financial education

New to Investing? Everyone Was at Some Point

jeana2deal 4 Comments

Everyone who invests had to start somewhere.

Folks who have invested for much longer than a new investor started at a time when investing looked a lot more different. I’ll tell you about my investment journey that began over 20 years ago. I’ll also give some tips intended to give you things to think about as you read on.

The ’90s vs. Now: GICs and Term Deposits

20+ years ago, I opened an RRSP and my first investments were term deposits and GICs. These did all right as I was only interested in saving part of my pay cheques and not spending the money. This was at a time when interest rates were better. They were paying me 4.5% to 5%. It made sense for me to start out this way.

Now, putting your money in these is mainly just to lock it up. Interest rates are very low and these only offer a better rate with longer investment terms. It’s safe from you when you have spending urges, but not safe from inflation. If the inflation rate is 1.13% and your investment is paying you at 1.20%, then you’re not getting much of a return. If inflation rises to 1.5% during the term of your investment, you’ll find out the meaning of “inflation risk” the hard way!

If you’re new and nervous about investing and like the guaranteed aspect of GICs, you could get a variable rate GIC if current interest rates are low. You could also get an escalating rate GIC, particularly if you wanted to keep the money invested for a while, like up to five years. If you’ve always wanted to get into the stock market but was nervous, you could get a market-linked GIC. If the market goes up, you can make more money too (although there’s usually up to a maximum amount that you can get). If the market goes down, you get your principal back and you don’t lose any money, just time.

Because the returns aren’t that great with these cash investments, investing in an RRSP at least allows you to claim your contribution and get back more on your tax return.

The Early 2000s vs. Me: Mutual Funds

As my savings grew, I moved onto mutual funds. I had:

  • a Canadian bond fund
  • a Canadian index fund
  • a monthly income fund
  • a Canadian blue chip equity fund
  • a balanced growth fund
  • and a dividend growth fund.

These did all right, but I felt my portfolio should be doing better. I was regularly putting money into my RRSP – these additions seemed to mask the actual mediocre performance of my mutual funds. Little did I realize it was the high MER fees that were negatively affecting my returns.

When I asked an advisor about rebalancing the funds so that they could perform better, he told me I shouldn’t because he’s seen people doing much worse than my portfolio. Wow! That didn’t help me or encourage me. He just said he wouldn’t change anything – besides, I’d lose money from all the load fees I’d have to pay if I did move things around.

I was so frustrated because my online account made ‘switching mutual funds’ look commission-free and as easy as clicking a button. I didn’t know the difference between one fund from another. That’s why I went to the bank to ask for help. Advisors are supposed to be more helpful and if not, at least informative, right? So, I went to another branch and saw another advisor who was even more useless and uninterested in my concerns. It was so different from my experience when I had a big chunk of savings that I didn’t know what to do with. I had received such great service then. After I made the investments, it seemed no one wanted to assist me. 

I was much more angry with myself because I didn’t even know how to have the conversation that I wanted to have when I met with these advisors. I lacked the knowledge and vocabulary to know how to drive the conversation to get what I really wanted. I couldn’t tell you what a bond was. I didn’t know what “equity” meant. Is it an advisor’s job to teach me? Or was it more advantageous for them if I knew nothing? I don’t mean to rag on mutual funds and advisors. It really was just a situation that I outgrew and became frustrated with. Sometimes growth just ain’t pretty.

I actually think mutual funds are great for new investors who don’t have much in savings yet. It’s great to be able to buy shares or units in a fund and co-own assets (wait–does that explain the essence of the term “mutual”?) that you wouldn’t be able to afford otherwise. As you grow your money, you’ll be able to afford to buy the actual assets directly. Until then, take advantage of automatic deposit options to enjoy the compounding effects of regular investing.

Mutual funds are so easy to get at your bank. The advisors can help you find the right balance of funds based on your risk tolerance. Just be sure to ask about the fees! Only opt to pay lower fees, but preferably go with the no-load fee options. If you’re deciding between two similar funds, choose the one with lower MER fees. I think mutual funds are best in the RRSP, not just because of the bigger tax return you could get for claiming contributions, but also because if some of your funds have US stocks, the dividends aren’t taxed in your RRSP.

The Late 2000s to Now: In Love with Stocks

I was frustrated enough to cash out my mutual funds and say sayonara to my bank. I parked my money in a discount brokerage and took the free stock trading program that came with opening an account. I took business and financial courses, including the Canadian Securities Course, to become more educated about money. I badly wanted to know what the financial industry knew and how the world of money worked.

The more I learned the more stoked I got about investing, particularly in stocks. While I’m still working on where I want to be financially, I now see my long-term financial goals happening a lot sooner thanks to stocks. And I’m still educating myself and trying to learn.

