After listening to tons of podcasts and reading tons of blogs about FI/RE, investing is something I need to learn about. Things like, what is an index fund? What’s an ETF? What the f&*k is everyone talking about?
Part of the issue is, most of my favorite podcasts and blogs are American. Well the rules be all different up here in Canada. So, I can tell you what I’ve learned so far, and you can tell me how I’m wrong (or perhaps provide your advice/experience in a nice and non-condescending way) in the comments.
Things I have learned so far, after just scratching the surface of how to Invest
- People who understand investing believe that financial advisers are bad to use in general. Especially if they work for the big 5. While I agree that you will pay more through an adviser, they do serve a purpose for those of us who know nothing about investing. My adviser has many years of experience in the biz and he’s providing me with a service which I currently value. As I continue to learn and educate myself, his service will likely become less valuable in the future.
- If you are going it on your own, low cost Index Funds and/or ETFs are the way to go. Everything you invest in has some kind of fee attached to it, known as an MER (Management Expense Ratio). These can range from less than 1% up to 3+%. From what I gather, less than 1% is decent. Any fund that is “actively managed” by investors will have higher MERs to offset the cost of being actively managed.
- Canadian Couch Potato is god for many. Dan Bortolotti writes the Canadian Couch Potato blog which provides self-directed investing strategies in Canada. There are a few model portfolios he recommends depending on your personal situation. This site is extremely helpful and informative for newbies.
- Start early and invest often. The earlier you start investing, the better your returns will be! Use compound interest to your advantage. Since it’s too late for me, just do it NOW you young whippersnappers reading this!
- Stay the course. If you’re someone who freaks out about the ups and downs of the market, self-directed investing MAY not be for you. it’s important to invest in the right spot, and leave it there for a really long time. Maybe you will have to re-balance once a year or something like that, but it’s best to just ignore what is going on most of the time assuming you are following a tried and true method.
Investing Baby Steps
In order to get my feet wet, I decided to sign up for a Practice Questrade account, which was recommended to me by a coworker. Questrade is one of the lower cost self-directed investment options in Canada. I then invested my fake money ($500,000) in one of the Couch Potato model portfolios to see how it all works and how the model performs.
So far, I’ve lost money since my initial investments. I’m down about 2.5k. Since I chose an aggressive investment model, this is to be expected. More risk can also mean more reward! (see “Stay the course” above). Unfortunately the practice account only remains open for 90 days, so we’ll see where things go.
I also opened a real TFSA Questrade Account! A TFSA is a Tax Free Savings Account, for anyone outside of Canada. A great place to shelter money from taxes aside from traditional retirement savings. So far, it is empty. I need $1000 to fund it, which I’m gathering up now. Also I need to decide carefully where I will invest.
What’s Next
Obviously I have a lot more reading and research to do to get to a point where I’m really comfortable with what I’m doing. Hopefully the Christmas break will provide me with some time for that! I would appreciate any reading recommendations you may have.
Also still looking into other side hustle opportunities to find even more to invest. More on that in the New Year!
Hi T,
I’ve been a DIY investor since 2012 when I took the plunge. I was with Investors Group before that and paying 2.72% in MER fees. After reading CCP for about 4 months I couldn’t NOT see how much it would cost me in the long run and dropped my advisor (who was also a former work colleague). It was totally worth it.
I know how investing can be overwhelming but chip away at it. I still use a CCP portfolio from 2012. I’ve changed very little since then. I use the “Core 4” approach. Canadian Equity, US Equity, International Equity, and Candian Bond setup.
XIC / VTI* / VXUS* / XBB. (* These are in USD which adds an extra step so I’d ignore this for now)
Since 2012 there have been new entrants into the market that make it even easier (i.e. VGRO, VBAL). Thank you Vanguard.
To keep it simple to start, I’d suggest checking out Vanguards index funds. There is even a new Global Balanced mutual fund (I just saw this!)
https://www.vanguardcanada.ca/individual/indv/en/product.html
Anytime I come across a fund I always search it along with CCP to see if he has any info on it. The Canadian Couch Potato (Dan B) and Canadian Portfolio Manager Blog (Justin Bender) now worth together. That’s why CCP has very few posts nowadays.
Are you interested in ETFs, mutual funds? What are your questions? I’ve love to help point to some resources.
Great info, thanks Sterling! I will maybe do the same as you did way back when and keep an eye on the CCP and Justin’s blog to get better acquainted. I would say I’m interested in ETFs mainly because of the low cost, however that may not be the best bet right now. I know CCP recommends these for larger portfolios and more experienced investors which I don’t have, and am not 😂 My education continues!
You can use ETF’s for smaller portfolio’s but you need to be conscious of transactions costs. That’s where mutual funds for starting out are great. You can buy mutual funds with no transaction costs and set it up automatically for every week/2 weeks/monthly or whatever you want.
ETF’s can cost up to $30 per transaction. I’m with RBC Direct Investing so it’s $9.95. I look at it as an MER. $9.95 on a $2000 “buy” of an ETF costs about 0.50%. ETF’s need larger, less frequent purchases which you have to execute yourself. That’s why CCP says to stick with mutual funds to start. Auto-contribute and don’t worry about it for a while.
But if you’re comfortable with doing a “buy” on the stock market and you contribute and save up to keep the transaction costs low you could use ETF’s. There are also minimum balances to online brokerage accounts you should be aware of too. They can be $15,000 (i.e BMO Investorline) and then they stop charging a quarterly fee of $25. Questrade might not have this minimum.
The main points I’d say if you looking to learn about this are:
– Save consistently; pay yourself first
– Choose your allocation; this will be your “stay the course” target during market ups and downs. I’m 75% equity, 25% bonds is my target.
– Diversify Globally; easy with U.S. and International equity index funds.
– Avoid high fees; including MER and ETF transaction costs. Save up before you buy an ETF. This also includes converting to US dollars until you investing numbers are high enough to make the cost of it worthwhile. Also, currency hedging costs money (in MER) and something to worry about later.
Also if you have any books you would recommend let me know!
– The Simple Path to Wealth (JL Collins). Great starter but it is US.
– Millionaire Next Door (Stanley and Danko) to learn about stealth wealth
– Your Month or Your Life (Vicki Robin).
With the exception of the JL Collins book these were all on my to read list. Adding that one. Thanks!
I forgot about one. CCP put out a revised book in 2013. “The MoneySense Guide to the Perfect Portfolio”. I found this was a great summary of his blog. This is probably the best primer for Canadian DIY investors.
Nice! I’ve never heard of this! I will try to grab a copy 🙂