(NC)-You have your divorce settlement - but how do you begin to invest it?
Determine Financial Situation
"How you invest money relates to your real life needs," says chartered accountant Kathryn Kruivitsky, portfolio manager, Watson Di Primio Steel (WDS) Investment Management Ltd. in Ottawa.
"Divorce has a huge impact on financial security, so stop, take stock, and figure out where you stand - what you own and what you owe, your income and lifestyle, and who depends on you. Gaining a true measure of your current circumstances will enable you to make decisions with some confidence."
Next determine what will require money, and how much. Do you need to buy a house? Return to school? Fund retirement? Only after this analysis can you can think about investing. Why? Each capital "bucket" requires a different approach to achieve your short- and long-term investment objectives.
Choosing Investment Consultant
You may have an investment consultant - but what if you're starting out cold?
"Be prudent," says chartered accountant John Budd, portfolio manager, Cumberland Private Wealth Management in Toronto.
"Investing is more than a numbers game, and trust is essential in any investment relationship. Ask friends and family for referrals. Then arrange a face-to-face meeting for about one hour to see if there is a personal fit. It's best to deal with the person managing your portfolio - not the salesperson - so ask pointblank: Will I be dealing with you?"
Find out how long a firm has been in business by checking its website. Is it privately owned or owned by a financial institution? Does it promote certain mutual funds? What is its track record?
For larger investment amounts, consider discretionary asset management, where a qualified investment manager makes the day-to-day decisions based on your investment objectives.
Investing Rules of the Road
"With or without an adviser, take charge of your own financial self-reliance plan," advises Kruivitsky.
"Divorce can be crushing financially and emotionally. Weighing financial and investing scenarios takes a clear head. Long-term investing is a process of sorting out several factors - investment objectives, risk tolerance, time horizon, income needs and demand for ready cash. Don't hurry - a misstep could prove costly in the long run. In the meantime, protect your current assets and your dependents: update your will and Powers of Attorney."
"Preserving capital is essential,"
Budd adds, "so try to avoid high cash withdrawals."
"Talk to your investment manager about your cash requirements and how much you will need each year. One rule of thumb is to withdraw no more than three to four per cent from your portfolio each year. This leaves a cushion for downswings in the market. Assuming your portfolio's rate of return averages between six to ten per cent annually over the long run, it will still be able to grow in value as a hedge against inflation, despite annual cash withdrawals."
Both professionals agree that investing requires expertise to make the most of your money.
Further information is available by contacting a chartered accountant.
Credit: www.newscanada.com