If you’re new or too busy to know what stocks to buy, get an index ETF for the Canadian and US markets. If you want a bit of diversification, get a sector or international ETF. If you want income, get a fixed-income or dividend ETF.

If you’re new but ready for more than just ETF investing, you can pick blue chip stocks that pay a nice dividend. As your financial knowledge increases, you can build a nice diverse portfolio with a suitable balance of cyclical and non-cyclical stocks.

If you have a US ETF or stock, invest it in an RRSP so the dividends aren’t subject to withholding tax. If your financial goal is more short-term and you’ll want the money in a few years, invest in the TFSA so you can withdraw the money without getting taxed. You can invest your money between both the RRSP and TFSA according to your different goals and needs. If you run out of contribution room, then hold your Canadian equities in a non-registered account to benefit from the favourable taxation on capital gains and dividends.

The 2010s: Educating Others

Once people knew that I was really getting into the markets, the inquiries starting pouring in. I didn’t feel that what I knew was applicable to my friends’ various situations, though. As much as I believe everyone should own even just some stocks, stocks aren’t ideal or applicable to everyone and for every situation.

I began to ask at my bank (not the one I ditched) questions on behalf of my friends. The advisors were so friendly and receptive. Sometimes they’d sit down with me if they felt the questions were more involved. Other times, we’d all be just talking about investment options. I was always impressed with what they knew, how willing they were to answer questions – even if I wasn’t going to invest my own money – and how much more focused they were on the client relationship aspect.

I’m not sure if the great random service I was getting at any given branch was the bank itself, if it was because I knew what I was talking about which led to better, more informed conversations, or simply because financial advisors now are supposed to be more focused on building relationships with clients for their VARIOUS needs, rather than just selling them investment products.

I actually wrote my book for my friends. I wanted the information to be easy enough to access and understand so that even if they had a general concept of how investments worked, they could seek and get incredible assistance from the pros. My book is meant to help liaise between the client and the financial industry and ultimately help investors navigate their available options.

I still get questions from my friends, mainly the ones who haven’t read my book yet! That’s okay. As my confidence over my own investments grows, so does their willingness to learn from me about how their money can make them money.

Some More on Sectors

jeana2deal 1 Comment
Rack

My closet, the retail sector.

How I Stumbled Upon Sectors

With investing, I try to think in terms of the big picture. I find it useful to be aware of the moving parts within this picture. When I started to learn about stocks, I was clueless. I couldn’t read a financial column. JP was reading the Wall Street Journal and he had to translate everything for me. At that point, I only understood how a stock worked and what a brokerage account was, but that was it. I had taken courses in business, accounting, and investing, but so much of it went over my head. I just had a lot of different information floating about and not enough experience to apply this information as a novice trader.

I decided to take the Canadian Securities Course to get a better idea about the financial industry, investments, how they work, what professionals do, and what investors need to know. It was great because I could go at my own pace and get more into the stuff on equities. I honestly can’t say studying for the exam was loads of fun, but I was happy enough to pass. I loved that I ended up with a better idea about the workings of the financial world and Canada’s economy.

The more I learned about investments, markets, and the economy, the more fascinating money was to me. I became more aware of the psychological component with money, spending, saving, and investing. There is nothing static about the markets, the spending trends that drive the economy, the saving spells that slow it down, and particularly the movement of money between the different sectors and industries.The market is constantly in flux because it’s made of many different components that drive these fluctuations. Money is always being made somewhere.

One of the most important things I learned is that getting a good read on the economy will help you make better investment decisions. Having even just a basic understanding of the economy can make the difference between a novice investor and a savvy one. I found that watching sectors has helped me make money in the short term and longer term. Sector watching can also give you some idea where the overall markets might be headed towards. Sector movement can help determine why a market is up or down. Understanding sectors is important enough to me that I discuss them along with the economy in my book, Loonie to Toonie.

One of my readers seems to share my interest in sectors and has been asking me about where to find more information on them. I’m happy that she’s recognized the importance of understanding sectors and wants to do her own sector research.

Some Places to Look Up Sector Performance

Click here for a great list of sector indexes that track TSX stocks. If you click under “Symbol,” you will be taken to the index’s chart. You can select the time frame at the bottom of the chart. I suggest looking at the 1-year chart, or even longer. I find that longer time frames provide better insight on overall sector performance. For U.S. indexes, you can find a handy sector list here.

I’m often stalking stocks and looking for new ones that might possibly make a move in the near future. As I mentioned in a previous blog, “Stock Picking – Part 3: Factoring in Sectors and the Market,” I look at stocks, their respective sectors, and the market. It’s easier for me to just type in a sector index’s ETF symbol when I’m on my charting screens.

