I just made my first self-directed investment, at the age of 35. Since so many of my friends were interested in learning more, I thought I would share my story. Though investing can seem daunting and complex, hopefully I inspire you to get started with learning about how to educate yourself, and review any investments you may have.
About me: I’m a woman who ‘inherited’ a financial advisor from my mother. As a university student and through graduate school, I put whatever I was able to save (which wasn’t much, but I had learned that it’s all about compound interest!) into a couple of mutual funds through this advisor. When I was about 33, this investment advisor switched all of his clients’ accounts, including mine, to a Guaranteed Investment Fund (GIF), aka SEG fund. I was given some information about it that I didn’t quite understand. “A guaranteed investment? How is that possible?” I thought. It sounded too good to be true.
The Rabbit Hole
I started reading online articles about investing in order to try and answer my own questions, which lead me down a rabbit hole. At first, I was annoyed at having to take the time to do what I really just wanted to pay a professional to do well on my behalf, with my interests at heart.
The more I read, the more I learned that GIFs, though possibly great tools for people of my investment advisor’s age and perhaps the age of the majority of his clients, were not very good for people in my stage of life. The potential 5% “guaranteed” return each year only triggered in the event that the market returned at least 5% per year for 3 years in a row. The fees were enormous, almost 3% Management Expense Ratio (MER). Add inflation to that, and you essentially negate any potential returns anyways. For me, with a long (20+ year) horizon, I could wait out market fluctuations, for an average return of 6% (making some usual assumptions). On top of that, unlike in a normal RRSP investment fund where one can pull money out for say, a downpayment on a house, a GIF couldn’t be withdrawn from until retirement without negating all of the benefits.
I felt angry – why was I paying to give away my hard earned money? I started asking the investment advisor more pointed questions. He kept insisting that I was the only one of his clients questioning the strategy for my account. The thing is, I was probably also the only one with a PhD in physics. His attempts to brush off my questions in this manner sealed the deal. I ripped off the bandaid (there is a penalty to exit some funds within a certain timeframe, called a DSC), opened up my own direct investing account, and started reading up on what to do in earnest.
How I Got Started
Thankfully, I discovered a wonderful website, the Canadian Couch Potato. I spent a lot of time reading their articles, and came up with a strategy – a balanced portfolio of ETFs (exchange traded funds), which typically have MERs of 0.5% or less. ETFs allow an individual to purchase stocks from thousands of companies across the markets in a broad, well-diversified manner, without having to literally go and purchase each one. I chose 6 ETFs that spread my investments among bonds, Canadian, US and international equities in a way that diversified across industry sectors and geographically. Furthermore, I learned how to allocate those investments between my RRSP and TFSA for maximal tax benefit, and use Norbert’s gambit to minimize currency exchange fees and foreign withholding taxes. Now I know that my investments are sound, and I won’t think about them except during my annual check-in to rebalance.
I will be forever grateful to that site, because without it I would have struggled a lot more to feel as though my future will be secure. More forums like that would be great. Nobody tells you this stuff, because the typical advisor is incentivized to sell particular products, which make money for that advisor or their company. So I urge you to take away the lesson that you CAN do this yourself, given the right knowledge.
Best of luck, happy investing! ~ Danica
This article was originally a guest post for the Voleo Blog.
Voleo
Voleo is an investment management technology platform (iOS, Android & Web) which enables users to take control of their investing in publicly traded stocks, and provides a mechanism to form private "Investment Clubs" with their peers. Voleo provides a full suite of features and functionality for users to operate their Investment Club, and also connects them to a wider social network comprised of everyone using the Voleo platform.
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