Trevor Abes: Writer

Category: Investing

Catch me talking poetry and investing on Howl on CIUT 89.5 FM!

I was on the radio talking about and reading from my poetry collection, The Breakup Suite.

Howl’s host, Valentino Assenza, and I also cover some basics about investing and personal finance.

My interview starts around 43:00!

Howl episode April 20, 2021. (the episode will be available to listen/download until April 28)

Here’s me on Howl for the first time back in 2015.

Young Canadian Investor #31 — Why You’re Not Invested Yet

Learning about stocks and bonds and investing in them aren’t necessarily conducive to each other because one of those options doesn’t require you to put up any money. Safe to say that, as young people, we’re not necessarily swimming in it as a whole. I get it.

There’s a lot to learn, and getting to the point where you’re comfortable buying shares of investment funds on your own is a tall order once you’re tasked with delivering on it, even if you know a globally diversified stock portfolio has made about 7% per year over the last two decades.

The ghosts are learning how to regularly invest for your future. The box person is this article’s intended audience.

It’s always difficult when you start from knowing nothing next to nothing about a subject, but I think there are common hurdles to getting invested that, once removed, should make the process of opening an RRSP/TFSA, choosing funds, buying them regularly, and selling them to fund your financial goals seem less daunting than it should.

Here’s what may be holding you back.

Investing is scary. To spell this out in a more specific way, the fact that stock prices go up and down every day, often with no discernible reason, makes the stock market seem like a less than ideal place to store money. 

Here’s the antidote.

The global stock market fluctuates in the short term but goes up over long periods of time. The Canadian stock market alone has returned about 9% a year over the last 60 years and the U.S. market has returned close to 10% per year over its history. You can buy funds that own the global stock market, or a collection of stocks that replicates it, and pay a very cheap yearly fee as you add to it over the long term. The same goes for the global bond market.

The stock market feels like gambling. This is a thing people say. Mostly because there are plenty of people who use financial instruments as a way to make bets as opposed to invest. The nice thing here is you can choose to be an investor and ignore those rolling the dice with their dollars.

It’s gambling to buy shares of Shopify because you think it will beat estimated earnings for the upcoming quarter causing the stock to pop. But there’s no 20-year period in history in which owning a diversified stock portfolio has lost money. Stocks, as a whole, have a positive expected return. This a casino cannot say. Shopify could miss estimates, fall by 10%, and leave you wondering whether you should hold or sell.

Investing feels like it won’t make a difference to your quality of life. This one is 100% true in the present moment and for the foreseeable future. Why? Because it takes decades for investing to work, for the money you make to stack on top of itself and grow in spite of the normal daily fluctuations and pandemics and major shipping lane clogs we all have to deal with.

You’re not investing for who you are now, not completely anyway. It’s mostly for who you will be 20-30 years from now. Sure, there are financials goals you have now, things you want to make of your life that you need to save for. Your dreams are an essential reason to invest. 

You also need to remember, though, how easy it is to forget how different you are from 16-year-old you. And I don’t mean this superficially. Your view of the world, of what has value and serves your purpose, has changed so much since then to the point of being unrecognizable.

I wanted to be in the NBA when I was sixteen. I report on Canadian business news now. The road between the two isn’t logical except to me and what lights me up inside and out, just like your journey. 

What will the vibe be 10 years from now? Who knows. All I know is that I will probably want as much breathing room as possible whenever I decide I need a change, which will surely happen, change being the only constant on this rotating rock of ours. Investing regularly is how I guarantee that peace of mind.

Putting money away takes away from living in the present moment. Yes, this is technically true. Money invested is gratification delayed to get more out of that dollar at a later time. But there’s no black or white here. It’s a balancing act between enjoying yourself now and building toward getting yourself to a place where you don’t have to worry about money.

I like concerts and plays, weekend getaways, and patio brunches just as much as the next person. I’ve enjoyed my fair share of $20 plates of eggs and potatoes in good company and have no qualms about it at all. That hasn’t stopped me from saving half my income over the past three years to minimize the financial ups and downs that come with writing for a living.

If you need to maximize your dollars, as most people do, to give yourself the greatest chance at living with your version of dignity until you’re old and crusty, investing is your only option besides finding a job that pays you enough to not have to.

If you’re interested in getting started and learn best by reading, I have a short instructional e-book (scroll down to the last book on the page) for beginner investors.

There are also 30 past articles in this series you can peruse.

I’m also offering one-on-one investing chats to cover basic knowledge and equip you to invest on your own.

As always, feel free to drop any investing questions in the comments.

