In my monthly net worth updates, I categorize my assets into stocks, cash, RRSPs, TFSA, and other, to name a few. In this month's net worth update, Investing Newbie wanted to know what my “Other” investments are.
Well to answer that question, I'm going to tell you a story of how NOT to invest. So don't try this at home, kids. The Other investments basically consist me flashback 4 years ago tagging along with my mom and having her introduce me to her financial advisers. Note the plural form of financial adviser.
I was keen on investing my money and getting the 6% per year returns that everyone talks about. More importantly, I wanted to find a way to reduce my taxes paid (aka get a bigger tax refund).
My initial investment into these funds were pretty big. I gave each financial adviser $5000 each, pretty much. In total, I invested $18,000. Today this section of my portfolio stands at $11455. I am down 37% of my initial investment. Ouch.
The first investment adviser who I gave $3000 to isn't performing too badly… I suppose. One of the mutual funds is principal protected at $2000 and the other is up $61. Though this is after about 4 years…And these are actively managed mutual funds with MERs.
The second financial adviser who I met, I invested in an oil income trust with $5000. Currently it is down $2000, though I do get monthly distributions.
The third financial adviser hit me the hardest. She was REALLY good at selling. I had her at “tax credit”. I bought $5000 worth of a venture stock (though I did get $1500 back from the government in my tax return) and I bought $5000 of flow through shares. She told me she gets them every year and wished she got them early on in her career. In hindsight, I should have asked her why the “risk tolerance” she checked off while doing my investor profile said “high”.
The flow through shares are worth $2000 currently. I did get a tax credit of about $1500 as well.
So including the tax credits I received back from the government, with the $18000 initial investment, I would be at about $14455.
My lesson learned:
1) The only person who really cares about your money is you. I'm not trying to bash financial advisers, but they do get some good coin for selling you their financial products.
2) Don't buy financial products just because of the potential tax credit. Obviously the government is supporting these initiatives because they are risky.
3) Get to know your financial adviser. You need to be able to trust them. Don't have your family member be your financial adviser just because they're family. HINT: Don't be like Earl Jones' brother and give your money to him (Montreal financial adviser) just because he's blood. He's sentenced to 11 years in prison after pleading guilty to $50 million in a fraud Ponzi scheme.
4) Pick one financial adviser, not three. Though different financial advisers may offer different products. My experience with Investor's Group comes to mind, they may request that you consolidate all your portfolio and give it to them, or else you're not eligible for that better performing product, or they may entice you to borrow money from them and leverage your investments.
How about you? Have you had any experiences investing where in hindsight, you wish you had better foresight? Have you had a “Doh!” experience with financial advisers?