With more than 300,000 downloads of her podcast Young Money, Tracey Bissett understands people are keen to get in better financial shape but may not know where to start.
“If we think of it akin to physical fitness, we might be taking that first step off the couch for a walk around the block or we could be training for a marathon,” she says.
It’s a philosophy ingrained in her business, Bissett Financial Fitness Inc. And much like good health, the starting point to building financial strength can be different for everyone. Bissett, who is a Chartered Financial Analyst, says financial fitness is about continually taking steps to improve your finances according to your own circumstances.
For example, if you’re an absolute beginner, you might want to learn about registered savings accounts. Already a novice investor? You might want to eventually master more sophisticated trading.
The question Bissett likes to ask is, “What is the one thing I can do today to tangibly move ahead?”
Late last year, Bissett gave a webinar to TD Direct Investing clients about the lessons she’s learned from other DIY investors throughout her career. Here are three ideas Bissett shared that really resonated with us.
Recruit an investing buddy
“Emotions can really cloud rational decision-making,” she says. “Everybody has them, everyone is subject to some level of bias.” As an instructor of behavioural finance at Toronto’s Centennial College, she believes understanding the psychology that drives our decision-making can help us manage the emotions around investing. Bissett says when feelings start driving decisions, “no longer are we thinking about our goals.” The result may be that we sell too quickly or jump into an investment we don’t understand for fear of missing out. Erratic behaviour can have a big impact on portfolio performance.
“
What is the thing I can do today to tangibly move ahead?
”
She suggests that having an investing buddy — someone who can help you reflect on your investing strategies — could create some investing accountability. A buddy could help you pause just enough to gain some perspective before making an investment decision. “It may be helpful to delay your decisions a little bit,” she suggests.
Understand your risk tolerance as an investor
Bissett suggests that imagining your future response to a financial loss could help how you manage risks inherent to the markets. For example, somebody who is risk averse, could abandon a strategy after seeing a price swing. “Consistency is really key,” says Bissett. It’s one reason she stresses the importance of a plan that fits your risk tolerance. Bissett points out that our comfort level can vary depending on our financial goals. She suggests thinking about your ambitions and working back from your money goals to establish an investment strategy. Bissett likes to ask, “How much do we need to start contributing now based on that time horizon and risk tolerance?”
At the same time, Bissett points out that taking calculated risks can sometimes be prudent, particularly early in life. Investors who start saving for retirement as they start their careers may have more time to weather the ups and downs of the market. A long time horizon could help to support higher risk tolerance.
Automate your investment process
As soon as you get money coming in — usually in the form of a paycheque — Bissett suggests moving money automatically to your investment accounts. In her experience, investors don’t miss the money they’ve set aside once they’ve established a budget.
Bissett stresses the value of automatic transfers, even if you only have a small amount for savings. “Never discount even small amounts of money, because that can grow to more over time,” she says, alluding to the power of compound interest.
By paying yourself first, investing within your risk tolerance and keeping your emotions in check, you could be well on your way to becoming a more savvy investor.
You can watch the entire conversation with Tracey Bissett here:
