You need to invest in the stock market.
I’m not saying you “really should” or you should “give it a try”, I really mean that you need to do it. Because you’re not going to earn enough of a return on your savings accounts at current interest rates, the stock market is your only choice to build liquid, long-term wealth. If you ever want to retire or enjoy any kind of long-term financial security, you need to invest.
Most young people aren’t investing. They feel intimidated by the complexity of the financial markets and worry they don’t have enough money to get started.
However, getting started investing is much simpler than you think. It has never been easier to get into the stock market, and new investors have never had as many options to invest as they do now. In other words, you’re living in the luckiest time to get started in the stock market!
Mutual funds get a bad rap because of their high fees, but depending on what funds you choose, they can be a great way to get started in the stock market for a new investor.
Mutual funds are typically available directly from your bank, and you can get started with as little as $25 or $50. When you invest in a mutual fund, you’re giving your money over to a fund manager who will invest it in a series of stocks, bonds, ETFs and other investments on your behalf.
The MER, or Management Expense Ratio, is a percentage of your investment that you pay to fund manager for the trouble of pushing your money around in the stock market. Typically these are around 3%, but they can be as low as 1% or as high as 5%.
A Word of Caution: avoid mutual funds with sales or trailing commissions, set-up fees, and redemption fees. Mutual funds sold by financial advisors typically come loaded with additional fees because the advisor needs to make commission on the sale.
If you find a low-cost mutual fund (MER ~1%), this is a perfect option for a new investor that does not have thousands of dollars saved up to get started investing. Check what types of mutual funds are offered by your bank, and look for a low fee option to get started.
Low-cost mutual funds to consider in Canada:
Robo-advisors are online wealth management tools, and work similarly to a mutual fund, except your investments aren’t selected by a fund manager. This is why they can charge lower fees, typically less than 1%. Fundamentally there is a real human behind it all, but they’re using technology rather than their own personal stock picking strategies to build your investment portfolio.
Robo-advisors to consider in Canada:
A Self-Managed Portfolio
If mutual funds are for absolute beginners, robo-advisors are for intermediates, then a self-managed portfolio is the advanced class of investors — but it’s still easy. And, of all the choices, this option offers the lowest fees and the highest possible returns.
With a self-managed portfolio, you’re responsible for choosing your own investments. You can make it as straight-forward or as complex as you want, and your choices of investments and asset allocations will depend on your confidence as an investor. You can have a simple portfolio made up of as little as 2 or 3 ETFs, or you can buy common stocks and trade options. It all depends on your level of understanding and comfort with the market.
I have an investing eCourse called The Six-Figure Stock Portfolio that is the perfect guide to building a robust and profitable investment portfolio, from $0 to $100,000.
Ultimately, the investing option you choose should reflect your financial goals and risk tolerance, but don’t make the mistake of NOT investing — you can’t afford it!