The financial services industry is guilty of making investing money seem so complicated that only a professional can do it. But the truth is that once you learn how to invest your money on your own you can easily beat the pros at their own game. All it takes is three things: low costs, broad diversification, and the willingness to stick to your plan for the long term.
You don’t need $100,000 to start investing. You can start with $1,000 or less. I’ll explain how to invest $1,000 now and grow your wealth so you’ll reach that six-figure portfolio in no time. I’ll also show you how to choose the best investing platform to save on fees and meet your investing goals. Let’s dive in:
Where to Invest Money (With As Little As $1,000)
I’ll be honest, as a 40-year-old investor, I’m jealous of the options available for new investors today. When I started investing, I opened an account at a big bank discount brokerage and had to pay $29 per trade. If you’ve got some money to invest — even if it’s as little as $1,000 — here are some options for growing your wealth:
Pick Investments Using an Online Trading Platform
Now, do-it-yourself investors can choose from commission-free trading platforms like Wealthsimple Trade. That means you won’t get dinged with trading fees every time you buy or sell a stock. Plus, you can take advantage of our exclusive promo offer: open a new Wealthsimple Trade account, and get a $10 cash bonus + $0 commission trades. All you have to do is deposit $100 and buy $100 worth of stock within the first 45 days.
Another great option is an online broker like Questrade, which offers free ETF purchases and rock-bottom stock trading fees. You’ll also get $50 in free trades when you start investing with Questrade.
Choosing the right investing platform is going to depend on your unique situation and the type of investment accounts you have or will need in the future. Some platforms are low-cost, but also no-frills and don’t offer all account types. Other platforms have more robust offerings but may come with higher fees. Check out our guide to Canada’s top discount brokers and find the one that’s right for you.
Regardless of the platform you choose, make sure to remember the three rules mentioned earlier: low fees, broad diversification, and stay invested for the long term. The best way to do that today is by purchasing index ETFs – more specifically an all-in-one “asset allocation” ETF like the ones offered by Vanguard, iShares, or BMO. You’ll find these listed in our article about The Top ETFs for Canadian Investors.
Use a Robo Advisor
A robo advisor is an online platform that builds you a custom portfolio of ETFs and automatically manages and rebalances it for you. Most charge a fee of around 0.50% for this service, which in many cases gets you access to a dedicated portfolio manager or investment advisor. Clients will also pay the management expense ratio (MER) for the ETFs in their portfolio (add another 0.15% to 0.20%).
Investing with a robo advisor is literally one-quarter of the cost of using a traditional bank advisor and investing in their expensive mutual funds, which often come with fees of 2% or more.
Robo advisors are a great option for investors who don’t have the time, skill, or desire to invest in ETFs on their own with an online broker. There’s nothing wrong with that. Know that you’re still making a smart choice by choosing a robo advisor to manage your investments. Consider the management fee of 0.50% as a small price to pay for the peace of mind that your portfolio is being professionally managed and still following those three rules as noted – low cost, broad diversification, and an investment plan you can stick to for the long term.
Besides, using a robo advisor can be a great way to learn how to invest on your own – eventually. Our top choice, Wealthsimple, has a slick user interface with a dashboard that clearly shows your portfolio, how much it has earned, and how much you’re paying in fees. It also offers great educational material by way of its blog and FAQ pages. Now is a great time to sign up because Wealthsimple is offering Young and Thrifty readers an exclusive deal: get a $75 cash bonus when you open and fund a new Wealthsimple Invest account with $1000 within 45 days.
There are several robo advisors to choose from and the right one depends on your situation, so check out our ultimate guide to Canada’s robo advisors and find one that’s right for you.
Invest in RRSP or TFSA?
One very important thing to mention is about choosing between investing in an RRSP or TFSA. Here’s what you need to know:
At the very basic level, the RRSP and TFSA are mirror images of each other. You get a tax refund upfront when you contribute to an RRSP, but you also pay taxes when you withdraw the money in retirement. With a TFSA, you don’t get a tax deduction upfront, but you also don’t pay any taxes when you withdraw the money.
Knowing which option to choose comes down to your tax bracket today, when you’re making your contribution, and your expected tax bracket when you withdraw the money.
Here’s the rule: If you’re in a higher tax bracket today than you expect to be in retirement, choose the RRSP. If you expect to be in a higher tax bracket in retirement than you are today (common for any young investor earning an entry-level salary), choose the TFSA. To get started, take a look at The Best TFSA Investments in Canada.
