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:
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.
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.