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Help!  I’m just starting to invest

Should you save?  Should you invest?  If you invest, what should you invest in?  Do you need a Registered Retirement Savings Plan (RRSP)?  Do you need a Tax Free Savings Account?  Do you need an emergency fund?  What about your student loan?

This list of questions for younger investors could go on and on and on…

If you’re in your 20s I suspect at least one of these questions has crossed your mind.  There are no answers that apply to everyone but this blogpost should help you out.  Keep reading, because I’ve been there, done that and could have done so much better.  Thanks to another reader question these are some of the things I would encourage you to do if you want to start your investing journey.

Should you save?

Absolutely, save even if you have some debt.

How much you should save I think depends on how much debt you have.   With a huge student loan, I’d focus on that.  If you have any credit card debt or lots of it, make that priority #1.

When I was in my early 20s, working and living in Toronto, I had a student loan of about $7,000, rent to pay and bar money to cover my weekends.  After that my money was gone.  I was fortunate to have a stable job.  This is when I started to save.  It wasn’t very much.  I started out saving just $25 per month in my early 20s but saving early got me into the habit of saving more later on.  Good habits, funny enough, are just as tough to break as bad habits.  My advice is to do what you can to establish good habits sooner than later.

You saved but what should you invest in?

Don’t worry about it.  I mean it.

I think until you have at least $3,000 saved (and no debt) which is enough to cover your car breaking down or some other small emergency, heck, even take a trip that isn’t funded by your credit card it’s good to keep your cash in a high(er)-interest savings account.  OK, you won’t make much money on your savings but you won’t lose it on penny stocks or some stupid investment you jumped into either.  I suggest keeping the cash parked so you can figure out what you’re saving for.  Get a few goals first.

You saved and you still want to invest.  What should you invest in? 

You have tough questions!

Well, now that you’ve got some cash to invest for the long-term, as in, at least 3 years, maybe closer to 5 or 10 years or more, consider some broad market Exchange Traded Funds (ETFs).    Consider owning mostly equities in your portfolio.  You’re young, and you can afford to take some investment risk for reward especially if this money is for your future self. When I write about going “mostly equities” here are some of my favourite Canadian equity ETF products to consider:

iShares – XIC or iShares – XIU

Vanguard Canada – VCN

Nervous about getting your own brokerage account?  You don’t need it now for ETFs, it can wait.  While many ETF products have the edge over mutual funds, not all mutual funds are evil.   Here are some good starter mutual fund products to consider if you’re not comfortable with a brokerage account to buy your ETFs:

Try one of the Tangerine Investment Funds.

Try TD Bank’s e-Series funds.

There are other fund products to consider as well.

Do you need a Registered Retirement Savings Plan (RRSP)?  Do you need a Tax Free Savings Account?  Those are issues for future blogposts but you can check out my Archives for more reading where I’ve discussed those accounts and how we use them.

Thanks for your question and I hope this response helped.  Got a question for me?  Drop me an email.

Filed in: Just Starting Out, Reader Questions

21 Responses to "Help!  I’m just starting to invest"

  1. Vanguard is my favourite brokerage for ETFs (“V” ticker symbols). I can’t wait until they add more products to their portfolio. I find them to be the cheapest.. next is iShares of course, the “X” ticker symbols.

    I invested about $20K into Vanguard in USD and it returned the same as in a stock I invested in (Bank of America) before I sold it, but was much less riskier (not just all my money into one stock)

    • Mark says:

      Three cheers for Vanguard products!

      iShares are excellent as well. Good call on the Vanguard in USD. Did you do that in your RRSP or non-registered account?

  2. Bram says:

    Why pay a management fee to the fund manager?
    That is so wateful.

    Diversity is so overrated.

    I firmly believe that buying 5 different stocks will be just fine for long term investing.
    If one of those goes bankrupt, the others will bring plenty over the course of 30 yrs.

    If you want more diversity, go for 10 stocks or more, large cap, blue chip.

    If in the next five yrs, stocks only yield 2.14% then that low MER fee of 1.07 will eat up half your profits! So dont do it.

    I like reading your blog, but your advice is plain wrong.

    • Mark says:

      Thanks for your comment Bram.

      You’re probably right, buying a few different, established blue-chip stocks is probably a good thing to do but for the novice investor that might be pushing it.

      Right now, I own more than 30 stocks but my investing journey didn’t start off this way. I simply needed to learn how to save money first, and invest second. I would think this is still good advice, no?

      I think paying 1% for a mutual fund, and saving early, say up to $10,000 for a 20-something is still good advice. 1% of $10,000 is only $100 in fees per year. It will cost you $50 or more fees for your 5 stocks.

      No doubt as the novice investor gets older, they can branch out and own ETFs and stocks directly.

      Curious, when did you leave mutual funds and buy stocks directly? It took me until my early 30s to do that.

      Cheers,
      Mark

      • Bram says:

        I left funds quite early, as soon as I understood the fee.
        The thing is: the manager gets paid FIRST.
        And he gets paid a percentage of the investment, NOT a percentage of the earnings. (Yikes!)

        Originally I was under the false impression that it was a mere few percent of what I made with the investment. This would be more fair: management paid according to performance. It turns out it is a percentage of my capital.

