Hungry for information about the virus and the economy, Canadians are watching more TV and spending more time on the internet than ever — and many are tempted to take financial action based on what they’re seeing.
The quality and accuracy of financial information can vary significantly across media outlets, and not all of the information Canadians are consuming is correct. Financial advisors see this as a troubling trend.
RBC Investment Retirement Planner, Marco Imbrogno and RBC Financial Planner, Giselle Totino say nearly every conversation with clients today involves some form of correction of news related information and/or an explanation about truths regarding their investments and the economy.
Here, the two share some of the top financial myths and misinformation many Canadians are hearing.
Myth #1: You Can Retire Richer If You Don’t Invest in Mutual Funds
Some commercials claim you can retire significantly richer if you ditch mutual funds and just invest online instead.
While mutual funds do come with a cost — a Management Expense Ratio, or MER — there is value associated with that fee. Imbrogno says, “Investors are looking for returns. The management fee can get you the return. Would you rather pay 0.5% to potentially generate a 2% return, or pay 2% to potentially get a 10% return? Cheaper isn’t always better.”
Imbrogno likens investing in mutual funds to buying quality food for your family. “You’ll shop around for the most nourishing food, and that doesn’t always mean the lowest price. Like with other areas of life, your investing strategy should be tied to the overall value you will receive.”
Myth #2: This Isn’t the Time to Be Invested
Amid concerns and unknowns about a potential second wave of the Coronavirus, many Canadians are worried about going through another downturn of the market, preferring to sit on the sidelines for a while. But as Totino explains, that move may end up costing you a lot of money. “Markets are starting to improve now — so if you got out already, you may have lost a growth opportunity. If you look back to 2008, people panicked as well, and if they got out of the market then, they didn’t realize the gains of 2009 and all the years after that.”
Imbrogno emphasizes that Canadians shouldn’t be concerned about “timing the market” but rather “time in the market.” Because the market will go up and down, it may not be wise to stay out as you could lose out on the chance to grow your money.
And while a downturn in the market is always positioned as bad news in the media, a dip can be a good thing, as it means that you have the opportunity to buy more shares as prices are down. The key, reminds the advisors, is to stay invested.
Myth #3: Buying Conservative Investments Eliminates Risk
While it may be true that investing in conservative or safe assets such as GICs reduces the risk of losing your original investment, you money may not be keeping pace with the economy. But given the current interest rate environment — and the forecast that rates are expected to remain low for the foreseeable future — GICs will likely continue paying interest in the 1% to 2% range. At that pace, they are not keeping up with the rate of inflation or cost of living.
“I want our clients to understand that with GICs there is just as much risk as with mutual funds,” says Totino. “It’s just a different type of risk, as your money isn’t growing to keep up with the costs you deal with every day — such as taxes, food, utilities, housing and more.”
Myth #4: There’s no point in using an advisor when I can invest online myself
There is great value in working with an advisor, particularly during times of uncertainty. They will work with you to take advantage of economic conditions and develop a customized plan to help you reach your goals using a variety of financial tools and products.
“When you invest online, there is no one to ask you why you want to make a certain decision. There may not be anyone to show you the impact to your retirement,” says Totino. She emphasizes the role advisors play is significant, in that they can help clients understand the impact of emotional decisions, of buying certain products over others, and seeing the full picture. “An advisor is someone who will listen to you, and help you make the right choices about your money.”
“And an advisor will ask questions about your estate planning,” adds Imbrogno. “What if you don’t have a will? The money you worked so hard for may not get to your loved ones at the speed or value you would have expected.”
Practicing thoughtful, informed decision-making isn’t always easy in an uncertain environment. As Canadians look to understand what is happening in the economy, this may lead to emotional financial decisions. Having an advisor to talk to can help you make choices that are best for you and your goals. “It’s important to have someone with you through the roller coaster,” advises Totino. “You’d be amazed at what a voice at the other end of the phone can do for you.”
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.