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Investing for Financial Independence
Pay Off High Interest Debt Before Investing
Starting To Invest With A Large Amount of Cash
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:
 | low commissions |
| no broker calling to recommend that you make trades |
| easy online access to your brokerage accounts |
| you 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:
| commission schedule (costs for making trades) |
|
whether they allow US dollar balances in registered
accounts, which is very common now. If they don't:
|
| online trading ease of use |
| ease of transferring funds or stocks between accounts |
| online reporting features |
| administration fees |
| withdrawal fees |
| 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.
| People'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. |
| Scammers advertise investment groups through social media, promising very high returns. |
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?
Revised: September 20, 2024