Avoiding Common Investor Misconceptions

Interviewer:
Joining us today to talk about a few of the most common misconceptions when it comes to investing is Kim Inglis, senior portfolio manager at Raymond James. Well, Kim, at first, what are some of the big ones that you see from people who've never invested before?

Kim Inglis:
Yeah, so I'd say for people who have never invested, something you often hear is that they don't want to invest because they think that stocks are too volatile. Oftentimes, those people tend to associate stocks with gambling, and that's why they view them as too volatile, too high risk. But in reality, the two couldn't be further apart from each other.

When you think about buying stocks, you're actually buying a business. You're becoming a business owner, essentially. So you do well when the company does well, you potentially get dividends, you get righting vote—all sorts of good things when you're a business owner.

Going gambling, going to the casino, on the other hand, is obviously the exact opposite. The house always wins, as they say. And stocks are completely different from that. When you go gambling, your odds of success are extremely low—pretty much none. Whereas with stocks, over the long run, your odds of success improve, particularly the longer your time horizon. It's definitely two very different things.

Interviewer:
I guess you could say the stock market is kind of like the house that generally wins up and to the right, but very different arenas. What about from real estate investors?

Kim Inglis:
With real estate, I often hear the misconception that real estate does better than stocks. And with that, I think it’s important to compare apples to apples because, over time, they actually end up performing fairly similarly.

On an apples-to-apples basis—removing leverage from the equation, not factoring in a mortgage, which is essentially leverage—the two have done well. Since 1990, Canadian housing prices have risen about 6.3% annualized. Some pockets have done better than others—obviously, Vancouver and Toronto come to mind. They've seen about 7.8%. The TSX over that timeframe has done about 7.9%. So all in all, pretty similar.

There are some obvious differences between the two of them. Real estate is not a particularly liquid investment. You're not buying your house on a day-to-day basis. There are costs involved, such as property taxes, ongoing maintenance, and other expenses. And when you go to sell a property, there are significant transaction costs.

Stocks, on the other side of things, are definitely a more liquid asset class, though they come with more volatility. At the end of the day, there are pluses and minuses to both of them. And I would argue to investors that it's not an all or one. It's not a put all your eggs in one basket or the other. If you're able, the best option is actually to have your money and boat, to have a diversification of those asset classes.

Interviewer:
Yeah. And are there any misconceptions that have gained a lot of steam in recent years?

Kim Inglis:
Yeah. So in more recent years, I would say that the most common thing you hear about is people really wanting to be really active with their portfolios. They think that it's necessary to be constantly buying and selling and being stock pickers in order to do well in the markets. 

And the problem with that is that's essentially believing that you can time the markets, which in actual fact no one can do successfully on an ongoing basis, not even Warren Buffett. And research will show that over 80% of actively managed funds will underperform their benchmark over a 15-year time period. And the main reason behind that is essentially if you're constantly buying and selling, obviously you've got considerable transaction costs. And if you're doing this in a taxable account, that's obviously not particularly tax efficient either. 

So your net after tax, after cost return, often ends up being quite a bit less. So I think all in all, it's important for investors to remember that it's time in the market that matters, not timing the market. It's over the long run the markets perform. So it's better to be in the market than trying to constantly buy and sell. 

Interviewer:
Yes, an important reminder there. And fast-forwarding to today, Kim, what should investors be most mindful of in 2025?

Kim Inglis:
So definitely in particular this year is to not mix politics with your portfolios. Seeing that a lot these days, obviously. And the problem with that really is that you're introducing emotion into your portfolio. And that is the absolute last thing you want to have in your portfolio. It leads to impulsive decision-making. It leads to knee-jerk reactions, which add that all up. It leads to poor long-term performance. Obviously, with politics, there will be movements on a day-to-day basis over the short-term growth regards to state policy announcements or geopolitical events and that sort of thing. But over the long run, the markets tend to shrug that off because ultimately the markets don't care who's sitting in Parliament Hill or in the Oval Office. They care how companies are doing. 

Our corporate earnings growing, that's what matters to the stock market. In case in point, TSX over the last 50 years or so has done about 6% to 7%, S&P 500, about 10% or so over the last 100 years. Over that timeframe, we've had plenty of prime ministers and presidents of different political affiliations and definitely different levels of popularity. And none of it has mattered over the long run. So I think that's very important for investors to remember. 

Interviewer:
Yes, people joke, don't mix politics and dinner parties, but it sounds like it might not be a bad idea to leave politics out of your portfolio as well.

Kim Ingils:
Exactly.

Interviewer:
Have any final thoughts for our viewers today?

Kim Ingils:
Yeah, so for Canadians, I’d say that right now is a very polarizing time—I understand that. You've got a lot of Canadians where they're choosing to focus on buying Canadian and not buying US products. And what you're seeing is you're seeing some choosing to take that into their portfolios. And that's something that I would definitely caution against. A lot of some of them are choosing to divest of all their US stocks and invest in only Canadian stocks. The problem with that is that ultimately what you're doing is you're creating a home country bias. You're putting all your eggs in one basket, which ultimately decreases your diversification, increases your risk, and over the long run is bad for your long-term performance. 

In Canada in particular, the TSX is a very un-diversified index. It's mostly financials, energy, and materials. If you wanted to properly diversify your portfolio and stick with just Canadian stocks, you actually can't. The healthcare sector is about 0.3% of the index. So you're adding a lot of risk there. And I think that it's also important for people to remember that a lot of our biggest Canadian companies, our big Canadian banks, Shopify, Lululemon, you name it, there's countless big companies that do a lot of business in the US. So if you're trying to avoid the US, we're so intertwined. It's near impossible. And on the flip side of the US, there's a lot of big companies in the US that employ a lot of Canadians. McDonald's, Amazon, you look at how many people those to employ, and that's about 140,000 Canadians. I think at the end of the day, it's an emotional time for Canadians, but I think that it's best with regards to your portfolio, again, to not mix politics with your portfolio, and to focus on what's best for your financial health.

Interviewer:
Well, Kim, always great to have you. Thanks for joining us today.

Kim Ingils:
And thank you to everyone out there watching. Once again, that was Kim Inglis with Raymond James. I’m Jenna Dagenhart with Asset TV.