 

Young Canadian Investor #30 — Reasons to Hire a Financial Advisor

There are people out there in the world who are trained to manage other people’s money. They’re called financial advisors and a well-chosen one can serve a meaningful purpose in your life if you actually need the help.

Let’s begin by explaining how a relationship with a financial advisor generally works. It’s pretty simple: you hire one to handle your investments and help you build a financial plan and you pay them a fixed percentage of those investments— usually around 1%—every year for their services. Certain financial advisors will opt for a flat fee instead because they consider it fairer to be paid the same no matter the client they’re working with. Notice how that’s not the case with a 1% yearly fee, because the more you invest, the more that 1% will represent.

We’ve already learned about reasonable return expectations when investing in a diversified portfolio of stocks and bonds, so what could possibly make it worth it to give up as much as 1% of that return every year to have a trusty advisor by your side?

You don’t have the time. It’s totally understandable if your life and work don’t leave you with the time you need to learn how to invest, much less manage those investments in a confident way on a regular basis. When family and career are your priorities, you’ll be able to give your all to them by interviewing a handful of advisors to find the right one for you.

You don’t have the mind. In this scenario, you could have all the time in the world but zero interest in acquiring investment knowledge. For some, the subject is such a bore to the point of being upsetting and I get it. Everything is not for everyone, and it’s senseless to be ashamed of that. That’s why experts exist in any field who can help you for a reasonable fee. And in many cases, like tax planning, and wills and estates, you’re going to require a level of expertise that probably isn’t feasible to pick up by reading up on it over the weekends. In many cases, you want the confidence of a professional having done the thing right.

You can afford the convenience. The beauty of money is that it can buy your freedom. Just like you may be perfectly able to clean your house once a week, but choose to pay someone to do it to free up a few hours for family time on the weekends, the same can be said for the work involved with managing your financial affairs. If you’d rather be doing something else, and can pay an advisor to take care of your money, going ahead and doing that will add value to your existence.

Now, what qualities does a stellar financial advisor exhibit?

  • They should be a fiduciary, meaning they are legally obliged to act in your best interest. Most advisors in Canada are not fiduciaries but are ruled instead by the suitability rule, which leaves room for them to line their pockets by selling you funds with higher fees, even though you could buy cheaper ones and still meet your financial goals.
  • Expanding on the last point, advisors shouldn’t be able to sell you an investment fund with a higher fee—and a higher commission for them—even though cheaper options exist that serve the same purpose. That’s called a conflict of interest. It’s your money, so as much of it as possible should stay in your pockets.
  • Finally, and it may sound obvious, but your financial advisor should be on your level. You should be able to speak to them frankly about your goals with trust and without judgement and build a meaningful relationship over the coming decades. They should also explain everything they do with your money with patience and in layperson’s terms you are sure to comprehend.

If you put the points we’ve discussed into practice, you’ll find exceptional financial professionals to have in your corner and grow your money responsibly over time. On the flip side, if you’re more than willing to learn how to invest for yourself, there are plenty of books and videos out there to get you started. Consider my new book, Nine Steps to Successful Investing: A Guide for Young Canadians, to begin your investing journey and improve your financial health in no more than an afternoon.

I’m also available to teach you 1-on-1 over Zoom if you prefer.

Feel free to drop any questions in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #29 — Delineating Your Relationship With Money

As an investor, you’re somewhere between the person who doesn’t lose sleep over their investments and the person who can’t rest knowing they’re at risk of losing money. The former is able to take on riskier investments with the potential for a higher return. The latter will accept a lower return, so long as it means their money is protected from substantial loss. You see the trade off here. More security means less money in your pocket, and vice versa.

The key to making your investing life as easy on yourself as possible is recognizing where you fall on the spectrum and why. That way, you’ll hopefully be able to make adjustments to how you invest to make room for who you are. Let’s try and gauge where you stand with a couple questions.

Are you living paycheck to paycheck or are you able to save some money, however little, at the end of the month?

If you’re not able to save, investing is out of the question for the moment. Your basic expenses take precedent. If you’re able to save, it’s important to build up an emergency fund first—aim for a few months of expenses—before investing the remainder. Depending on your answer here, you may feel worried about putting your money to work in the stock market. While stocks offer you a positive expected return over the long term, they go up and down a lot day to day, which can cause investors to become distressed seeing the value of their investments move so wildly. The solution here is educating yourself about the stock market so you don’t get spooked by how it’s supposed to work.

Are you a saver or a spender? 

