Keeping a Cool Head Why hot stories can burn holes in your portfolio O ne of mankind’s greatest attributes – and perhaps greatest detrac- tors – is our emotional capacity. Throughout history, this often great quality has decimated many fortunes. I fi nd it intriguing how normally con- servative people, who are rational thinkers and who have built successful businesses and careers, jump into stock market in- vesting only to be side-swiped by their two polar emotions: greed and fear. “Bull market” euphoria coupled with human greed will distort reality, and cause an otherwise rational person to abandon reasonto chase the latest “hot” sector. When markets are down, and “bear mar- ket” pessimism sets in, fear can lead you to sell good quality investments at their worst possible time. Financial newspapers and magazines are chock full of flavour-of-the-day ideas and “must-have” investments. Obviously this sells. But a cool head can keep these hot stories from burning a hole in your portfolio. In 2003, it appeared that Canada’s 62-cent-dollar was heading ever lower in its value. And since Canada represented a Michael S. Magreehan, is an investment advisor with Lysnes- Magreehan Wealth Management at Canaccord Capital in Waterloo, Ont. Mike can be reached at 1-800- 495-8071, or mike_magreehan@ canaccord.com. fraction of the world’s economy, the “hot” opportunity was to invest globally. As such, countless investors overloaded their portfolios with global mutual funds. Looking back, this was a grave mistake, as Canadian stocks have since performed among the best in the world and the Canadian dollar has been one of the most secure currencies. Ten years ago, the hot story was Nortel, then income trusts, energy, resources, real estate, agriculture, and even high-fl yer Research In Motion (RIM). All of these will move in and out of favour, and may test your emotional limits, to your portfolio’s detriment. STRATEGIES FOR MANAGING POLAR EMOTIONS How does one consistently make money in the emotional world of investing? By working with a disciplined wealth management practice, which is committed to truly understanding its clients’ emotional triggers and lifestyle needs, you can receive guidance in building the foundation necessary for a successful investment plan. Market volatility breeds emotional volatility. In order to best manage polar emotions, there are two foundational components that can work together in securing your financial future. First, it is absolutely necessary your family have a well-thought-out fi nancial plan. The goal of your fi nancial plan is to determine what personal rate of return is needed for you to achieve sustainable income during your retired years. You should perform a conservative analysis with a range of potential outcomes: consider worst-case, best-case and probable-case scenarios. Make sure that if the worst happens, it won’t devastate your finances. Continued on Page 36 34 • CANADIAN CHIROPRACTOR | OCTOBER 2008 www.canadianchiropractor.ca Michael S. Magreehan, BBA (Hon), CFP feature
Chiropractic + Naturopathic Doctor October 08: Page 34
