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Home   ->   Stocks, Bonds etc.  ->  Investing

Investing for Financial Independence

Start Investing Early

Pay Off High Interest Debt Before Investing

Take Emotion Out of Investing

Starting The Investing Plan

Shopping For a Brokerage

Starting To Invest With A Large Amount of Cash

Get-Rich Quick Schemes/Scams

Tax Tips

TaxTips.ca Resources

Other Resources

Start Investing Early

Investing is a lifelong pursuit that will help you achieve financial independence.  We think that the best way for a novice investor to invest is through buying exchange-traded funds (ETFs).  The sooner you start investing in these, the better.

We gave ETFs to our grandchildren when they were born, and added to them annually.  As they grew older, we explained that they own shares in companies which provide products that they use every day.  If doing this, don't forget about the attribution rules.

If you're a young adult, get started investing as early as possible.

Pay Off High Interest Debt Before Investing

Once you've paid off your high interest debt, you should think about investing, because it may be possible to get a higher rate of return on your investments than you pay on your debt over the long term, by using the plan below.  Therefore, if you wish, you can take your "pay yourself first" money (15% of gross income) and invest it in RRSPs.  There is some risk involved, because with this strategy you would be 100% invested in stocks by holding ETFs, and the prices of stocks fluctuate.  If you can hold these funds for 10 years or more, you will probably be better off to invest in RRSPs rather than pay off your debt more quickly.  If you take our advice and buy ETFs, and then become worried about your investments so much that you can't sleep at night, try investing less in RRSPs, and pay down your debt faster.

Take Emotion Out of Investing

This plan takes the emotion out of dealing with your investments.  Once you have decided to go with this plan, you have no further decisions to make.  You buy holdings in several different ETFs, with the plan of holding them for a long term.  You buy 3 to 4 times a year, never sell, and don't try to time the market.  By buying the funds over a long period of time, it helps to reduce any volatility.

This plan is very simple.  You will have very few holdings to keep track of.  If you are making monthly deposits of 15% of your gross income (pay yourself first), it will take less than an hour a month.

If you hold these funds over a long period, this plan should provide average returns of 8%+ per year.

Starting The Investing Plan

If you are still interested in this strategy, here's what you should do:

If you are a novice investor and are going to use our plan, do not use a full service brokerage.  Open a self-directed RRSP account with a discount brokerage.  The advantages of using a discount brokerage are:

bullet low commissions
bulletno broker calling to recommend that you make trades
bulleteasy online access to your brokerage accounts
bulletyou can easily make your own purchases, either by phone or online

This is a good time to shop around for a financial institution.  All the financial institutions want all of your business - loans, mortgages, savings, RRSPs, credit cards, and brokerage accounts.  So when you arrive at their door, have your financial plan with you (including goals, budgets), showing what you want to do over the next 10 to 25 years.  Tell the financial institution what you want to do.  Don’t let them tell you what to do.  Tell them you are willing to give them your business and to stick with them as long as they give you the best rates.  They probably can't reduce discount brokerage rates, but you may be able to save on loan or mortgage rates, and account administration fees for your chequing or other accounts.

Shopping For a Brokerage

If you want to shop around for a discount brokerage or a full-service brokerage, you should compare the following:

bullet commission schedule (costs for making trades)
bullet whether they allow US dollar balances in registered accounts, which is very common now.  If they don't:
bulletAsk whether they provide the service for registered accounts of washing trades or some method for you to avoid losses on exchange.
bullet What exchange rate do they use when converting US$ dividends to Cdn$ for registered accounts - the sell rate, or the Bank of Canada noon rate?  The noon rate will pay you more in Cdn$.
bullet What is the difference (spread) between their rates for converting your purchases and sales of US$ transactions to Cdn$?  This will vary depending on the amount of the transaction, but it also varies between brokerages.  The lower the difference, the less you will lose on US exchange.
bullet online trading ease of use
bulletease of transferring funds or stocks between accounts
bullet online reporting features
bullet administration fees
bullet withdrawal fees
bullet interest rates on account balances

Now see our article on Recommended stocks/ETFs for inside or outside of your RRSP.

Starting To Invest With A Large Amount of Cash

If you have a significant amount of cash and have decided, after exploring all options, that your best use of the cash would be to start investing, you should NOT invest it all at once in stocks or ETFs. A good plan would be to decide how much you will invest each year. Anything not invested in stocks/ETFs in the first year could be invested temporarily in 1-year, 2-year or 3-year bonds, or for shorter terms in t-bills. When each of those matures they could be invested in stocks/ETFs, using our recommended investments for novice investors.

Get-Rich Quick Schemes/Scams

You know the old saying - if it sounds to good to be true, it's probably not true. There are many investment scams happening these days. 

bulletPeople's social media accounts are being hacked and taken over by scammers who make it look like your friend has become a seller of cryptocurrency, trying to take advantage of unsuspecting investors.
bulletScammers advertise investment groups through social media, promising very high returns.

See CSA Investor Alert: Fraudulent social media “investment groups” take advantage of unsuspecting investors

Tax Tips:

Don't be taken in by "get rich quick" scams!

If you are selling investments outside of an RRSP, make sure you know the tax consequences.

TaxTips.ca Resources

Tax issues re investing, and tax treatment of different types of investments.

Other Resources

BC Securities Commission - Does investing make you feel uncomfortable?

CSA Investor Alert: Fraudulent social media “investment groups” take advantage of unsuspecting investors

Revised: September 20, 2024

 

 

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