To put it another way, if you have a little cash in your pocket, will you end up treating yourself to a nice meal at your favorite mom-and-pop brunch spot, buying books, clothes, or your version of a treat, or will you stash the cash in your savings account? If the money is likely to disappear into instant gratification, you’re best advised to automate your savings and investing by asking your bank to transfer a certain amount of money every month into the appropriate accounts. We all have personal histories that determine why we behave with money the ways we do. If you can stomach it, go back in time and see if you can identify your money triggers and the patterns they nudge you into.

In my case, I buy lots of books and take pride in hauling 30 or so boxes of them around every time I have to move, so I have to keep that habit in check. I have a sweet tooth, meaning a considerable portion of my grocery bill goes to chocolate, sour gummies, and other such base pleasures. I also grew up fairly well off, while the last 10 years have been a struggle financially, making me prone to save all the money I have when I should be setting some of it aside to have fun and enjoy myself.

In the end, if you can afford your indulgences while saving enough to buy yourself the future you want, you’re on the right track.

How does living in a capitalist society and having to make money to support yourself make you feel?

Are you happy to rise and grind every day to compete and earn your place in that society, or are you hell-bent on avoiding the rat race and forging a different path?

Let me know in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #28 — Why Stocks Go Up and Down

If you look up your favorite stock’s price on TMX and continually refresh the page, you’ll probably notice that the price fluctuates moment to moment and wonder why. Well, what it comes down to are buyers and sellers, the former looking for the cheapest price per share possible, the latter looking for the most expensive, according to their views on what the business underlying the stock is worth.

Bullish, as opposed to bearish. See below.

What happens is that a random buyer’s price coincides with a random seller’s price, triggering a transaction. They happen to hold similar views on the value of the underlying business so they’re able to do business with each other. What one investor is willing to pay is what the other is willing to receive. Now, if their agreed-upon price is a few cents higher than what the stock last traded at, you may notice a jump in price when you refresh the page, especially if a considerable number of shares changes hands. The same goes if the agreed-upon price is lower, possibly leading to a cheaper price on the next refresh.

Moment to moment stock price fluctuations also reflect the decisions of thousands of buyers and sellers acting on their financial needs. Having a view on a what a company is worth and how much you should pay for its stock will help you make a more informed investment, but if you need the money to pay hospital bills, you’re going to sell no matter what. Same goes for car repairs, a house extension because more babies are coming, or taking a trip somewhere to decompress if you really need to chill.

Longer term, though, and we’re talking decades, stocks go up —i.e. have a positive expected return on your money—because they reflect the value successful businesses create for their customers. A profitable track record is generally reflected in a higher stock price, and vice versa.

One nice thing here is that, while businesses are founded and folded every week, economies as a whole tend to grow over time, meaning the successful businesses outweigh the losers overall. So if you invest in a portfolio of stocks meant to represent every economy across the globe—at least those with public stock markets—you can partake in their growth and make yourself some money.

You can achieve this by investing in a diversified portfolio of index funds that own every publicly available stock in the world, or at the very least a representative sample. Have a look at my short guide to investing for young Canadians for step-by-step instructions. I’m also available to teach you 1-on-1 over Zoom if you prefer.

The hardest thing about investing is wrapping your head around the terminology. Even if it’s not with my help, don’t shy away from educating yourself and facilitating the fulfillment of your financial goals.

To end, it’s important to point out that there’s no way to know for sure why a stock moves up or down in the short term. There’s no electric sign somewhere announcing that Suncor stock dropped because investors are bearish, as opposed to bullish (see above), on the price of oil, or Canadian Tire stock rose thanks to consumers growing increasingly comfortable with doing their home improvement shopping in packed stores. All financial analysts ever have are educated predictions based on available information.

The only thing we know for sure is that the better a company is at making money and funding its own profitable growth, the better the chance that its stock will soar and make its shareholders wealthy.

Feel free to drop your questions in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #27 — Stuff You Can Invest In

This week I thought we’d go through the full spectrum of what people can invest in, just so you have a sense of what’s out there and what it can offer you. Should you necessarily have a little money in each of the following asset classes? Probably not, but we’ll get into that. Allons y.

Shares of stock or equity are little pieces of businesses you can buy or sell in marketplaces technically referred to as exchanges. Usually these exchanges are public, meaning anyone can buy as many available shares in as many companies as they can afford. I’ll say a little something about private equity below. Everyday individual investors like you or me tend to buy their stocks in bunches grouped together in mutual funds or exchange-traded funds (ETFs), which hold stocks curated based on specific investment strategies.

Some of these strategies are active, meaning they believe that through research you can pick winning stocks and avoid the losers. The rest of the strategies can be called passive, meaning they support the idea that owning every stock in a given industry or geographical area will make you money more often than research-based methods.

