There is an axiom in medicine: don’t do a test unless it will change your management. It’s tempting to get information just for the sake of having more information, especially when it’s easy to come by. But this is dangerous. Why muddy the waters with extraneous information if it will not inform a subsequent decision? If you’re going to do a test, you must have a plan for the results.
Watching the markets is like running a test: once you do it you receive a data point. What are you going to do with that information? What question were you trying to answer? If you don’t know this before you start, you are just reacting.
If you are starting out, you are going to need to know what the stocks are worth so that you can buy the number that fits with your plan. If you’ve carved out an afternoon to re-balance your portfolio, you need to know market prices for the same reason. If you’ve received an alert that a dividend has been cut, your plan (which should be explicit and written down) may involve an adjustment.
It’s all about the plan.
In fact, having a plan is more important than your investment strategy. A mutual fund investor paying 2% fees who sticks with her plan will be better off than a dividend investor who is reacting to the ups and downs of the market. Don’t react. Execute your plan.
Creating a plan is probably one of the greatest advantages that financial planners provide and one of the greatest improvements that DIY investors could make. Do you have one? Not just a vague idea in your mind, but an actual written plan? Be honest. If you don’t I can assure you, you’re not alone. I didn’t have one for years but it is the single most important ingredient for success as a DIY investor.
Think it’s difficult? – it’s not.
Don’t know where to start? – here’s a template.
A template plan
- Current Status: How much do you have saved? – list assets by account. How much are you earning? – include all sources of income.
- Objective: How much do you need to be financially independent – one million, two million? (This calculator might help)
- Time frame: How long will it take you to save that amount? How long will that amount need to last? (be conservative)
- Savings target: How much of each paycheque will be saved? – savings should be automatically transferred, like paying a recurring bill. Into what account(s) will the funds be deposited?
- Asset allocation: Are you a traditional 60% stocks, 40% bonds person? How much in Canadian vs. international? Have an idea of your tolerance for risk and volatility.
- Strategy: Mutual funds? – I hope not. Index ETFs? – good for many DIY investors. High quality dividend stocks? – that’s how I roll. A combination? – sure! Here’s one example – at the beginning of every calendar year buy and hold the BTSX portfolio (50%), a US index fund (20%), an international index fund (20%), and a bond fund (10%) . Use accumulated dividends to rebalance every three months.
*Note: this is a hypothetical plan for illustrative purposes
Failing to plan is planning to fail. Plan to live, live your plan. Sometimes the cliches are true.
Make a decent plan and stick to it. In fact, the DIY investors who perform the best over time are those who forget about their accounts.
But let’s be honest. We won’t forget about our investments. We’re going to check the market. We can’t help it. Not every day but . . . occasionally. We’re not perfect. I know I’m not.
And this is exactly why a plan is so important: Not to stop you from checking (although it should help to reduce it) but to prevent the checking from triggering bad decisions.
Beating the TSX is one of the best investment strategies we have available to us as DIY investors, but it is the last part of the plan. If we are going to be successful we need to put the first five parts in order first. It doesn’t have to be perfect. Make a draft. Get familiar with the process. Revise it later. Give yourself an hour to think it out and write it down. Your future (wealthier) self will thank you.
Here’s the punchline for April:
- National Bank nudged Shaw out of the 10th spot
- There were four dividend raises and no dividend cuts
- Average yield is 4.94%.
Addendum: The fact that Shaw is off the list and National Bank is on it does not mean we should sell the former and buy the latter. Part of the strength of BTSX method lies in the fact that transactions occur annually (i.e. not frequently). I’ve published this list for those who are starting out or who may not be using the calendar year for their annual adjustments.Thanks to Ross Grant for pointing out this potential source of confusion
Both BCE and TRP raised their dividends by 5%. CIBC increased theirs by 3% and BNS by over 2%. In an uncertain economy with political turmoil around the world and stock markets exhibiting some rather odd behaviour (or is that the norm?), I take solace in dividends. Even better when they’re rising.
What has the stock market done in the last month? Not much. But it doesn’t matter. If it went up I’d say it was no surprise – that’s what markets do. If it went down, I’d say exactly the same thing. I’m tempted to leave out the “price” column of this list altogether. Price changes should not affect our investment decisions.
Some light reading
How often is it a stock-picker’s market? Ben Carlson
Recessions: It’s been a while Collaborative Fund
The twenty craziest investing facts ever The Irrelevant Investor