Demystify your investment statements

I knew early that if I wanted a bright financial future, it was up to me to learn to grow my money. So, I started investing when I was 10 years old by purchasing a $100 Canada Savings Bond with money my grandparents had given me for my birthday.

In my teens, I earned money through babysitting, a flyer route and an eventual part-time job at my local library. I contributed those earnings towards mutual funds upon the recommendation of my mother. At 18, after learning the basics of how to make money through investing from one of my teachers, and by reading investing books from the library, I started to purchase stocks.

 

I then used my investments to pay for a large portion of my university costs and to make a down payment on my first home.

 

I wasn’t an investment whiz then, and I’m not now. But, I learned early to pay attention to the following three areas when my investment statements arrived, and you should too.

 

Know what you own and why

Investments are contained within accounts RRSPs, TFSAs and non-registered accounts are most common. The names of your investments are listed on your statements and they can be stocks, bonds, mutual funds, index funds or ETFs.

 

Often times investors let their advisers choose specific investments on their behalf or they invest with a robo-adviser. In both cases, the investor might not fully understand what’s in their investment portfolio. As a best practice take time to understand what investments you have and why you own them.

 

A Google search on the individual investments can reveal a lot. Better yet, if you own funds, look them up at MorningStar.ca. There you’ll find a description of the fund, a ranking of its performance, rate of return, fees and more.

 

If you understand why you have the investment in your portfolio, such as to lower the risk or to gain exposure to a foreign market, great. If you don’t know why you own it, speak to your investment adviser or call your robo-adviser’s help desk for answers.

 

Rate of return

Are your investments keeping up with the market? If not, you need to find out why.

 

The point of investing is to make money. That requires you to earn a positive rate of return in the long term. Rate of return is what you earn on your invested money and it shows up either as dividends, interest payments or growth in the price of the investment. All of these returns appear on your statement, and they are calculated as a rate of return (ROR). Your statements should show the ROR since you purchased the investment, and over the past year, and over the past three years.

 

Markets go up and down every day and that’s why you don’t want to pay exclusive attention to short-term returns. It’s the long term (four-plus years) that counts. As a reference point, the overall market in North America has generated an ROR between 8 and 12 per cent over the past 60 years.

 

Fees

You will pay fees to invest. How much, though, is completely dependent on the level of service you are receiving and the types of investments you choose. Fees will be displayed on your investment statement generally near the ROR. If you can’t find the fees, check the fine print.

 

If you receive personalized investment advice, you’ll pay your adviser generally between 1 and 2.5 per cent for their services. Then, you’ll also pay fees on any type of fund you buy. Mutual funds (around 2 per cent) are the most expensive followed by index funds (around 1 per cent) and then low-cost ETFs (less than 0.6 per cent). If you use a robo-adviser, which combines digitally delivered services with ETFs, you’ll pay a combined fee of about 1 per cent.

 

If your fees are too high and you’re not earning a ROR that, at a minimum, matches the market ROR, you’re not getting good value and should consider changing investments, and potentially changing advisers.

 

So much has changed with the markets since I started my investing journey, but, what hasn’t changed is the 30-minute monthly review of my investment statements. Because I am 100 per cent responsible for my financial future, when I have questions about something on my statements, I find answers.