While there are more granular differences between ETFs and mutual funds you can explore here, you should at least know that shares of the former are bought and sold between investors on the aforementioned public exchanges, while shares of the latter are bought and sold directly with the investment companies that operate them.

Bonds are contracts between lenders and borrowers of money. Usually the way it works is the lender forks over some cash, and the borrower agrees to 1) pay the lender a certain percentage of the borrowed total in interest, typically twice a year, and 2) return the full borrowed amount after an agreed-upon period. For example, you could by a 10-year bond worth $10,000 that pays you 2% or $200 per year in semi-annual $100 payments. Everyday investors also tend to access bonds through mutual funds and exchange-traded funds, as they do every asset class below except art and jewelry to the best of my knowledge.

Real Estate Investment Trusts (REITs) are funds that invest in different kinds of real estate with the purpose of returning most of the properties’ income to shareholders. They are beneficial because they allow you to sidestep the hassles of managing properties and tenants directly. All you have to do is buy shares while the staff behind the REIT takes care of all the dirty work.

There are arguments on both sides about whether or not investors need exposure to REITs. The yays will say they’re a way to further diversify your portfolio, especially if you don’t have 100k around to make a down payment on a property of your own. The nays will point out that, unlike the steady income that comes from owning and renting out your own property, REITs can move up and down violently just like stocks, putting a dent in the diversification argument.

Private Equity refers to shares of stock that are only privately available for sale. In other words, you’re only going to be allowed to buy if someone from the company thinks you’re the right partner and reaches out to you. While you may not be able to buy private equity directly, you can buy shares of public companies that specialize in buying and selling these private companies—such as ONEX Corporation and Clairvest Group—which would fall under the rubric of active as opposed to passive investing.

The benefit of owning private equity is that it isn’t priced millisecond to millisecond like public equity is; private companies may only value themselves and let you know the value of your investment once per year. A private equity investment also tends to have a holding period contractually tied to it, sometimes over a decade or more. These qualities are good news for the nerves, because they prevent investors from checking stock quotes 50 times a day, spooking themselves, and selling an investment when they should have just held on. This kind of overreaction is an everyday reality for public equity, which can be bought or sold whenever you deem it appropriate during regular market hours (M-F, 9:30am-4:00pm).

Precious Metals include gold, silver, and platinum for the most part. Investors like to hold them as a hedge against inflation. A hedge is insurance against an occurrence, such as inflation. Inflation is the sustained rise in the prices of goods and services; in Canada, that works out to about 3.3% per year including applicable taxes. Precious metals function as a hedge here because, as inflation makes each dollar worth less every year, metals will be worth more dollars as a result, meaning their prices will rise.

Then there are more alternative investments some opt for citing a variety of reasons like diversification, passion, or having an edge like superior knowledge/research compared to the average investor. These asset classes include Art, Jewelry, Cryptocurrency like Bitcoin and Ethereum, and arguably Private Equity, though it’s becoming more mainstream so I included it above. Do you, as a young Canadian investor, need to dedicate a sleeve of your portfolio to alternatives to succeed at making money long term? No. Not unless you’re interested in something and motivated to do the research and form your own opinions. Otherwise, stocks and bonds will do fine to meet your financial goals. Yes, the more asset classes you own, the more diversified and sheltered from loss you’ll be, but that doesn’t excuse you from knowing what you’re walking into by learning exactly how they work.

If you’re ready to learn about stocks and bonds and start investing in them for yourself, you should read my investing guide, Nine Steps to Successful Investing: A Guide for Young Canadians. To sum it up, it’s a matter-of-fact stroll through the investing process, from figuring out your financial goals, to opening your account, to purchasing shares of a diversified set of passive funds tailored to your financial situation.

Feel free to drop any questions in the comments.

I’m available to teach you 1-on-1 over Zoom if you prefer.

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #26 — When You Shouldn’t Invest

Yes, investing your money in stocks and bonds is a no-brainer most of the time. Why? Because the money you invest will grow over the long-term into a nest egg that you wouldn’t have otherwise had, and you, just like the rest of us, have dreams that require ample funding. Let’s put the breaks on that for a second, though, to consider a handful of situations where investing isn’t the best idea if you’re looking to live your best life.

Busy living.

When you’re in debt. This isn’t to say that you shouldn’t invest if you’re currently paying off debt, just that you need to have a handle on the debt payments first. If you can’t project into the future and tell me more or less when you’ll have paid off what you owe, you probably shouldn’t be investing. There’s no point in stacking money up for your future when the interest rate on your student loans or credit card is cutting into your bottom line. To put some numbers on it, it’s reasonable to expect a diversified stock portfolio to earn you around 7% per year over a few decades, while most credit cards charge you somewhere around 20% in interest. No matter how hard you try, 7 in the black will never make up for being 20 in the red.

