Your Personal Financial Checklist

A Back to School Financial Checklist for You

Kids have recently returned to school. Being the strange year that is 2020, some are there in person, and some are attending virtually. Whatever the case, chances are many parents made checklists before classes started so their children would be ready. Books, pencils, and, if they’ll be physically at a school, facemasks. And that’s just a start. 

Back to school checklists give parents a sense of what they have and what they still need to get. Likewise, for adults, a personal finance checklist can be helpful, and the fall is a great time to do one. With this in mind, here are some major reminders for your portfolio:

Move Up the Risk Curve to Beat Inflation and Earn More Income

Interest rates are ultra-low, and central banks seem intent on keeping them there for years to come. Bank deposits and government bonds yield less than the rate of inflation, eating into an individual’s purchasing power.

To combat this problem, you can consider investments with a bit more risk but which come with the prospect for better income. These include:

Remember that Risk is the Chance of Permanently Losing Capital (Not Volatility)

This year has been a wonderful example of what and what doesn’t constitute risk in financial markets. One way of looking at risk is that if you buy shares in a company and they fall 25%, you have lost a quarter of your investment. In this regard, pretty much anyone who bought equities in January or February made a risky decision. 

We would suggest that this is the wrong way to look at the situation. While a 25% drop is unpleasant, if the company is still in good shape, the decrease in the value of your shares just amounts to volatility. 

Indeed, the real risk (as we’ve seen this year) is that someone panics and sells their stocks when markets are cratering. This emotion-fuelled decision turns a temporary loss on paper into a permanent loss of capital.

Practise Diversification

From time to time, you will read about an investor who swung for the fences, betting a large chunk of their portfolio on one investment that paid off handsomely. These stories may be true, but they’re incomplete: For every gambler who strikes it rich, there are doubtless many others who went broke after an all-in bet. We just don’t tend to hear their stories as frequently.

As a long-term investor, it’s imperative that you maintain a well-diversified portfolio. You may not get a Vegas-like thrill, but you can generate better returns over the years while reducing your overall volatility. A solid mix of equities and fixed-income assets, spread over many different geographical markets, can allow one part of your portfolio to “take the baton” when another part is “taking a breather”. You can also sleep better at night, knowing your net worth isn’t hugely tied to one investment.

How Many Checkmarks Do You Have?

Ask yourself, having read through these three reminders, how many you’ve checked off. If you’re 3 for 3, you’re in great shape. And if you’re missing any, fear not. We’re always hear to help, so give us a shout and let’s get your financial life the checkmarks it deserves.