Week Four: Navigating the Financial Marketplace

Murray Baker FSGV

November is Financial Literacy Month and here at FSGV, we believe that all British Columbians should have access to tools and knowledge to feel empowered about finances.

The theme for Week Four is “Navigating the Financial Marketplace” and to get some practical advice, we spoke to Manager of Financial Empowerment, Murray Baker.

Murray Baker is the Manager, Financial Empowerment, for Family Services of Greater Vancouver with over 25 years working in Financial Literacy.  He is also a leading North American authority on student financial planning and author of the bestseller; The Debt Free Graduate: How to Survive College or University Without Going Broke (HarperCollins). He is passionate about financial education and empowering individuals to take greater control of their finances and become savvy consumers. He advocates for vulnerable populations, including promoting policy changes that facilitate the financial wellbeing of all people in Canada and developing programs that foster universal financial literacy.

Here’s what Murray has to say about navigating the financial marketplace with knowledge and confidence:

What does it mean when we say “financial marketplace”?

A financial marketplace is where financial assets are created and traded. This could range from stocks, bonds, or currencies. An example of this would be the stock market where there are buyers and sellers of stocks in numerous companies. The average person is able to participate in this marketplace and purchase these financial products directly or through a financial institution including purchasing stocks, bonds, and mutual funds.

Where should people start when they want to learn about the financial marketplace?

It’s important to seek out as unbiased of information as possible. Financial institutions are in the business of selling financial products so their delivery of information tends to have a higher degree of built in bias. After all, their goal is to make money, which means selling products profitable for them.

Your local library is a good place to find less biased publications on personal finance. A couple of good intro books are The Wealthy Barber by David Chilton and One Up On Wall Street by Peter Lynch. Both are written in accessible terms with a healthy dose of humour sprinkled in. The personal finance columns in many daily newspapers such as The Globe and Mail and The Financial Post, offer some very informative columns aimed at the novice or intermediate investor. Periodicals, such as MoneySense, also offer plain language financial articles. Gradually gaining knowledge and confidence also helps equip you to ask the right questions about the financial products that you are considering.

Do you have any recommendations for learning how to understand the jargon and identify reliable sources of information?

Understanding financial products and how the market works comes with time. Family Services of Greater Vancouver offers workshops throughout the year. A list of these can be found online. Free apps such as Stocks (iphone) or Yahoo Finance offer numerous financial articles as well as the ability to add stocks into a watch list where you can find articles about pretty well all publicly traded companies. It is a way to learn about and follow companies – building knowledge before you start investing your own hard earned money.

When looking at possible sources ask yourself?  Is there a sales angle to the information that you are receiving? What are the sources? Are they reliable? Also, avoid relying on tips you get in your social circles. You may not know the accuracy of the tips or where the tip came from. Acting solely on a friends’ “tip” may strain the friendship should that investment go down in value.

Where should someone start their financial literacy journey? Any red flags to watch out for?

A good place to start is to talk to a variety of financial planners to see if you feel comfortable with them assisting you in investing your money? You are really interviewing an advisor to assist you with managing your money. Ask yourself: Do you feel like they have your best financial interests at heart?  Does it feel like they are working for you, or for the financial institution that they represent?

If you are starting with a small amount of money to invest? Ask yourself if you feel a potential advisor will give you the same attention as they do some of their higher net worth clients?

Watch out for red flags such as a financial planner that promises high returns with no risk, or promises returns that seem unusually high. Perhaps in no situation is the old adage, “if it sounds too good to be true, it probably is,” more relevant that in personal finance.

Also, look for an advisor that explains things thoroughly and is willing to answer any questions that you may have. A major red flag is when an advisor skips over the details and projects a “just leave it with me attitude.” Even if you are using an advisor or planner, you should still take an active role in your personal finances.

How do I know which type of investment I should put my money in?

It is a good question and one that really varies from person to person. When you are investing it is assumed that you want your money to grow – ideally at a rate at least higher than inflation. The question then is how to get there, which is largely determined by four factors:

Your time horizon: When you’ll need to access cash will impact what a good investment for you is. Stocks and mutual funds may be potentially good investments, however they are prone to many ups and downs in their value. If you have a short one- to four-year time horizon, you may have to sacrifice some higher return potential in favour of greater safety and predictability.

Your risk tolerance: Are you the type of person that gets worried if you see your investment go down, even if it is temporary? Your investment personality will help determine which investment you will sleep most soundly with.

Your expectation of return: Are you expecting 1%?, 3%?, 7%?, 10%? If your expectations are for high returns you may have to leave the safety of a savings account for investments with potential for higher returns – but with higher risk. This is where you have to balance your expectations with the factors such as your risk tolerance.

Your values and ethics: Whereas at one time people may have been inclined to say; show me the money – now they may be more likely to say show me the green money, show me the ethical, honest money, show me the sustainable money.  People are increasingly inclined to consider whether they are growing their money at the expense of other people, cultures, the environment, or their values.

The FSGV Financial Empowerment program helps people gain confidence about their financial literacy, access government benefits, and make the most of their money.

Visit us online to learn more about our free workshops, tax filing clinics, and 1:1 coaching to take control of your financial situation and build a brighter future.