When you’re lacking in human capital. Your human capital is the sum of skills you possess that allows you to go out into the world and have a professional life. I write a lot and have some investing knowledge, so that’s the wheelhouse in which I look for work. Your own areas of expertise will differ, but are no less important to how you’re going to use your time. When you break it down, there’s really no comparison between investing $1000 at a long-term 7% yearly return and using that money to learn a new skill that will up your income by 10 or 20k per year. Thanks to the Internet, you may not even have to spend any money. Places like YouTube, LinkedIn Learning, and Skillshare offer plenty of free content to feed your mind.

When you’re bored. So you’re looking for some entertainment and the thought of buying Bitcoin or a few shares of Tesla sounds like just the remedy. This isn’t necessarily a bad thing if you do your due diligence, decide the investment is promising, and limit it to an appropriate percentage of your portfolio. The problem is that kind of work isn’t everybody’s idea of fun. Most people usually just want to drop the money casino-style and see what happens; not exactly a sound investing strategy to get you to a financially secure place. If you want to have fun, have fun, just don’t confuse investing with gambling.

When the chance at living is too sweet to pass up. Last but not least, you already know that life is short and that, to look back fondly on it, you need to go forth and take risks and pursue whatever you heart impels you to. What is right in the eyes of society may not sit well with you and the memories you’d like to accumulate. Does it make financial sense to drop five grand on a trip with the right person or to pursue your far-fetched dream of becoming a full-time poet? How about turning down a decent job in exchange for a day-to-day environment that will stretch your pockets thinner but will get you considerably closer to happy? Perhaps not because your portfolio will be worse off for it. That doesn’t matter at all, of course, so long as the experiences make it easier for you to accept and love yourself when you’re alone with your thoughts.

While we’ve learned about a few reasons why you shouldn’t invest, chances are it should still be a regular part of your life. You’re young, after all, and have the decades in front of you that you need for stocks to appreciate in value. When you’re ready to get started, you can give my short investing guide a read. It’ll run you through the investing process in plain language, step by step, so you can check this major part of adulthood off your list.

Young Canadian Investor #25 — Why You Can and Should Invest on Your Own

As you’ve learned over the last 24 articles, there’s a lot to absorb before you can invest your money comfortably and confidently into the world’s stock and bond markets. You need to make decisions about which financial goals to pursue, for example, as well as how long you have to save before those goals can hopefully be met. That means taking a stand about how your future’s gonna look a few decades down the line and committing to it, even though you’ll likely be slapped around by life enough to periodically reconsider your priorities.

Then there’s the whole technical side of things where you get a grasp on what stocks, bonds, and index funds are, and how the different investment accounts on offer may or may not suit your situation.

It adds up and I get how the overwhelm can start to creep in. That’s why I understand if, after all this reading, you’re still feeling hesitant about opening your account and investing. Even though you know how fortunate we are as Canadians to have access to TFSAs and RRSPs, and you can see the benefits of saving money that’ll grow on its own over time, such as fulfilling dreams of all sizes, it’s still somehow not as easy as just doing it.

To that end, I came up with a list of aspects of the investing process that might cause newbies to give up or lose confidence + my own two cents as to possible solutions.

  1. The mechanics of inputting buy and sell orders for your investment funds is not everyday knowledge. You need to type numbers in that represent real money and you don’t want to make a costly mistake. That’s a normal feeling. Thankfully, portfolio manager Justin Bender has got you covered with his instructional videos on that exact subject. He has videos for pretty much every major brokerage in Canada and you’ll benefit from his approachable explanatory style.
  2. It can be a tall order to demystify how the stock market actually works. All those stock tickers, performance metrics, and constantly changing prices can be hard to crack. You should always seek out educational help tailored to how you learn. If you absorb knowledge more efficiently by reading, you can take a look at my investing guide for young Canadians. If you’re more of a visual learner, this TED video might help to fill in some gaps.
  3. Another scary part of tackling the craft of investing on your own is not having an expert check over your work and give you the go-ahead. If you can’t seem to get past this barrier and take the plunge, set up an appointment with a financial advisor in person to open your account when covid allows and have them run you through the investing process. If you’re a customer with their bank, it’s their job to help you. Just be wary of any sales pitches and stick to your plan, whether that’s engaging in active investing or setting up your portfolio of diversified index funds.

