|Getting Started with the Markets
Low interest rates have been around for years and it might be a long time before they go up enough to make holding cash a viable piece of your wealth building strategy. Financial markets provide much higher returns, but there are some hurdles to jump...
These are all great questions and if you have some time next week on Wednesday, why not ask Enriched Academy Co-founder Kevin Cochran yourself?
No time on Wednesday? No worries, we compiled the basics below to get you started.
DIY isn’t just for home repairs
Using some level of DIY for basic investing has become popular due to the low cost and relative ease. Financial advisors are skilled professionals and another option, although they may offer limited investment products and their value is higher in more complex investing scenarios.
Automated advisors vs going it alone
A Robo advisor is a plug-and-play application that analyzes your financial situation and recommends a passive, low-risk strategy with returns aimed at the overall market. They require little sophistication on the user’s part and charge fees less than 1%. As you get more knowledgeable, you can transition to complete DIY options and drop your fees to as low as 0.20%.
Fees can take a real bite
Canadians pay some of the highest fees in the world on their investments and a lot of us don’t even know how much we are paying. A 2.5% annual fee on your TFSA or RRSP funds will easily cost you tens of thousands over your investing lifetime. If you currently have funds in an RRSP or TFSA, you should run, not walk to confirm your fees!
How do I pick stocks?
The short answer for most people is, "you don’t". The internet is full of gurus who bought Amazon, Google or Apple at some ridiculously low price years ago. However, that old adage about the risk of numerous eggs in one basket also applies to stocks. If you want to do the research, have the time, and are aware of the risk, you could devote some of your portfolio to individual stocks.
Putting the fun in funds?
If researching stocks sounds about as much fun as watching paint dry, you should be investing in funds. Exchange Traded Funds (ETF’s) and mutual funds are two popular types. Funds are baskets of stocks, commodities, bonds, or a mixture of investment types all wrapped up together and then sold in individual units. There are 1000's of funds and they often target a particular industry or geographic region, so their risk can vary widely depending on their scope.
Index funds are popular because they mirror the movement of an entire stock exchange. If the TSX is up 2%, so is your TSX index fund. They offer comparatively low risk and are a great option for "set it and forget it" investors.
One final caveat on funds, mutual funds do not consistently perform better than ETFs and have much higher fees.
We recommend everyone gain a good understanding of investing basics before diving in yourself. If you like the full-service route, make sure to confirm how much it is really costing you.
For an in-depth and somewhat shocking look at bank and investor fees in Canada, check out our FREE upcoming webinar with Beat the Bank author and 35-year banking executive Larry Bates. Larry wrote the book on DIY investing for Canadians and is now a Board Member and Transparency Task Force Ambassador for FAIR Canada.