Just starting out – how to get started with investing

Just starting out – how to get started with investing

Investing can be daunting. So much to think about. So many options.

Just starting out – how to get started with investing?

I have some answers in today’s post. 

There is no one right way to invest – just your way

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. 

Breathe…

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)!

For our path, my wife and I have focused on owning our home (now condo) and investing in the stock market.  I run this blog but it’s more of a passion instead of any wealth generator for sure. I barely earn minimum wage from this site! That’s OK though, I enjoy running it.

Ultimately you need to determine what your wealth building path is and develop a plan around that. Financial plans or business plans always come before financial products.

Just starting out? Ensure you have a plan before products

Image courtesy of BAM Alliance.

I put this image up above because it’s so damn important.

There is huge power in asking yourself “why” as your financial starting point.

• Why do I want to have money?
• Why is money important to me or my 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. 

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, maybe do these three things first.

Our Financial Plan

For what’s it worth here are some things that are part of our financial plan in no order of importance:

1. Become debt free. In doing so it will provide some significant financial flexibility. All income made will be ours to keep or spend beyond the basic necessities. We hope to own our home/condo outright and then we should be able to plan for semi-retirement. Our journey to debt freedom was based on many reflections over the last decade.

2010-2019: Financial reflections of the last decade

2. Save for a newer car every 10 years. We’ll need to start thinking about replacing our existing car in another few years. We tend to keep our cars for about 10 or more years. Although saving and investing are really not the same things (investing has a longer-term time horizon), part of our financial plan is to put money aside today near term / expenses coming soon – such as a newer car.

3. Have retirement income security. We continue to save money every month and invest that money for our financial future – money we don’t intend to touch for decades to come. We are striving to achieve income security by maximizing contributions to our TFSAs and RRSPs every year.  In fact, we hope that in the coming years thanks to maximizing contributions to these accounts we can live off dividends.

Why my goal to live off dividends remains alive and well

4. Manage risk – own insurance. We have robust life insurance plans in place in case something happens to one of us. We just think insurance makes sense to support each other should something catastrophic happen.

In fact, my term life insurance is up for renewal soon. Here are some considerations.

Should I renew my term life insurance policy?

5. Worry less about money – keep a “that sucks” fund. With a modest emergency fund in place – we have money available to us for a few months if we need it.

After listing #1-5 above, our financial plan could be summarized this way:

1. Put money into a spending bucket to enjoy (Today). 
2. Register direct withdrawals for life insurance and insurance in general (Insure).
3. Put money aside for near-term spending including travel (Soon).
4. Put money aside and do not touch it in case of an emergency (That Sucks).
5. Put money aside for long-term growth and retirement (Retire).

With a financial plan in place, you’ll have a better understanding of where you stand today, where you want to be and how you can get there. Here is what that plan should cover for you:

What should my financial plan cover?

How to get started with investing?

Like I mentioned above, while there are many ways to invest, for the majority of us an effective and efficient way to invest is buying and holding broad stock market funds that cost next to nothing to own but can be expected to deliver meaningful long-term returns assuming you stay invested through market highs and lows.

Here are some simple ways to get started with investing with broad market funds or firms that offer them.

1. Tangerine Funds

For a fee just over 1% (that’s costing you $100 per year on every $10,000 you have invested), Tangerine offers a variety of funds to get started at costs far lower than some big bank mutual funds.  More specifically, Tangerine offers a number of balanced funds where there is no need to re-balance/think about how much stocks or bonds you should own and when.  This is a very simple but effective solution for any investor just starting out.

Here is a list of some of their products, you can consider the Tangerine funds like:

• Core Balanced Income: 30% bonds, 70% stocks
• Core Balanced: 40% bonds, 60% stocks
• Core Balanced Growth: 25% bonds, 75% stocks
• Core Equity Growth: 0% bonds, 100% stocks

Get started by completing the online questionnaire. Answers provided will then recommend the most suitable portfolio for you. Then, you’re up and running!

Another consideration from Tangerine is their Global ETF Portfolios, in three, simple risk-tolerance levels:

• The Balanced ETF Portfolio is 60% stocks and 40% bonds
• The Balanced Growth ETF Portfolio is 75% stocks and 25% bonds
• The Equity Growth ETF Portfolio is 100% stocks

2. Mawer Balanced Fund (MAW104)

For a slightly lower fee than Tangerine, the Mawer Balanced Fund has been a star over the last decade or more.

Last time I checked, this fund sports an MER of about 0.91% (costing $91 per year for every $10,000 invested). This fund has really delivered over time as well – returns come in just north of 10% over the years at the time of this post – an impressive but simple all-in-one mutual fund solution to get started with investing.

You can contact Mawer directly to find out how to get started with them based on their account minimums.

3. Robo-Advisor

For even lower fees (roughly $50 per year on every $10,000 invested), Robo-Advisor firms can offer a very simple investing solution for investors who need help to train their investing brain OR for investors who want a more hands-off approach to investing but want the confidence their money is being systematically managed.

There is never an obligation of course – but ModernAdvisor can definitely help – my partnership gets you $50,000 managed FREE for a year.

