Two fundamental investment tips every investor should know to cut costs and streamline gains

One of the most basic pieces of investment advice you’ll ever hear is to make sure you carefully read a contract and get clarification of anything you don’t understand before you sign.

Most investors are familiar with this advice, of course, but it’s important to keep in mind, especially when doing things like opening an investment account, or transferring investments from one brokerage to another.

Investing strategy: Be wary of the difference between “in kind” and “in cash” transfers

A common error is to confuse the “in kind” and “in cash” boxes on account transfer forms. In most cases, you’ll want to tick off the “in kind” box.

If you tick off “in kind,” it means you want the securities in the old account to be transferred to the new account. If you tick off “in cash,” it means you want the old broker to sell your holdings, and then transfer the cash to the new broker.

You have to transfer some securities “in cash,” such as in-house mutual funds and savings accounts. But whenever possible, the best investing strategy is to transfer all the securities to the new broker before you do any trading. Presumably, you are unhappy with the old broker, so you won’t want to give him or her any commissions. It’s a better investing strategy to let the new broker make the trades, since that’s who you’ll be dealing with in the future.

As well, you may not want to sell everything in the account, especially if that will force you to pay capital gains taxes. One thing that works in your favour, of course, is that it’s in the new broker’s interest to transfer “in kind.” But mistakes do happen.

Incorrect beneficiary information can cause major headaches for your heirs

In addition to transfer forms, it’s a good investing strategy to periodically check (and update if necessary) beneficiary information on your registered accounts, including RRSPs and tax free savings accounts (TFSAs).

You’ll want to pay particular attention to the form that names or changes the beneficiaries of your life-insurance policies. Often, you’ll name a primary beneficiary (generally your spouse), and a secondary beneficiary (often your children) if the primary beneficiary is incapacitated or dies at the same time as you.

We once came across a case where the insurance agent mixed up the primary and secondary beneficiaries. As a result, instead of going to the bereaved spouse, the form said the eldest child was to get the proceeds of the policy.

Happily, the eldest child realized the error and agreed to sign the cheque over to the surviving parent, for whom it was obviously intended. But if the child had refused to sign the cheque over, the surviving parent would have had no recourse. The insurance company would have had to follow the instructions on the form.

Of course, most children will do the right thing in a case like that, but you have nothing to gain by putting them to the test. That’s why you’ll always want to be sure the form is correctly filled out before you sign.

Bonus investment tip: Stop worrying

You’ll rarely if ever sell near the top, nor buy back near the bottom. If you could do that with any consistency, you’d “make all the money in the world”, as the saying goes.

If you constantly worry about the “big picture”, you may at times manage to sell at just the right moment to sidestep a serious downturn. But you may only do that after sitting through a series of downturns. The downturn you avoid may turn out to be the last in a series—the “final leg downward”, as short-term traders like to refer to it.

The next big move in the market may be upward. You need to get back in the market or you’ll miss out. Wait too long and you could wind up paying more than prices you got when you sold.

Note, however, that the stocks that make up the market don’t go up and down like a bunch of people in an elevator. They are more like commuters in a city. Most go the same way every morning and evening, with the traffic. But lots of others go against the traffic, if only sporadically.

Some commuters head off for work at the same time every day. Others are often late. But the real go-getters are the first to arrive at the office, and last to leave. Here the analogy is particularly apt. When the market pulls out of a slump, the best stocks for the next rising phase may have already begun to rise. In fact, some will have begun to rise before the slump began.