In the My Own Advisor inbox recently I got some emails from readers about just starting their investing journey. Thanks for your emails folks, keep them coming. Today’s post will offer some perspectives on a few of those questions sent my way and I’ll provide some answers based on my experiences with saving and investing.
On just starting out…when should I invest, in what, where to start investing?
Reader: I did a bunch of research and it seemed the best choice for having a starting amount of approximately $15k was to start with (TD) e-series index funds…it seems the recommendation to start investing with ETFs is at or over $25k due to costs of trading/re-balancing etc….what do you think?
In my opinion there is no absolute right answer regarding how much your investment portfolio must be worth to own Exchange Traded Funds (ETFs) or individual stocks for that matter. Your portfolio value could be $1,000, $10,000 or more. However for me I know I transitioned to using ETFs and buying individual stocks when my overall portfolio was over $25,000. I did this because:
- It took me some time as a DIY investor to figure out if ETFs or stocks or both was the right approach for me,
- some discount brokerages (at that time) had account minimums, I had to pay a yearly administrative fee if my account value was not over $10,000 or $25,000, and
- commission costs to buy and hold my ETFs and stocks were prohibitive, those fees used to be close to $30 per transaction I recall.
The good news for novice investors is, account fees and trading costs have come way down over the years. The bad news is there is now an overwhelming amount of choice and it’s hard to navigate through all the financial jargon and marketing to figure out what is right for you; where should you invest and in what products.
I had a post here about my favourite ETFs but for today’s post I also want to list a few great personal finance books that have hit the market in recent years that I think you should read, as a beginner, before diving into buying ETF products or stocks. Here are some recommendations in no particular order:
MoneySense – Beginner’s Guide to Personal Finance (starting around $4.99)
MoneySense – Guide to the Perfect Portfolio (starting around $4.99)
MoneySense – 2013 Canada’s Best Discount Brokerages (starting around $2.99)
You can buy the MoneySense books here. Spending $15 or so on these books now could save you thousands of dollars later.
On Canadian discount broker comparisons…
Reader: What I think the beginner needs, is the basics, all in one spot. It would be nice to see some comparisons of brokers.
As a novice investor, you’re right, more information on the types of brokerages available in Canada would be helpful. The MoneySense links above are great and so is this one:
Rob Carrick’s Guide to ETFs (pdf file should be free, let me know if not)
You can also check out my friend’s site who updated his post comparing discount brokerages in October 2014 here.
Also make note of these 2014 Globe and Mail broker rankings here.
You can also buy The Value of Simple for a few bucks. This book puts many basics in one spot; it not only lists some great products to start your investing journey but actually walks you through the process of setting up investing accounts and buying the products.
On diversification…and what accounts to use first?
Reader: Through basic research, I found out that diversification in any portfolio is very important, (TD) e-Series was a good bet but I was also wondering about ETFs, and where to put those ETFs. I mean, we have choices: using TFSA, RRSP and taxable accounts. It’s hard to know what to put where…what accounts to use first…thoughts?
Yes, diversification is critical I think. Owning a mix of stocks and bonds that suits your appetite for risk while designed to meet your long-term financial goals is essential. Here are some of my posts that might help answer some questions:
In addition to these posts I think it makes sense to maximize your Tax Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) before investing in taxable accounts. I actually didn’t do this, I started my non-registered account years ago and in hindsight, I should have deferred investing in this non-registered account until I took my own advice above. You live and you learn. We recently made some contributions to our TFSAs. Regarding our RRSPs we make monthly contributions to those accounts. We are hoping to max out my RRSP account soon and we’ll continue contributing to the other one for the foreseeable future.
Personal finance is personal so your mileage may vary. I hope this offers some perspectives for you to consider on your new saving and investing journey. Thanks for your questions readers and please keep them coming.