Forever is quite the stretch and the prospect of having to tend to your investments on your own for that long can seem daunting. But I know you can do it. You know why? Because you’re taking time out of your day to read an article about investing. That means you’re already part of the chosen few who are capable of investing for themselves. You wouldn’t be here otherwise. So long as you take your time and give yourself room to learn, you will prevail.

As always, if you have any questions at all, fell free to drop them in the comments.

I’m also available to teach you 1-on-1 over Zoom if you prefer.

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #24 — What Are Your Major Life Goals?

As a youngin’, you may have not extended your life far enough into the future to think about stuff you’d want to buy then you need to save for now. You’re already familiar with what’s on most people’s lists.

  • A house
  • A university degree
  • A car
  • Starting a business

You could also buy yourself the ability to start a family, retire at 50 years old, or live in a different country every six months. The dream is yours and there are no limitations on it beyond the confines of your imagination.

The point of this post is simply to get a ballpark number in your head so you know what you’re aiming for.

  • According to Zoocasa, the average house price in Toronto was $1022138 as of June 2020.
  • A university degree will run you anywhere from a few thousand to $15000 per year depending on where your passion lies. There’s a list of University of Toronto tuition fees here on page 10.
  • A new car will run you, say, $20000, with a decent used one costing you half that or less depending on what it’s been through.
  • You could start a business for no money if you have the skills and a free way to share them. But if you need things like a physical location, inventory, or a paid marketing campaign, the number could easily reach tens of thousands of dollars.
  • When it comes to raising a family, you’re looking at about a quarter million per kid for the first 18 years.
  • If you want to retire at 50, suppose you’re going to live until you’re 100 to be conservative and multiply your current income by 50. If you multiply 50 by $20000 you get one million dollars.
  • Last but not least, country-hopping every six months in on a whole other level of living your best life. You could probably reduce expenses to the cost of travel and renting a place to live with the right logistical prowess.

Ok, so now that you’ve put numbers on your goals, how can you help yourself reach them?

Number one is maximizing your human capital, or your ability to learn new skills and thus increase your potential earning power. As a young person, you have the time to learn, consolidate your passions with educational credentials, and set yourself up for a financially stable rest of your life.

Number two is investing for the long term in a portfolio of stocks and bonds, which will grow your money for you on its own, without you having to work for it, and basically act as an additional source of income. The world of investments can be a scary place to make sense of, but it certainly does not have to be. If you’ve been looking for a nudge to get yourself started and saving for the major goals in your life, check out my new investing guide for young Canadians.

I’m also available to teach you 1-on-1 over Zoom if you prefer.

Feel free to start this Young Canadian Investor series from #1 and see if it has anything to offer you.

Feel free to drop any questions in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

 

Young Canadian Investor #23 — Common Investing Mistakes

Just like the practitioners of any other discipline, investors have to deal with a set of common mistakes the avoidance of which separates the average from the exemplar. You don’t need specialized knowledge to avoid them, just the ability to keep your emotions in check and the willingness to read a book or two to learn how stock markets work. Being a successful investor is within anybody’s grasp. Let’s discuss why by exploring some of those common mistakes below.

  1. First thing most investors fail to consider is the appropriateness of the fees they pay. If you’re invested in funds that charge you 1-2% of whatever money you have invested every year, are the funds’ portfolio managers earning you enough money to justify those fees? Seeing as owning the global stock market through index funds has historically made you about 5% per year after inflation on average, that means a 2% fee fund needs to earn you about 9% per year, supposing 2% inflation, just to keep up.
  2. With so much praise showered on Buffett, Lynch, Templeton, and other legendary investors, too many people believe in the promise of stock-picking expertise. Truth is, though, these individuals are outliers, and research-based stock picking is just as much an art as it is a science. Over the long-term, the vast majority of practitioners will underperform those who simply buy the entire global stock market through a diversified portfolio of index funds.
  3. Unless you know what you’re walking into, it’s very easy to let your emotions get the best of you as a new investor. On any given year a stock fund can fluctuate in price, sometimes by half or more, on its way to making you money over 10 or 15 years. Investing is a long-term practice, one where businesses need to be allowed to innovate, grow, and create lasting value; to be successful, you just need to live your life and stay out of their way. That means ignoring your urge to sell an investment simply because other investors are overreacting and causing its price to drop, even though the quality of the business hasn’t changed.
  4. Many young investors think you need lots of money to participate in the world’s stock and bond markets. Thankfully, this is no longer true. Wealthsimple, for example, allows you to open an RRSP or TFSA and buy as little as one share of the investment fund of your choice without having to pay a commission. If you have a spare $50, you can start investing today.
  5. It’s a widely-held misconception that investing in the stock market is basically gambling. You can definitely use stocks to gamble by, say, buying some shares in a company your coworker gave you a tip on, or a company that makes products you’re deeply familiar with even though its business prospects may not be all that bright. Whenever you invest hastily, you’re taking a flyer and could lose money. And you already read numeral 2. If you take a more measured approach, though, and invest prudently through index funds, which offer you a long-term positive expected return—5% per year or so after inflation—you’re golden.
  6. The key to investing is staying invested long enough so that compound interest can work its magic. That means you need to buy more shares of your stock and bond funds at every paycheck over a handful of decades for satisfactory results to show. Making the rash decision to give up on funds after a few short years is always a mistake.
  7. You may also be thinking that all this investing stuff is too complicated for you to handle it yourself, meaning you need to resort to a financial advisor to put your money to work. Not the case at all, if you ask me. As someone who put the reading in, learned about which investment accounts to open, and has been building his investment portfolio over the last two years, I can tell you with absolute certainty that you are more than capable of doing the same.

