For those of you who haven’t started investing in your future yet, there may be a dozen reasons why. Money can be a sensitive topic that we don’t freely talk about with our friends and family, so it may be hard to figure out what you should be doing. As someone who lacks personal financial savviness, I’m fortunate to have met some incredibly intelligent mentors and peers who have taught me a thing or two. Today, I’d like to shatter the top 3 excuses we make about investing:
“I don’t know anything about the stock market…”
This is the #1 reason that held me back because I thought you had to be a Wall Street wiz. Although it’s important to understand some basic concepts (ex: risk vs reward, compound interest, types of markets, ETFs, mutual funds, etc…) there are some great Youtube videos for you to build a basic understanding of how things work. Investing is not only about picking the best up and coming stocks (aka active investing). For the majority of us who don’t have the same time and commitment of those on Wall Street, passive investing is a much smarter and more sustainable strategy.
Take 30 mins to check out these articles from Wealthsimple to build a basic understanding of how things work:
“I don’t know where to start…”
It’s important to remember that you can start small! You don’t need to save up a whopping $10,000. Assuming you don’t have any credit card debts (student loans are usually OK), as little as $100 will do. The most important thing is to start the habit of setting up monthly auto-deposits into your savings and investment accounts.
Max Out Your ESPP & RRSP
If you already have a job that offers Employee Stock Purchase Plans (ESPP)* or Registered Retirement Savings Plan (RRSP), make sure you opt in and max out those contributions because your employer usually contributes *free* money to match your contributions. Even though it’ll take a hit on your take-home pay, this money isn’t going anywhere except towards your future. Since you won’t see this money in your bank account, you’ll also prevent yourself from thinking you have some extra cash to burn on secondary indulgences.
*Talk to HR for more info about ESPP since they differ between companies
Open a TFSA
If you’ve already maxed out your ESPP & RRSP or you don’t currently have those plans available, you can start by opening up a Tax Free Savings Account (TFSA), which essentially lets you keep and withdraw your earnings without being taxed. TFSA have contribution limits that start from the year you turn 18, so make sure you visit My CRA to find out how much you can put in for the year. Don’t go over this limit or you will be taxed on the excess amounts (details here).
Whether you should open up a TFSA with your bank or through external services depends on personal preference:
- If you want something simple and hassle-free, opt for a service like Wealthsimple. All you need to do is set up auto-deposits and answer a series of questions to determine your risk portfolio. Wealthsimple will then take your money and invest for you (aka robo-advising). Yes, there is a 0.5% fee if you exceed $10,000, but it is quite minimal compared to how much you’re making in the long run — don’t let this deter you!
- If you are interested in DIY / managing your own portfolio (aka choosing what stocks or ETFs you invest in), then you can open up a TFSA with Questrade (which has lower trading fees) or through your current bank (if you prefer having everything in one place).
“I already have a savings account…”
Savings Accounts are great for holding short-term amounts that you will need for the next 3–6 months. Chances are that your current savings account gives you tragic interest rates, so open up a high interest savings account with EQ Bank instead, which gives you 2% each month. This account is great because you can easily connect to your current bank accounts, there are no banking fees, and you can make unlimited transactions.
It’s a waste to let the rest of your money sit in your savings account for over a year, so consider putting this amount in a TFSA or RRSP and invest! If you’re not ready to put your money in stocks, you could consider Guaranteed Investment Certificates (GICs), which are essentially risk-free (but your money is locked in for a certain period of time).
Hope you found this blog post useful in demystifying the concept of personal investing! Here are 3 easy steps for you to get started:
- Spend 30 minutes learning the basics of investing
- Choose between robo-advising or DIY and open up a TFSA
- Set up monthly auto-deposits to fund your account
Please note that this unsponsored blog post is based on personal research and experience and is intended as educational material only. Best of luck to you and don’t forget to donate to my blog once you become a millionaire!