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)? What about the Tax Free Savings Account first? 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…and it will for today’s updated post.
This post will share some help for investors just starting to invest and trying to navigate the sea of funds, ETFs, advisors that want your money and much more.
Let’s get into it.
Help! I’m just starting to invest
Whether you’re in your 20s or even early 30s, I bet some of those questions above and more have crossed your mind. There are no answers that apply to everyone but this blogpost should help you out with some considerations that might apply to you. Keep reading, because in some cases I’ve “been there, done that” and could have done much better myself. Thanks to more reader questions this year here are some answers to many of your reader questions about how to get started with saving, investing, and navigating the world of financial advertising for your investing dollars.
Q1: Should I be saving now?
Absolutely, save money even if you have some debt.
How much you should save I think depends on how much debt you have. For example, if you have a huge student loan, I’d focus on that since the interest rates are usually quite high for those. If you have any credit card debt or lots of it, make that priority #1 as well for the same reasons.
When I was in my early 20s, working and living in Toronto, I had a student loan of about $7,000 in the late-1990s, rent to pay and bar money to cover my weekends out on the town. After those payments and expenses almost all my money was gone. I was fortunate to have a stable job though after graduating and getting my first degree and a college diploma. This is when I started to save for investing purposes.
I’ll be honest, my savings for investing purposes was not very much. I started out saving just $25 per month in my early 20s but saving early and often got me into the habit of saving more later on. Good habits, funny enough, are just as tough to break as bad habits. So, save early and save often and I believe your future self will thank you.
Q2: What should I invest in?
I get this question on the site all the time. First, some things to think about. As you start your research about what to invest in, what accounts to fund, what products to hold, what stocks you might buy, etc., you’ll quickly come to the realization that everyone is likely telling you something a bit different.
But that’s OK.
Take a pause.
Based on my experiences including my own lessons learned over two decades of investing myself, there are many ways to successfully build wealth. Here are just a few common paths to consider:
- Buying and owning real estate.
- Becoming a private equity investor.
- Invest in the stock market via owning various funds or companies themselves.
- Become an entrepreneur and grow a business (or two)!
I’ve used this image before on my site because it’s just so darn critical. Start with your money “whys” first before picking funds, ETFs, products or anything else.
“Why” is your starting point of any financial journey or change for that matter.
- Why do you want to have money?
- Why is money important to you or your family?
Then you can get into the “whats” and “hows”:
- What I’m saving for is my financial future; but I also want to help my kids cover some university expenses; and then I want to go on a trip to Europe in a few years; I might want to replace my older car down the road. The list goes on for you.
- How am I going to accomplish all this? How should I budget to meet these goals? Can I even meet these goals/dreams?
Answering these questions is at the heart of financial planning – it really is.
That means your financial plans should include things like goal setting, itemizing your debt obligations, understanding your insurance needs, identifying some basic tax strategies, and so on.
Before you start investing – definitely consider building an emergency fund.
If you want to know what goes into a very comprehensive financial plan, please read these posts:
Q3: Really, what should I invest in Mark?
You have tough questions!
Alright, I will break it down this way. At this point in today’s post based on my guidance above I will assume:
- You can save some money for investing/retirement purposes.
- You can manage your debt obligations.
- You have a small emergency fund or cash cushion in place.
If you don’t have 1-2-3 then please re-read my content above!
I believe if you are going to invest, including in equities, common stocks, real estate or anything else that you expect some growth from, you must consider a longer time horizon. That means:
Any money you absolutely need/absolutely depend on in the next 1-2 years should likely be in cash or some form of fixed income.
For example, cash could be while you’re saving for a house when younger (i.e., you really need that down payment) or cash that is potentially set aside during retirement. I say this for the latter because who knows what the future holds and I think any combination of a basic emergency fund + cash on hand to combat at least a 12-month major market calamity or other should be readily accessible. Cash should be there when you need it or least expect to need it. I just think that’s smart planning.
I think any money you might need in years 3-5 should likely be maintained in some form of fixed income and/or in the form of assets that should deliver dependable income.
I believe the worst thing you can likely do in any potential market meltdown is sell lots of equities. You do need to stay invested. So, that means you need to consider a blend of bonds and stocks (equities) that you don’t panic sell when things get rough. This could also mean a good mix of fixed income and stocks to support a withdrawal plan that mitigates portfolio ruin in any future retirement.
This means any money for investing purposes, in equities, stocks, other should be considered for a timeline of at least 5 years.
Now that you know my investing time horizon, and you are pressing me for your investing decisions (!), as a younger investor I would consider owning some broad market Exchange Traded Funds (ETFs) for long-term wealth building. 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.
Nervous about getting your own brokerage account? That’s fine – it can wait.
Instead you can try investing in Tangerine Investment Funds.
Try TD Bank’s e-Series funds.
Try a Robo-Advisor. I have partnerships with some of them!
Q4: Am I in the right funds now?
Hard to know without my assessment but I would go back to the answers in Q2 above and re-assess your “whys”.
Q5: What type of ROI should I be comparing my investments to?
It is (somewhat) critical for investors to benchmark their portfolio for the simple reason that you can validate your strategy. But, it’s not essential in my view.
What is more important than benchmarking IMO is ensuring your are meeting your financial goals. Those may include:
- Am I getting enough income from my portfolio to meet my needs?
- Am I able to sleep at night, with an appropriate balance of risk and return?
There can be multiple definitions of benchmarking but the simplest one being that a point of reference is established to assess or compare against. Consider a benchmark as one way to evaluate your performance or your investing performance to be more accurate.
As an investor, we should all be mindful of benchmarking but don’t let it consume you. What is more important is meeting your own goal or goals. So, define those first. While benchmarking is important don’t obsess over it.
Q6: Will a financial advisor help me?
Quite possibly! Just be mindul how your advisor might be compensated. All financial advisors are not created equal!
I have long since dumped my financial advisor but that decision may or may not be right for you.
Q7: Mark, I’m fortunate to have a defined benefit pension plan. Should that change the way I invest?
The short answer is: yes.
I consider my pension a big bond and I think you should feel the same.
Help! I’m just starting to invest summary
Investing can be overwhelming at times. So much to think about and so much to consider.
It is my continued hope that to any investor just starting to invest they consider checking out my Archives for more reading where I’ve discussed so many financial subjects, funds, and much more.
I will continue to update previous posts on this site to make them current for you. Thanks for your readership.
Got a question for me? Reply in the comments or drop me an email. Happy to help where I can!