Maybe I am preaching to the converted, but I have a lot of friends tell me they are worried about investing and buying anything than what their bank's financial advisor tells them to. I recently received a telephone call (well I receive them regularly periodically) from one of the banks that I work with to ask if I was interested in receiving help from their financial adviser to open up a TFSA. They are usually quite persistent when they call me and I can see how, maybe 10 years ago, I would have accepted. I told her politely that I am self directed and I already have a TFSA through my Questrade discount brokerage thank-you-very-much. I know she is just doing her job, but I sometimes wish they would stop contacting me about that same issue approximately every three to six months.
My girlfriends mainly have their money in GIC's and Tangerine's high interest savings accounts. I have been telling a few of them to start getting into indexing and exchange traded funds but they are not interested because of the inherent risk involved of something that they don't have 100% certainty for. I told her that there is 100% certainty that she is getting taxed her marginal rate from the interest income she receives from the GIC's and the high interest savings account and that she is not keeping up with the cost of inflation in Canada.
Related: Questrade Review
Anyway, for anyone who is interested in starting to invest in the stock market, here are some tips on how to get started!
The biggest step is the first step.
The first step is the hardest.
You can do it!
Okay enough with the cliches.
Figure Out How Much You Risk You Can Tolerate
When you are young, without a mortgage, without children, without dependents, your risk tolerance is higher. Unless you have some short term goals such as saving up for a wedding, saving for a down payment, or saving up for that new car, you should have higher risk. One of the tips is to use your age as a % of your safe/ fixed income investments. For example, if you are 25, 25% of your investment portfolio can be in “safer” things like bonds, cash, and GIC's. Check out this Yahoo Personal Finance Risk Calculator if you would like some more concrete calculations of your risk tolerance.
Set up a Robo Advisor Account
The easiest way to start investing in stocks and bonds is through a robo advisor account. The costs are quite low, they are easy to set up accounts with, and robos like Wealthsimple are backed by mega Canadian banking powers. You get a little help with any questions that you have, and you get an automated solution to your investment portfolio. If you want to know more about robo advisors we can definitely help with that – check out our all encompassing review of Canada's robo advisors! If possible and you have room in your TFSA, you should open your robo advisor account as a registered account such as a TFSA or an RRSP.
The great thing about robo advisors and exchange traded funds (well, with Questrade anyway which waives the commission fee to buy) is that you can contribute regularly. When you contribute regularly (e.g. at a fixed interval, for example every month or every two months) you decrease the risk of “timing the market” and buying when it is not ideal to buy. For a lot of bank mutual funds that I bought, I had to buy the lump amount during my appointment or session with the financial adviser, and this increased my risk because I was trying to time the market (or satisfy that financial advisers quota for the month).
Related: Questrade To Offer Free ETFs
You can even sign up to have the dividends re-invested into your portfolio so that you can watch your money grow even faster, which is what I did.
Now, even with the TD e-series account and if you are contributing the same amount every month or so, you may still need to check on your risk portfolio to see if it matches the risk tolerance that you initially set out with. If not, you may need to r-ebalance and this is easy through this step-by-step post on how to rebalance by purchasing more!
And you're done!
Well. That was easy!
Now you can sit back, and relax!
Readers, do you have any other tips on how people can get started with investing?