There are many top-notch Robo-Advisors in Canada now – ready to help investors in a number of ways but the biggest is overcoming overconfidence tied to biased thinking and systematically providing diversification.  By putting investors’ money into high-quality, low-cost, indexed Exchange Traded Funds (ETFs) they will create a systematic approach to investment management for you that entirely removes your emotions and opinions from the investment decision making process.  If the market goes up or goes down, there is no major knee-jerk reaction by the Robo-firm.  Decisions are therefore made based on well-defined models and processes that do not leave any room for subjective interpretations – including the folks at the Robo-Advisor firm themselves!  As long as the inputs into the system are the same, the outcome will be the same regardless.

As one Robo-Advisor CEO once explained to me:

“It’s paternalistic and it works – just like removing your potato chips from your house works if you are trying to eat healthy.”

I demystified how Robo-Advisors work in this post here.

Again, you don’t need to invest with them rather this is one of many great options to get your investing journey started better than most.

4. TD Bank e-Series Funds

I don’t have a partnership (yet) with TD but another simple solution is to own TD e-series funds.  Some Canadian big banks (like TD) have been in the space of offering low-cost mutual funds or their own in-house ETFs for some time. Good on them!

With TD e-funds, while the fees are generally lower than Tangerine’s, you’ll need to rebalance those funds to keep your asset allocation in check. I’ve highlighted four great e-funds to consider below in any risk tolerance mix you wish. The upside of this approach is, TD e-funds happen to be some of the lowest cost solutions available, going even lower than some Robo-Advisor firms! Using these products are a great way to start your DIY investing journey.

You could own a rather diversified portfolio by owning just three or four (4) of TD’s e-series funds:

1. Canadian equity: buy and hold TD Canadian Index e-series (MER = 0.33% or $33 per year on every $10,000 invested in the fund).
2. U.S. equity: buy and hold TD U.S. Index e-series (MER = 0.35%).
3. International equity: buy and hold TD International Index e-series (MER = 0.50%).
4. Canadian bond (optional since you’re just starting out).

The small “catch” with TD e-series is you’ll need to visit a TD branch and open a TD e-series account.  The upsides are plenty after that.  TD e-funds are professionally managed at a low cost; you can monitor your assets via TD EasyWeb Online Banking; there are no commissions to buy or sell TD e-funds inside your e-series account.  The latter is going to save you a bundle on account management fees.

5. All-In-One Exchange Traded Funds (ETFs)

I wrote an extensive post about various all-in-one ETFs here. 

In fact, now TD Bank has an all-in-one fund!

After opening your discount brokerage account, this is how simple investing can be.  Buy these funds, continue to add to them over time, and these funds will do all the rebalancing work for you.  With rock bottom MERs (some of them costing just $18 per year for every $10,000 invested) these are GREAT solutions for getting started with investing and/or staying invested long-term.

If you have a long time horizon, as in decades, consider owning VEQT in my link above or TOCA from TD Bank. 

VEQT has a management fee of just 0.22%.  That means you’re paying just $22 per year for every $10,000 invested.  VEQT (along with other all-in-one ETFs) is eligible for the RRSP, TFSA, RESP, RRIF and non-registered investing as well.

TOCA has a fee structure of just 0.25%.

If you’re just getting started with investing, and presuming you have decades of investing years ahead of you, you might want to consider this low-cost highly diversified fund as a good way to invest – as you continue to read up about investing including how best to optimize your portfolio to avoid withholding taxes over time.

On that note, here are the best low-cost ETFs for your RRSP.

6. Build your own ETF portfolio as part of Do-It-Yourself (DIY) investing

I saved my favourite approach for last.

About 10 years ago now, I left the mutual fund industry and moved out of big bank mutual funds into lower-cost ETFs and dividend paying stocks. 

I haven’t looked back since.

At the time of this post, I now own about 30 Canadian dividend paying stocks and 10 U.S. stocks for across my portfolio for income and growth.  In doing so, I don’t pay any commissions for holding these stocks.  My money management fees for holding these 40 dividend growth stocks now is zilch. 

While you can see some of my low-cost ETF holdings here, I will say I will continue to add more U.S. ETF units to my portfolio to diversity away from Canada’s oligopoly market.

If you’re unsure about what ETFs to own, check my extensive ETFs page here.  

Funds on this page above represent some of the lowest possible costing funds available.  By opening up a discount brokerage account (e.g., Self-Directed RRSP or TFSA, other) you can buy (or sell) your ETFs at will.

Use my Bank of Montreal promo codes so I can provide you with up to hundreds of dollars cash back when you invest with them via a new investing account.

Here are some tips for minding your behaviour gaps.

How to get started with investing?

Wow.  2,000+ words goes fast.  When it comes to investing, choices abound.

Honestly, that’s great for investors just starting out or seasoned investors like me.  Competition and the modern drive for simplicity has driven the financial industry into a lower-cost structure that’s more focused on the customer experience than ever before.

There is certainly much more room to improve on that, but as someone who might be just starting out with investing – please understand your investing journey does not need to be perfect.  Far from it.  Just get started and improve from there.  And enjoy your lattes on the way!

A big thanks to a number of recent emails who inspired this post.  Keep the emails coming – happy investing!

For more reading, check out my “Start Here” page for many just getting started articles.

For millennials make sure you read this post and get your FREE ebook!

Mark