For a more detailed explanation of the options, read TFSA or RRSP: Which To Choose?
Invest in GICs
A GIC is a guaranteed investment certificate and it’s one of the most conservative investments you can make as an investor. GICs have their place, though. They’re great for short-term savings goals with a fixed timeframe. For example, if you wanted to buy a house in two years you could purchase a 2-year GIC and earn a decent rate of return – likely in the 2% range.
Keep in mind that’s a guaranteed rate of return, which is why GICs are a great investment for short-term savings goals. You don’t want to put money into the stock market that you’ll end up needing in a year or two. As you’ve seen with the coronavirus crisis in March, stock markets can turn sour in a hurry and it would be awful to see your investment lose 30% of its value in just one month.
GICs typically come in 1-to-5-year terms, with the longer terms often paying the highest interest rates. For instance, EQ Bank offers GIC terms from 3 months to 5 years and currently ranges from 1.50% to 2.70%. Know that they’re also not redeemable without paying a stiff penalty, so you’ll have to think carefully about when exactly you’ll need the money before you lock it away.
If you’re not sure when you’ll need the money, avoid a GIC and stash your cash in one of the best high-interest savings accounts in Canada. Our top choice is EQ Bank because it offers a 2.00%* everyday interest rate with no monthly fees, no minimum balance required, unlimited bill payments, and Interac e-Transfers®.
Finally, a word of caution. Banks often sell GICs that are linked to the market (market-linked or equity-linked GICs). Steer clear of these products. They promise some extra upside if the stock market performs well during your term; however, the rules and formulas are so complicated it’s highly unlikely you’ll actually see any benefit. And, if the market underperforms, you’ll only get your principal investment back with zero growth.
My advice: GICs are for guaranteed fixed income and the stock market is for speculative growth potential. Both are important, but be careful not to mix the two. Check out the best GIC rates in Canada here.
*Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.
Invest in Real Estate
Real estate can be an attractive investment for people who prefer to own something tangible and that has the potential to pay both rental income and eventual capital gains.
Particularly if you live in Toronto or Vancouver, your world view of real estate tends to be much different than those who live in the rest of Canada. That’s because real estate has become a borderline obsession in those cities as speculation continues to drive up housing prices.
Historically, though, real estate has been a poor investment and an asset that barely keeps pace with inflation. So, the key to a smart real estate investment is one that is cash flow positive: – meaning it allows the owner to collect enough rental income to cover the mortgage, property taxes, utilities, and insurance, plus a surplus to stash away for emergencies, renovations and repairs.
Don’t count on capital gains to turn your real estate venture into a winning investment, either. Housing is highly illiquid and driven by local market conditions. It takes a special kind of investor to perform well in real estate. Plus, consider how the coronavirus crisis is affecting mortgage rates before taking the plunge. You’ll also need a lot more than $1,000 to buy real estate. Read more about Buying A House in Canada: A Guide to Buying Your First Home.
Investing During COVID-19
The 2008 financial crisis scared off a lot of investors who weren’t ready to see their portfolios drop by 30-50%. Similarly, during the market crash caused by the COVID-19 pandemic, stocks fell 34% in one month – the fastest and sharpest decline in history.
And while markets seem to have almost recovered their losses (as of the end of May 2020), the uncertainty surrounding the global economic situation and potential recovery truly put us in uncharted waters. No one knows what happens next.
Here’s what we do know. Markets have recovered after every crisis in history, from the Great Depression, two World Wars, runaway inflation, 9/11, the tech bubble, the great financial crisis, and more. We will get through this, too.
The best way to approach your investments, whether you’re investing your first $1,000 or you already had money in the market, is to stay the course and stick to your plan. You should care more about your portfolio balance in thirty years than in thirty days. In fact, you may even stand to profit from the market downturn.
Final Word on How to Invest Your Money Now
There are so many great options available for investors today. If you have $1,000 to invest for retirement, the best way to learn how to invest that money is to open an online trading account and put that money to work in a diversified ETF, or open a robo advisor account and invest it automatically in a managed portfolio.
The key is having the confidence to get started now and learn as you go. Develop a system of regular, frequent contributions, and you’ll turn that $1,000 into a six-figure sooner than you might think.