpacked the fees that she was paying with her current Investors Group portfolio, versus what she could be paying in a similar ETF portfolio, with a similar risk/reward profile.

Here are the 5-year annualized results for both the actual portfolio (IG) and the ETF portfolio (iShares) as of March 2015: 

Investors Group Portfolio

Investors Canadian Large Cap Value Fund (Series C, purchased DSC) 
5 year return: 3.4%
MER: 2.95%
Fees paid over 5 year period: $20,380

Investors Canadian Bond Fund
5 year return: 3.33%
MER: 1.82%
Fees paid over 5 year period: $12,477.10

Total fees paid to Investors Group over 5 year period: $32,857.10

Black Rock iShares Portfolio

iShares S&P/TSX 60 Index ETF
5 year return: 7.06%
MER: 0.17%
Fees paid over a 5 year period: $1,267.80

iShares Canadian Bond Fund
5 year return: 5.71%
MER: 0.33%
Fees paid over a 5 year period: $2,381.92

Total fees paid to Blackrock iShares over the 5 year period: $3,649.72

Well.

The numbers show that Kellie paid an extra $29,207.38 in fees for a mutual fund portfolio that she could have built with ETFs, that would have had an almost identical risk/reward profile.

Even more amazing is how much she would pay if – all things being equal, she held the mutual funds until her retirement at age 66.

Holding the IG portfolio for 20 years, Kellie would pay over $147,000 in fees.

I don’t want this to happen to you!

That’s why I created the Mutual Funds vs. ETFs cheat sheet. It’s a free one-page PDF download (printable!) that will show you the top three differences between ETFs and mutual funds, a sample model portfolio, and 5-year impact of fees. 

Click here to download the FREE cheat sheet.

You can use it as jumping off point to understand the MER fees you are paying now, make some changes if necessary, and save yourself a ton of money! 

Embed