In his new book From zero to millionaire – Invest in the stock market without sufferingNicolas Bérubé writes that although Quebecers have never been so numerous to invest on the stock market, good investment practices are still largely unknown.
Posted yesterday at 5:00 p.m.
At the end of the line, a childhood friend wanted to convince me to meet him in a golden tower in downtown Montreal.
“We’re going to talk about your finances,” he told me.
The suggestion made me smile; I had no finances. I was 20, in college, and working part-time at an outdoor store to pay my rent. My only budget was for beer.
Recently hired by a financial services firm, my friend was looking to develop his clientele. Mostly because I was uncomfortable telling him no, I accepted his offer.
He was dressed in a suit and tie when he received me a few days later, in a deserted conference room overlooking McGill College Avenue, bathed in the light of the setting sun. This meeting is absurd, I thought. I should be asking him about his finances, not the other way around. »
After an hour of discussion, my friend said to me: “Nicolas, I think the best thing to do would be to open an RRSP for you. You could contribute $25 a month. »
Happy to feel that the meeting was drawing to a close, I answered in the affirmative.
He slipped a flyer towards me.
“Which fund do you want to buy in your RRSP?” We have a Canadian equity fund that…”
I stopped him dead.
“I don’t want to lose a penny,” I told him. Not. A cent. »
So he invested my $25 a month in a money market fund, a very safe fund, but one whose yield is so low that it doesn’t even cover inflation. Years later, I realized that once the management fees of more than 2% of the value of my portfolio were taken each year by the firm that employed my friend, I was getting poorer instead of richer.
I’m glad I opened my RRSP – which I now administer myself. But I realize that at 20, my friend did not have the necessary knowledge to advise me.
If he had had them, his answer would have been something like: “Nicolas, you are young. You may have 70 years ahead of you. You can afford to ignore the volatility of the stock market because your horizon is so far. You should mostly invest in stock funds, and add money every month, regardless of what the market is doing. »
For example, a balanced portfolio of 60% Canadian, U.S. and international stocks and 40% bonds has averaged an annual return of 9% over the past five decades – taking into account downside events like bubbles, drops, tumbles and crashes. An investment of $10,000 in 1970 in such a balanced portfolio would be worth almost $750,000 today.
I am aware that very few investors have achieved a 9% annual return, because very few investors have adopted good investment practices.
We unearth an extraordinary company that will “certainly” enrich us. Or we hear an expert with a stellar track record that a crash is imminent, and we sell our holdings, while we “weather the storm”.
We are waiting for a crash before investing. We invest with professionals who often offer us products that benefit them, without realizing that their interests conflict with ours.
What is fascinating about the behaviors that impoverish us is that they do not change. Generations follow one another. The behaviors remain.
At a time when so many Quebecers have never been investing in the stock market, I realize that no one comes into the world knowing how to invest. Unfortunately, very few leave having learned to do so.
Because investing is not taught in school, many people also believe that it is too complicated, too risky, or too abstract, without realizing that investing well is extremely simple, and virtually within everyone’s reach.
Books on investing in the stock market often fail to take for granted that with the necessary tools to distinguish promising companies, investors can get started and build a portfolio capable of growing nicely over the years.
Yet researchers have shown that our emotions and our behavior contribute significantly more to our success than the value of any publicly traded company.
The latest studies also show that spending our energy and time looking for actions that will make us richer essentially leads to making us poorer.
Whether we invest ourselves or have someone do it for us, buying the whole haystack is better than spending time searching for the needle. A counter-intuitive but profitable strategy that allows us to join the front runners of the best investors in the world. We’ll beat the returns of financial experts, those well-educated, well-paid people you see driving around in luxury vehicles to manage millions of dollars from their towers downtown.
Because, when it comes to financial investments, many people consume junk food imagining that they are taking care of their health – an illusion maintained by institutions and professionals who claim to advise us well.
Who is Nicolas Bérubé?
Nicolas Bérubé is a journalist at The Press. He lived for seven years in California as the daily’s first correspondent in the American West. His first book, Millionaires are not who you thinkwhich focused on the habits of wealthy Quebecers, provoked a host of questions from its readership.
From zero to millionaire – Invest in the stock market without suffering
Nicolas Berube
Editions La Presse, January 2022
249 pages