Understanding Your Annual Investment Statement



Everyone who invests money will receive or probably have already received their annual investment statement. It is a complex statement and may sound like Greek to you, however, it is important that you understand what various lines mean. Let’s look at a few things or entries that you should concern yourself with.

Rate of Return: (ROR) is not to be confused with interest. ROR on an investment is measured by what you started with divided with what you have now and typically it is referred to as a capital gain. ROR is measured in daily changes but for the purpose of your annual statement, you need to look at what the crediting rate of return has been over the last year. As an example, if you started the year with an investment of $20,000 and at the end of the year you have $23,000 then it is fair to say that you have earned a return of 15%. ROR is extremely important as this is one of the main factors responsible for the growth of your money.

Risk: While ROR determines how fast your money can grow, it must be coupled with understanding the risk levels you are enduring. It is a known fact that risk equals return, meaning the higher the risk the higher the expected return. However, not everyone should be taking high risk. As a general rule, the closer you are to retirement, the less risk you should be taking. Look at the return that you earned and then look at the risk profile of your investments, if the return is too low for the risk level that you have assumed then you may be better off with other investments. Look at your investments and Google them to see the risk level.

Asset Allocation: This is another major item to look for when looking at your statements. How well diversified are you? Are all of your eggs in one basket? I have seen many statements where the investor has about three or four funds and they are all in the Canadian market and all in energy funds. When the market does well, they do well and when the market falls they fall, very hard. The better thing to do is to diversify your portfolio where your risk is spread amongst different sectors and different geographical locations. You should divide your investments between International/Global Equity, North American Equity plus Fixed Income Investments. How much to allocate to each is also another matter, so look at your statements to see how it is allocated, drop me a line if you help to understand it.

Commissions and Fees: Starting in 2017 the regulators decided that all commissions and fees must be disclosed on your annual statements, these fees are payable whether you are invested at the bank or at an investment company. Should you be paying fees for advice and service if you don’t receive any, I don’t think so! Every investment carries with it a Management Expense Ratio (MER) some are higher than others and it is the price you pay for performance and service. Look at your statements and calculate the fees paid out from your account and if you didn’t get value for money, start looking for a proper advisor.


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