Episode #18 - Two Minutes to a Better RSP: Doing It Right Yourself with Research and Tools
Announcer: Welcome to The Money Clip podcast series from The Vault, Scotiabank’s online guide to helping Canadians get ahead financially. Listen in to gain a deeper understanding of your personal finances and find out how a few small changes to the way you manage your money can make a big difference.Michael Seaton: Thank you for joining us on The Money Clip podcast series from Scotiabank. I’m your host, Michael Seaton, and with The Money Clip we provide Canadians with a deeper understanding of personal finance and money-related matters. This is our series titled “Two Minutes to a Better RSP”. We hope to put you on the path to maximize your retirement savings plan as the deadline approaches. For today’s episode twelve, John Ballard of ScotiaMcLeod Direct Investing is back to explain how self-managed investors can make their own decisions to buy, sell or hold different investments, and also to answer the question about what tools are available to help self-managed investors with their own decisions. Here’s John’s answer.
John Ballard: Using online investment research. Now,for many self-managed investors, the amount of information that’s available on the Internet nowadays is enormous and, consequently, daunting for them. What I’d like to try and do is to break down that information and to explain what it’s for and to explain, perhaps, some of the things that you could look for to help you easily sift through information and to make some better investment decisions. Now, generally speaking, the information breaks down into a number of different categories: firstly, equity-related information, secondly, economic information, and the third category that I’ll talk about is mutual fund-specific research. And within the equity category, there are two large groups of research that many people will come across. The first is called fundamental research, and the second is technical. Fundamental research is nothing more than the detailed analysis of each individual company’s balance sheets to ascertain – based on their prior performance, and their prior sales, and their prior revenue generation capacity – what are the possibilities for continuing and growing into the future. And the typical sort of information that one may find under fundamental research is a price-earnings ratio; that is to say, how does their stock market price compare to the earnings that they are generating as a company. And this ratio allows research analysts to compare one company with another and to compare the relative performance of different companies operating in a similar kind of marketplace. And as a result of these comparisons, the analysts will typically publish ratings for individual companies along a scale – something like “sector perform”, “sector outperform” or “sector under-perform”. And this is simply an indication, according to the analysts, of whether they believe this particular company to be one of the best within its particular sector, or perhaps one of the worst. Investors should always remember that just because a company is one of the best performers within its sector, doesn’t necessarily mean that its yield or risk profile is appropriate for that individual portfolio. Technical equity research attempts to predict how a stock is going to perform in the future based purely on the price movements that have occurred in the recent past. General economic research tends to focus on such things as gross domestic product, unemployment rate, inflation rates and so on, and is designed primarily to give the analyst some view on how interest rates are likely to perform in the coming months. Finally, mutual fund research, which is perhaps the research that most people tend to look at, is a research designed comparing the vast number of mutual funds that are available on the marketplace and giving information concerning the costs of holding the fund, the performance of the fund, the management style adopted by the people managing that particular fund, and their track record over the last two, three or maybe up to 10 years, if the fund has existed for that long. I hope these brief comments give you some idea of where to start looking for your online research.
Michael Seaton: Thank you, John. And that will conclude another Two Minutes to a Better RSP podcast. Keep listening for more in this series as we take two minutes to review tips and suggestions to reach your retirement goals. Thanks again for listening.
Announcer: Do you have any thoughts on today’s show? We’d love for you to get involved and become part of the conversation. Send us your questions, comments or money management tips so that we can address them in future podcasts. Our email address is themoneyclip@scotiabank.com and our call-in number is 1-866-652-5333. The Money Clip is brought to you by The Vault at Scotiabank. Be sure to tune in again next time.