        This is truly horrendous.
        ING touts a MER of 1.07% as being very low.
        This may be, and others are probably higher.
        ING is one of the few banks confident enough to put the MER front and centre.
        But fund managers get paid before you get paid: if the fund holdings only grow 1.07% in a year, then ALL earnings that year (100%) goes to the management, and zero to you (even though it is YOUR money). Any year with below 2.14% will result in the bulk of the earnings going to the manager/bank.
        This situation gets a lot worse with higher MERs.

        I started noticing a discrepancy between fund performance and the performance of what it is supposed to track.
        If I see S&P500 go up a certain percentage in a year, and yet see a S&P500 fund grow significantly less, I know something is up: it is the fees.
        I saw this in ING Streetwise Balanced Growth: fund performed much less than underlying indices (US/CA/WD/Bonds).

        I had some money in funds as I had not found a way to get TFSA or RSP investments without using a fund. The choices I saw were funds or interest saving accounts.
        Later I found that you can get a stock trading account that is registered as RSP or TFSA. So I use those now.

        • Mark says:

          Well, it took me a few years but over time I learned the bank always gets their money. So, now I own a few of them :)

          The financial industry is largely rigged against small-time investors. This doesn’t mean there aren’t decent/good products on the market, there are. However, the financial industry is in the business to make money and what it can make off you and me and others, well, they will.

          ING is low, but not cheap. I still think these are decent starter products for investors. Again, $100 for every year $10,000 is invested, give or take. After a few years, the keen (younger) investor diversifies away from ING because they can, and get lower fees because of it.

          Sounds like you’re well aware of the fees many financial products have, good on you Bram. Buyer always beware. Thanks for the comment.

    • Robb says:

      @Bram – You complain about a MER of 1 percent eating up half the returns and then say it’s okay if one of your five stocks goes bankrupt? Sorry but that is bad advice. For investors just starting out, the MER is almost meaningless.

      Establishing good savings habits and increasing your savings rate every year will have far more impact on your portfolio.

      • Bram says:

        The same stock can go bankrupt in the fund’s portfolio.
        Or worse: a nervous fund manager may sell stocks that show big drops.

        I’ll make my own mistakes, thank you very much. It beats paying for the fund manager’s mistakes ON TOP OF his fees.

        • Mark says:

          “The same stock can go bankrupt in the fund’s portfolio.” Very true.

          Which is why I don’t think it’s a bad idea to index invest, for most people, on the cheap using broad-market ETFs and not necessarily the 1% fee funds. 1% fee funds aren’t too bad just starting out since you don’t have much money invested to begin with. If one stock goes down, it doesn’t really hurt you.

          The problem arises when you have a $250k portfolio and that is charging 1%, 2% or more every year.
          1% fees on $10k is much different than 1% fees on $250k. :)

          Also, in terms of blue-chippers in Canada, there are only about 30-40 stocks to own.

  3. Roger says:

    TD e-funds are a good choice for the novice investor, although opening an account can be a bit of a mysterious process

    • Mark says:

      I think so Roger, but yes, sadly mysterious and not very well promoted.

    • Barbara says:

      I opened an e-series account almost two years ago and it was not difficult. In fact when I had to speak to someone on the phone about it (I think they phoned me) the lovely young woman also gave me a $200 bonus for no reason.

      Wasn’t sure whether to believe it, but it did show up in my account. I was just putting in my $5500 for a TFSA. But since then I put more money into e-series funds.

      It is very simple to use, I want my kids to open these accounts, but they are very risk-adverse!

      • Mark says:

        $200? Nice!

        I think e-series are great products. I recall I owned them for a bit until I owned ETFs and stocks directly.

        These products are great for passive investing. More folks should look into them.

        Thanks for the comment Barbara.

      • Robb says:

        It wasn’t an issue for me to open an e-series account either. I think the process may have been simplified over the years after some bad press.

        E-series funds are sufficient and simple enough for 80-90% of Canadian investors. If you’re smart and savvy enough (and have the time) to squeeze an extra few percentage points out of the costs, then go for it.

        • Mark says:

          Yeah, I recall the e-series isn’t tough to open. You just have to find the right person in the branch or better still, call TD directly :)

          I did this many years ago. For the last 5 years, I’ve been in ETFs and stocks directly.

          “E-series funds are sufficient and simple enough for 80-90% of Canadian investors.”

          Absolutely Robb, great point.

  4. I think it’s good advice to save a little even if you are in debt. I keep about $5,000 in my emergency fund, and any amount above that, I put into my TFSA and RRSPs. I invest mainly in ETFs in my TFSA, though I have two TFSAs; one with Tangerine and one with Questrade. My RRSP is with Tangerine. In Questrade, I invest in ETFs. It has been working well for me.

    • Mark says:

      Thanks Daisy, again, this is just my perspective, surely others will disagree.

      I just think anytime you can ingrain a good habit, it’s a great thing. Same goes for anything in life, exercise, diets/eating, professional development and learning. While you can do too much of a good thing, it’s rare.

      I appreciate your comment.

  5. We were faced with the should we invest or pay down the mortgage (our last debt) and we did both at the same time. Now that the mortgage is gone we will likely split the spare cash between investing more and renos. We’re happy with the road we took. Thanks for the tips as always.

    • Mark says:

      Always great to read and hear about how others managed their affairs – especially for the better.

      Thanks for sharing.

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