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Ever invest in 'forward yield disbursement bonds?’ No you haven’t, and here’s why

Have you diversified your portfolio in line with the ultra-strict ‘Diversified Security Principal (DSP 2016)’? What about maximizing returns via a ‘variable-income securities vehicle’?

We’re willing to wager you haven’t, likely because these terms are nonsensical words created by mashing together financial jargon. It’s part of a clever survey devised by Hennick Wealth Management to test Canadians investment acumen.

“In all fairness, a lot of the people who answered the questions got them right, saying ‘I have no idea what you’re talking about,’” Adam Hennick, principal at Hennick Wealth Management told Yahoo Canada Finance. “But it’s the people who weren’t sure or thought they owned something that was made up which makes you go ‘wow.’”

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While those surveyed get a passing grade as a whole, 12.3 per cent said yes to the notion that their portfolios used the ‘Diversified Security Principal’ and 29.3 per cent ‘weren’t sure’ – adding up to a total of 41.6 per cent of respondents being confused by the completely made-up term. For the equally ludicrous ‘variable-income securities vehicle’ – 18.5 per cent of respondents said they did and 27 per cent ‘weren’t sure.’

More than six per cent of respondents thought they had discussed ‘Forward Yield Disbursement Bonds,’ ‘white chip’ stocks (a play on ‘blue chip’ stocks – reliable companies known to weather downturns), and ‘Shared Earnings Bonds.’

Of those surveyed, men seemed to be more over-confident in their make-believe holdings with 8.4 per cent saying they owned ‘white chip’ stocks compared to 4.2 per cent of women.

“I’ve been doing this for a long time and sometimes when people come in and start talking you can just see they don’t understand a lot of the things they own or why they own them in the first place,” says Hennick.

More than just a joke

Sure, the survey is apt to draw giggles from the financially literate, much like anyone who’s seen the teenagers riff off fake band names in Jimmy Kimmel’s viral Coachella video, but there’s an underlying concern, says Hennick.

“Sometimes people really, unfortunately, don’t understand (their investments), and by extension don’t hold their financial advisors accountable,” he says. “The idea is as Canadians we’re so polite that we just think: well, I’ve hired this guy and I don’t know what’s going on.”

Obviously, that’s the reason 27.8 per cent of those surveyed have hired a financial advisor to help managed their investments, but Hennick says that doesn’t mean Canadians are off the hook for asking what they own and why they own what they do.

“People have a right not to know what those terms are, that’s why they use a financial advisor,” he says.

But what it comes down to, he says, is eschewing shyness and asking those bottom line questions of an advisor – how are your investments doing, what’s the rate of return and what has that rate of return been over the period you’ve been with the advisor. In other words, what is their track record?

“Our politeness could be costing us,” he says. “Canadians need to ask more questions and fully understand everything that they are invested in, if an advisor can’t or won’t explain investments in a way that investors understand … it’s time for a new advisor.”