One thing to note: ETFs don’t always move in sync with their corresponding indexes because ETFs are actively traded on the exchanges. Sometimes ETFs will move more or less than their index as it depends on the trading volume and demand, or lack thereof. Having said this, looking at the sector or market indexes will provide a more accurate picture than the ETF. I’m super lazy, so it’s easier for me to just type in a sector ETF that I’m familiar with if I’m just looking on my phone and I’m not on my trading platform at my desk.

Reports on Sectors and the Economy

Economic reports happen every day. Some get more attention than others. The more important the report, the more effect it’ll have on the markets. Some of these reports are sector-focussed. Some sectors give big clues as to where the market could be headed. For example, a strong economic report on new home sales could indicate an optimistic economy and stronger retail sales. I always look at the US economic calendar to see where there might be a lot of action or potential change in the markets. To know what these reports mean and their significance, click on “Event Definitions.” Here is the Canadian economic calendar and here is the international economic calendar. Many different financial websites have economic calendars, so find ones with formats and reports more suitable to you and your interests.

Media

I sometimes watch CNBC and BNN because I like to listen to industry folks. I could watch that stuff all day (especially CNBC’s Fast Money as they’re traders who sometimes have highly entertaining arguments!). There are always so many different points of view on stocks, sectors, and the economy. There are a lot of opinions out there, many of which are conflicting, but these provide additional context to the charts.

If you read any financial paper, newsreel, website, or blog, you’ll also find a lot of up-to-date reporting on micro and macroeconomic stuff. The news often discusses the employment situation in certain industries or businesses. Consider your own job and the industry you’re working in. You might be able to see where you can be headed career-wise if it’s a growing or steady industry. Look at your bills and see where you’re paying the most. Maybe it’s in a sector that you should invest in. Sectors are out there and also are very much a part of our everyday lives. We know more about them than we might be aware of.

I’m sure my rudimentary research methods would make any financial professional shake his or her head!

As important as it is to know about sectors, there is no exact science in applying this information. It’s just one aspect of financial understanding. Some of your best investments will be so long-term that they will endure decades of economic fluctuations and sector cycles.

In the spirit of being financially literate, understanding sectors and their relationship with the economy will make you more financially fluent. That is how more of us can engage in the important conversation on financial matters.

 

 

 

 

L2T Updates

jeana2deal Leave a comment

updates

November

Financial Literacy

Lots of stuff going on especially with Financial Literacy Month coming up this November. In my world, almost every day is Financial Literacy Day! 

I’m always trying to learn more about investing and anything related. Right now I’m reading a book called Money, by Felix Martin. Next, I plan to read a book on options trading. I’m sure for most of us, the idea of reading such books doesn’t trigger the same excitement as reading a best-selling thriller like Girl on the Train (which I read too), but it’s great stuff for investor nerds like me.

Speaking of thrilling reads, to encourage financial literacy among new investors, I’ll be offering a massive discount of $5 off my eBook, which is currently available for $6.99. So for the low price of $1.99, you can become financially literate in the short time it takes to read this easy book on your phone or tablet. What’s so thrilling about the book is how knowledgeable you become as you read it!

_____________________

Columnista

I’ve got another column coming out in Investor’s Digest of Canada‘s November 25th issue, which you can find at most Chapters Indigo stores. Earlier this month, I was on the cover, front and centre, for another column I’d written. 

id-4

_____________________

Stock Picking Cont’d

I will also continue to blog my strategies on Stock Picking which I hope to complete over the course of November.

December

YouTube School of Investing & More

I’ll be posting a video on my process of selecting and analyzing stocks before the end of the year.

I’ll also be posting on various investment strategies based on investments I’d written about in my book to consider for the new year.

2017

Transparent Investing

I’m going to be doing a STOCK INVESTING CHALLENGE. I’m opening a separate RRSP account and I’m going to put $1000 in it. I’ll be selecting Canadian stocks for the portfolio and posting every week the results, my picks, my strategies, my analyses on performance, and the markets. I’m going to be totally transparent to all my readers about the results.

My goal is to make that portfolio grow through stock performance and compounding its growth through regular deposits. It’ll be fun and a great learning experience for us all. I wonder if this is how David Blaine feels when he thinks of his next on-TV challenge…

_____________________

Summer Kick-off at the Toronto Public Library in North York

This is an early announcement, but I’m too excited about it to keep it bottled up for almost eight months…

Mark your calendars: On June 20th, I’ll be hosting an event called, Investment Basics Made Easy, at the TORONTO PUBLIC LIBRARY! It’s going to be engaging, extremely informative, and loads of fun. If you’re brand-spanking new to investing, you’ll leave financially savvy and ready to make your money grow!

You really gotta love libraries and their commitment to being incredible resources to the public. The Toronto Public Library offers the Small Business Program in which they regularly schedule experts there to teach you about things related to business, marketing, and investing. I am so grateful for this wonderful invitation to share and engage with people interested in learning how to invest. 

 

That’s it for now, folks!