Finance Ever played golf? Taken a yoga class? Tried your hand at painting, or playing piano? If you have then, in an unexpected way, you’ve got a pretty good idea of what investing is like: it’s as much a journey as it is a destination. It takes considerable time (years, or even decades) to learn how to do it right. There’s always something more to learn. And the idea of “perfection” is something to aim for, rather than achieve. Truth be told, there is no such thing as a “perfect” portfolio. Even for professionals. Much like PGA pros, yogi gurus and famous artists, the “pros” of the investment world are constantly trying to improve both their skills and their portfolios, dealing with investment issues, problems, challenges and “stuff” that needs to be fixed, tweaked and worked upon. That’s even more true after the pandemic year that we’ve just been through, during which plenty of external factors (economic downturns, market volatility, changes to tax laws, etc.) have thrown even the most carefully constructed portfolios out of whack. But here’s the good news: most of the problems which we might encounter with our portfolios are fairly easy to identify and fairly easy to fix, too. With that in mind, here’s a rundown of some common portfolio problems, along with some practical tips and suggestions regarding how to fix them, so that we can make our portfolios as efficient, effective and hassle-free as possible. Problem: you have a hard time following your portfolio No, you don’t need a PhD in finance to be able to be a successful investor − investment success has always been more about your stomach (ability to handle emotions) than it is about your head (how smart you are). Even so, the complexities of certain stocks, geographic markets or whole asset classes aren’t always easy to understand. Depending on the size and complexity of your portfolio − both of which tend to increase as we invest through the years − some investors reach a point at which they have a hard time understanding what’s really going on in their portfolio. Solution: focus on what you understand We’re advocates of the Buffett approach here: stay within your circle of confidence. If you can’t get your head around a certain business or industry − if you scratch your head when reading about what software companies do, for example; or you have no idea how the marijuana market works; or you just don’t “get” bitcoin (truly, who does?) − then it’s a good idea to take a pass and focus instead on businesses and assets which you find easier to understand. Of course, one way to get around this problem is to invest in mutual funds or exchange traded funds (ETFs) with professional oversight. If you still choose to invest in individual stocks, stick to well-known, well-managed companies with long-established business models that are easy to understand. Canadian banks would be a good example here. Or railroads, maybe. Or real estate investment trusts (REITs). Such companies have been around for a long time, andmake their money in ways that even grade-school children can comprehend. Twelve common portfolio problems (and how to solve them) A closer look at some of the common issues and challenges which all investors face by James Dolan CSANews | SUMMER 2021 | 23
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