Now that we know that investing is and some common types of investments, it’s useful for a beginner investor to know what types of investment accounts exist. Typically, what we think is our only option for investing is to call our bank and speak with a financial advisor. However, that’s not the only option, and it can be risky to open an account without understanding all that comes with that investment.
If you open an investment account with a financial institution, it’s essential to know that most of the time, the people who will advise you where to invest your money are salespeople. Because of this, they may only be licensed to sell you certain types of mutual funds that belong to their bank, and these mutual funds will come with high management expense ratio (MER) fees.
To learn more about Canada’s investing fees, visit our post about how management fees affect our money and precisely what most popular investment accounts charge.
Another option for investors is robo-advisor. Robo-advisors are online investment brokerages that offer low-cost portfolios that do not require any self-directed investments. They have low-cost management fees and also rebalance your investments depends on the market and as you add new contributions to your portfolio.
Lastly, if you are a more experienced investor or are confident in your abilities as an investor, you can open a self-directed portfolio using a financial institution or robo-advisor. This eliminates management fees and allows you to choose exactly where you invest your money. Self-directed portfolios are not recommended for beginner investors.
If you are new, it is never a bad idea to speak to a financial professional or fee-based financial planner to see what account option is best for you and to better understand your options as an educated consumer.
How much money do you need to start investing?
If you already feel like you’ve faced information overload at this point, it might be a good idea to start to learn how you can begin to invest. Sometimes, seeing how simple it can be will make the process feel a lot less overwhelming.
Depending on where you invest your money, you don’t necessarily need a lot of start. Many people assume that investing isn’t accessible for regular people or low-income earners. Thanks to some newer platforms that have made investing more approachable and affordable, that’s no longer the case.
If you choose to invest by using a robo-advisor, such as Wealthsimple, you can start with as little as $20. For Questrade, as soon as you’ve deposited $1000, you can begin to invest your money. If you’d prefer to invest through a financial institution or with a financial advisor, your cost to start around $500. Ultimately, whichever platform or company makes the most sense for you is best. Just be sure to do your research, ask about management fees and annual fees, and seek a transparent option.
What is a Good investment strategy?
Once you know what type of investment account you’d like to open, it’s a good idea to educate yourself on which acoc*nt you can park your investment within. Your Registered Retirement Savings Plan (RRSP) and your Tax Free Savings Account (TFSA) are two common options. Both options are great, but there are differences between the two accounts – which you can read about here.
The RRSP and TFSA are both tools you can use to purchase long-term investments like ETFs, individual stocks and mutual funds. If you set up an automatic and passive plan through Wealthsimple (like myself) or Questrade, the only requirement is to set up weekly, bi-weekly or monthly contributions that are then invested on your behalf. Merely opening an RRSP and TFSA and putting money inside them does not mean that it is invested. You need to open an account through a brokerage or actively invest money inside of these accounts through your financial institution. Otherwise, the money will just sit there interest-free.
As for investment strategies, an excellent place to start is by learning what your risk tolerance is. If you’ve done any investing through your workplace, you may remember taking a quiz to help you understand how comfortable you are with losing or gaining money for your future. If you are a more aggressive person and are okay with the idea of losing money, you may be comfortable with an aggressive portfolio. This means that when the market dips, your investments will also drop at a similar rate. If you are a more conservative investor, you may not want to take as much risk with your investments and portfolio.
There is no right or wrong way to invest, but the important thing to remember is that you need to feel comfortable with comfortable with whatever happens with your money and remember that it is invested for the long run. The money will dip, but it will also grow. Do your best not to touch your investments until retirement. The longer your money is invested, the more earning power you will have, and the more time your money has to grow.
Whether you are nearing the end of this post feeling anxious or confused, if there are a few takeaways you should remember, let them be this:
- You do not need to know everything to start investing. Find a robo-advisor you love, and put as much as you feel comfortable with into your account for your future.
- It’s never too late to start investing. If you think it’s too late, so why bother? You will miss out on a ton of earning potential and growth for your future self. Don’t wait any longer.
- A little is better than nothing. Even if you can only afford to put $20/month towards your investments, continue to do it! It still counts. It still earns.
- What are you waiting for? Time outside of the market is a missed opportunity. Many people think that they cannot invest their money while they pay off their debt. If that’s your mindset and you are comfortable with that, that’s okay. But it’s also okay to do both. Regardless of your debt load, you will always need to retire.
- You cannot time the market. Trying to ‘keep up’ or ‘speculate’ is not a good idea. It is gambling. Investing is not meant to be for big wins, but instead, consistent returns. It should be boring. Please sit back, and let compound interest do its job.
If you are just starting with investing, remember that it’s okay to feel confused. Often financial institutions prefer that we don’t know it all because then we are more comfortable consumers. Don’t be afraid to ask though questions, do more research, and be suspicious.
You work hard for your money, and it’s normal to want to protect your cash. One of the best things you can do for yourself and your financial future is to have that money that you work hard for go to work for you!
