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Is Procrastinating Costing You Money? It's More Common Than You Think.

Writer's picture: Kevin Ridgway, CFPKevin Ridgway, CFP

A lot of people I meet with get stuck on the process. For example, many people aren't happy with their current financial institution, but stay because of the amount of work they think it is to leave. In practice, moving can be quite straightforward, and often, the grass is greener.


In my experience, people are more inclined to leave something alone that isn't a complete pain in their ass. When we talk about investments, it's one of the main reasons Canadians are in the wrong portfolio's.


If it ain't broke don't fix it. Many folks I meet with or talk to rarely review a statement, or in some cases, haven't seen one in years.. When it comes to your investments you won't know if something is off unless you're inclined to thoroughly examine all your options.


In other words, You don't know, what you don't know.


The three things that stand out to me when I first look at an investment statement:

  1. Simplicity - You don't need to hold 40 individual stocks or 10 different mutual funds. Less is more.

  2. Tax Deferred Growth - Are your investments being held in the right accounts, and do you understand the withdrawal process for each of those? Mainly, how those accounts are taxed when you take money out.

  3. Relative Performance - Is your investment portfolio doing well in comparison to it's peers? Please stop comparing your 60/40 portfolio to the S&P500. You need an apples to apples comparison based on your life stage and financial goals.


Consider some typical scenarios:


An Old Pension Plan


Recently, I met someone who has been invested in their pension plan for the last 19 years, averaging roughly 4.2% annualized returns during that period. However, they unknowingly left hundreds of thousands of dollars on the table by not exploring other investment options within their pension. Yes, hindsight is always 20/20.


However, their external investments, like their RRSP's have doubled the returns of their pension plan during the same period of time. How can their investment strategy and risk tolerance be so different between their pension and RRSP?


What tends to happen is they simply filled out one investment questionnaire 19 years ago that they likely didn't fully understand to begin with, and failed to update along the way. Your pension plan should have some great investment options, you just need to review those, and seek a professional second opinion to determine the right fit.


Review your work pension so that it aligns with your financial goals and expectations. If participants do not review their investment options, the plan may default to investing the funds, possibly in choices that are not in line with the individual's time horizon, risk tolerance, and objectives.


Non-Retirement Plan Investments


Similar to how homeowners gather belongings over time, investors may accumulate investments from friends, family advice or past employer plans. This can lead to a mismatched collection of investments that don't meet your current investment goals. Changes within the investment industry can make once-sound investments less favorable.


Failing to consistently review your portfolio may lead to holding investments that no longer meet your needs. Regular assessments are crucial to ensure your portfolio matches your current investment goals.


Regardless of the situation, managing retirement investments requires careful attention and thoughtful analysis. The time you invest today will be appreciated by your future self.


Creating the best financial plan depends on individual circumstances, which is why you should always seek a professional second opinion to make sure you're on the right track.





           

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