Just starting out – how to get started with investing
Investing can be daunting. So much to think about. So many options.
Are you just starting out with investing?
I’m glad you found my site – read on!
There is no one right way to invest – just your way – just starting out with investing
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 money mistakes and 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 – including more of it over time.
- 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 and side hobby than 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 hear 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. This post will help you assess if you should be investing any money right now at all…
Our Financial Plan
For what’s it worth here are some things that are part of our financial plan in no order of importance:
- 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.
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.
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.
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.
Our financial plan could be summarized this way:
- Put money into a spending bucket to enjoy things today
- Register direct withdrawals for life insurance, other necessary bills
- Put money aside for future spending including travel, fun or any money needed soon
- Put money aside and do not touch it – which is our “that sucks” emergency fund
- Put money aside for long-term growth and retirement. Don’t raid the retirement nest egg!
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:
How to get started?
Consider beauty in simplicity – low-cost mutual funds and Exchange Traded Funds (ETFs)
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:
- 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.
- Mawer Balanced Fund
For a slightly lower fee, the Mawer Balanced Fund has been a star over the last decade or more. This fund with an MER of 0.93% (costing $93 per year for every $10,000 invested), this fund has really delivered – returns come in just north of 10% over the years – 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.
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 no 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.”
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.
- TD Bank eFunds
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.
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:
- 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).
- U.S. equity: buy and hold TD U.S. Index e-series (MER = 0.35%).
- International equity: buy and hold TD International Index e-series (MER = 0.50%).
- 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.
- All-In-One Exchange Traded Funds (ETFs)
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.
- Build your own ETF portfolio as part of Do-It-Yourself (DIY) investing
I saved my favourite approach for last.
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.
Beyond my stocks, I do own some units of VYM and HDV, very low-cost U.S. dividend paying ETFs for income and growth in our registered accounts. I do so and I will continue to add more U.S. ETF units to my portfolio to diversity away from Canada’s oligopoly market.
VYM costs 0.06%. Seriously. That’s just $6 per year on every $10,000 invested to own >400 U.S. stocks. Super cheap and very diversified for the U.S. economy.
I also own some HDV, a high dividend ETF that has delivered strong returns in recent years, that costs just $8 per year on every $10,000 invested (in my LIRA (Locked-In Retirement Account)).
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.
Although the final expert jury is out on how many ETFs are enough (I have a more detailed answer for you here), I believe you can build a highly diversified DIY equity portfolio with less than 4 ETFs.
By building your own ETF portfolio, while you’ll have more control over what you buy and when you buy it but mindful you’ll need to be in control of your investing behaviour.
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!