I’m a big advocate of investing in your 20’s. It is not nearly as scary or challenging as people make it out to be.
How do I get started building a stock portfolio?
In order to access the stock market, you need to have a brokerage account. Many big banks offer brokerage accounts, but there are discount online brokers available as well. When selected a brokerage, you want to look for account availability (TFSA, RRSP, etc), low fees, and convenience.
Signing up for an online brokerage account takes only a few minutes. Questrade is Canada’s leading discount broker, and the best option for new investors.
When it comes to building your portfolio, there are 3 main goals:
- Income: investments that produce money for you in the form of interest or a dividend on a monthly, quarterly, semi-annual or annual basis.
- Growth: investments that will grow in value over time, so that you can reap capital gains when you sell.
- Security: investments that are safe and won’t lose your money in the long run.
See? Very simple stuff!
As for how to select stocks, the best resource I’ve ever found on investing is The Intelligent Investor: The Definitive Book on Value Investing (even Warren Buffet, a student of Graham, credits him for his investment success! Don’t you want to learn from the investor that taught Buffet everything he knows?)
I STRONGLY RECOMMEND that if you want to get into the stock market, you purchase a copy. It’s available on Amazon — and it will be the best investment you ever make. Nothing will net you more money than knowing what you’re doing when it comes to investing in the stock market!
Once you’ve picked up your copy, you’re ready to start building your portfolio. For that, I’ve assembled a list of 5 investments every 20-something needs to have in their portfolio. I usually suggest when you purchase a stock or investment, you buy at least $1,000 (preferably $2,000).
If you’re about to tell me you don’t have $10,000+ laying around to get into the stock market, no worries! You can start with any point 1 through 4 on this list, and then buy the next one when you have more cash. Leave #5 until the very last — you’ll see why!
The Five Stocks Every Millennial Needs To Have In Their Portfolio
1. Blue chip dividend payers. These are some of my favourite stocks because they are reliable, well-established companies that have been paying dividends for decades — some over a century! What’s more, they regularly increase their dividend, which means you make an initial investment and ever year you will be paid more for holding that stock. While holding individual common stocks are still a riskier investment than holding an index fund, blue-chips are about as safe as you can get. That said, one of the reasons I’m an advocate of grabbing individual stocks is because you do stand to gain more than holding a fund. If you invest in an index mutual fund, your return will be that of the index, but if you hold an individual stock, you stand to gain a lot more (you can also lose more, but with these companies that have stood the test of time, it’s less likely).
2. REITs. While Real Estate Investment Trusts rarely pass the Benjamin Graham litmus test, I still feel they’re an integral part of a Millennial portfolio. As a generation that seems obsessed with home ownership, a REIT is a great way to own property before you can afford a down payment on a home. Furthermore, REITs are great for protecting your portfolio against inflation. Lastly, REITs frequently pay out a monthly dividend, which means they’re a great income generator. You can buy REITs individually or buy a REIT ETF or mutual fund depending on your interest and risk tolerance.
3. ETFs. I’ve blogged about how to buy Exchange Traded Funds before, and they’re still one of my favourites. ETFs are a great way to diversify your portfolio while minimizing risk and generating income. You can choose ETFs by industry — like utilities, banking, etc — to keep your portfolio balanced and profitable. I try not to replicate my common stock holdings within ETFs because then you’re not diversifying. For example, if you already own a few bank stocks individually, do not buy an ETF of bank stocks!
4. A bond fund. It’s always good to be boring and buy some tried & true government and corporate bonds. I suggest a bond fund (either as a mutual fund or ETF) rather than buying individual bonds. Bonds typically move in the direction opposite of current interest rates. That means you want to buy when interest rates are high and refrain from buying when interest rates are low. I rebalance my portfolio only once per year, moving cash from stocks to bonds or vice versa, but for the most part I’m committed to dollar-cost-averaging. This is the practice of buying a little bit on a regular basis. In terms of my bond buying, I buy a handful of units of a bond ETF once a month in my RRSP. I haven’t accumulated much in way of bonds (because interest rates are so low! I’m favouring stocks) but I like having just a little bit for a balanced approach.
5. A few wildcards. One of the most fun aspects of investing is taking a chance on an investment and making a killing. It can hurt when you lose, but that’s why I suggested points 1 through 4 to set up a robust, safe portfolio leaving you a little bit of wiggle room to take a gamble. As a rule of thumb, I never risk more than 3% of my total portfolio — I do this because then if I were to lose all my money, 97% of my portfolio would remain intact. I like to play the stock market a bit, but if you’re a more conservative investor you can skip adding wildcards to your portfolio and stick to the tried & true suggestions 1 through 4 above.
I like the bond etf (XBB) It’s not very volatile and hasn’t gone up much in the last few years. But it’s important to have for diversification purposes. I missed out on Netflix but I’m thinking about trading LinkedIn once it drops low enough, heh.
Yeah, I don’t have any of these yet. I have balanced index funds, but that’s it… can’t buy anything else in my pension really. And for my personal investment (it’s only 1k right now) I haven’t moved up to the big leagues to trading stocks.
Great info though. I’ll likely be back when it’s closer to then
You already know how excited I was for this post thanks to Twitter 🙂
I’m totally going to check out that book, thanks for the suggestion.
This list is really helpful and makes a lot of sense. I do have one (maybe really dumb?) question…can you use your brokerage account, like Questrade, for all these options or just to purchase certain stocks? Right now I only invest in index funds through my Tangerine so I have no clue how brokerage accounts work. I guess what I’m saying is that I’m interested in trying this out but I don’t know how to do it/where to purchase it from haha!
Yep — you can purchase all of these with Questrade! I have both a TFSA and an RRSP with questrade and own common stocks and ETFs in both. The hardest part is getting started!
Overcoming my stock market hesitation is literally a goal for 2014 (my family doesn’t invest so its a whoke new world for me! ) Totally nabbing this book.
One hell of a beefy book! Jason Zweig did a great job updating it. I like how he added new commentary at the end of each chapter and footnotes often. I can’t say I’ve used questrade. Awhile back I set up td E-series index with 25% canadian stocks, 25% American, 25% international, and 25% canadian bonds. You caught my eye when you mentioned questrade doesn’t charge for ETF’s…
Always love reading posts on investing for millennials! It’s the perfect time to start, especially since we have so much time to ride out the market. Love the aspect of diversification. My employers 401(k) plan just added REITS as an asset allocation option, and I just rebalanced to incorporate that as an asset in my portfolio. Definitely a fan of ETFs as well!