If you’re interested in a short and digestible investing guide to get you going, consider my new book, Nine Steps to Successful Investing: A Guide for Young Canadians. I designed it to cut through how financial literacy is one of the most boring things you can learn. You’ll get nothing but the essentials, expressed in plain language, with extra resources only if you’re interested in learning more. Whatever you decide, don’t hold off on building your nest egg. Your future self will love you dearly for it.

I’m also available to teach you 1-on-1 over Zoom if you prefer.

Feel free to drop any questions in the comments!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #22 — Ten Financial Concepts They Should Teach You in School

We’d all be a little better off if Canada’s basic education system included a thorough run through of basic finance. Such a course would allow young people to make better decisions with their money and ultimately keep more of it in their pockets. Nowadays, making mistakes with money is almost normalized as part of the journey toward managing it well, and there’s really no reason that should be the case with the right financial foundation.

Here are ten concepts that might serve as the base of that foundation.

Inflation is the sustained rise in the prices of goods and services people use in their everyday lives. A pack of bacon twenty years ago was a lot cheaper than a pack of bacon today because of inflation. The same can be said for orange juice, cars, houses, bathroom tissue, and pretty much anything else you need to live your life. We invest money in stocks because they offer a return that has beaten inflation over time. While you can buy approximately 3.3% less with a Canadian dollar with each passing year, a diversified stock portfolio would have earned you an average yearly return in the high single digits over the past few decades.

Debt is what you take on when you borrow money. Usually the agreement is that you have to pay your lender back the full borrowed amount, aka the principal, after a certain period, plus periodic interest payments along the way. These interest payments tend to be expressed as a percentage of the total borrowed amount payable in monthly, annual, or biannual installments depending on the arrangement. One well-known example is credit card debt, which is some of the highest-interest debt you can incur at about 20% or so per year. On the flipside, no pun intended, taking out debt, aka a mortgage, to buy a house could be financed at only 3 or 4% because of Covid-19’s obliteration of housing demand.

Financial Independence means having enough money to finance your life’s expenses such that working becomes optional for you. We’re not talking about being rich here, just being able to support yourself and live with decency. The earlier kids know about this concept, the more years they’ll be able to save and invest and take advantage of compound interest.

Compound Interest is the process by which an investment grows in value. When an investment earns you interest, which is synonymous with a return, over one year, it’s added to the original amount you invested such that your $1000 is now $1200 for example. The $200 you earned in interest now has the opportunity to let the following year’s interest grow on top of it, essentially earning you interest on your interest as they compound into a higher amount.

Opportunity Cost is a perspective you can take when it comes to spending money. It consists of looking at what you’re about to spend, say $15 on a burger and fries, and considering what you’ll no longer be able to buy once you place your order. If you’re saving for a car, you won’t be able to put that money toward to car anymore. If you’re hoping to take a certain course to add depth to your skills, that $15 will no longer help you enroll. You get the idea. When you actually manage to hold off on dropping your cash on something in favor of a future desire, it’s called delayed gratification; not the easiest ask for young people looking to have a good time, but certainly a rewarding one in terms of making larger-scale dreams come true.

Investing is using money with the intention of making more of it. You invest in assets.

Assets are things you can own that make money. These include stocks, which rise in value and can pay you a bit of cash every month or quarter called a dividend. Bonds, which basically work the same as the lender-borrower relationship we delineated above, where the lender, or holder of the bond, receives regular interest payments and the return of principal at the end of the bond’s life. Real estate, which pays you monthly when you rent it out to people. Businesses that hopefully produce profits that line your pockets in proportion to the percentages of the businesses you own. Patents, which generally entitle you to a royalty for every time your patent is put to use. Guaranteed investment certificates, which, like bonds, function as debt. And so on. Think of how motivating it might be to have a working list of these in your head walking around as a daydreaming sixteen-year-old.

Retirement Planning is the last thing you want to talk to a high school kid about at length because it’s so far away and you gotta learn to live before worrying about the logistics of the end of it. I’d limit the spiel to saying that it’s a good idea to think about how much money you need to live on a yearly basis. Multiply that number by however many years between your age and 90, to be conservative, and that gives you a rough idea about how much money you would need until you croak. It can feel grim to think about death. I get it. Just wanted to acknowledge that.

Insurance is money you pay someone else to financially have your back in case something catastrophic happens to you, like croaking, getting seriously injured, losing your job, getting into a car accident, or having to deal with damage to your home. You get insurance for peace of mind. Your payments for it, called premiums, are ones you hope to make without ever having to file a claim due to this or that disaster. Knowing about insurance as a kid is important to instill the idea that certain things are worth protecting more than others, modified of course by each person’s individual values.

Taxes can be defined as money you pay the government to run the country you live in. The earlier little Timmy can develop a sense of what this means in hard numbers, the less of a surprise it’ll be compared to when those dollars have a tangible effect on his quality of life.

Feel free to drop a question or a comment.

I’m also offering investing 101 chats 1-on-1  over Zoom, Facebook, Skype, or Google Meet!

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

Young Canadian Investor #21 — What It Costs To Invest

While investing is an essential part of being financially responsible, it’s important to know that it isn’t something you can do for free. There are costs associated with acquiring and owning stocks and bonds to save for your future, so you might as well learn about them now instead of being startled by them on a monthly statement years down the line. Let’s get going.

First off, anyone who buys or sells shares of stock has to pay a commission to the brokerage house facilitating the transaction. Usually that’s between $5-$10—if you do business with Questrade or one of the big banks—but Wealthsimple recently became the first financial institution in Canada to let you trade stocks for free.

If you own shares of a mutual fund or ETF that owns numerous stocks, bonds, or both, you’re going to pay something called a Management Expense Ratio (MER). The MER includes the salaries of investment professionals in charge of overseeing the fund, as well as any associated legal and administrative costs. What you’re charged is a percentage of the money you have invested on a yearly basis. Ex: suppose your fund’s MER is 0.5% per year. That means 0.5% of your investment will be taken by the fund to keep the lights on, usually calculated daily and withdrawn monthly from your balance.

Funds will also charge you a Trading Expense Ratio (TER), which is simply the amount of brokerage commissions the fund incurs to implement its investment strategy. The more stocks and bonds the strategy dictates that they buy and sell, the higher the TER will be.

If your fund engages in active management, that means its portfolio managers try to pick what they consider to be the stocks and bonds with the highest potential return. This tends to entail a hefty research budget to figure out what investment to pick, as well as a higher TER that reflects the buying and selling of these investments as they fall in and out of the research results. In Canada, an active fund will generally cost you 1%-2% of your investment per year all things considered.

If your fund engages in passive management, that means its portfolio managers don’t go to the trouble of trying to make predictions about the best investments to own. They opt instead for owning every stock, bond, or both in the markets they cover, or at the very least a sample or index of them that’s representative of the whole. The managers take this route because they believe that human progress will continue indefinitely, which will be reflected in the long-term rise in value of their stocks and bonds. A passive or index fund in Canada will cost you 0.1%-0.3% per year depending on what parts of the world it covers.

Which style has made investors the most money dependably over time? The evidence is squarely in passive investing’s corner.

Then there’s always the option of hiring a financial advisor to make all of your investment decisions for you. If you truly feel that you don’t have the time or patience to learn by yourself, this is the way to go. An advisor will probably cost you about 1%-1.5% of the value of your investments per year—and that’s on top of any fund MERs and TERs—but the fee is worth it if it frees up your time to do more of the things you love.

Now you have a good working sense of what it costs to invest, making you better prepared to make informed financial decisions.

Feel free to ask any questions in the comments!

If you are ready to learn how to invest on your own, have a look at my new investing guide for young Canadians. It’ll give you the tools you need to put your money to work in index funds in no more than an afternoon.

I’m also available to teach you 1-on-1 over Zoom if you prefer.

Disclaimer: This article is meant for general education purposes only. It does not constitute financial advice as I am unaware of your personal situation. Consult with a professional who abides by a fiduciary standard before making any investment decisions.

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