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Over the last 7 posts on the Investing 101 Series, you learned about the following:

  • You need to determine what type of investor are you
  • The best time to start investing was 20 years ago, the second best time is today
  • In order to get ahead, you must have a gap between what you spend and what you earn
  • Compound interest is the 8th wonder of the world (seriously though)
  • Know the difference between a financial institution vs an account vs a fund
  • Focus on your tax advantaged accounts first
  • Focus on funds with low fees
  • Invest for the LONG term

If you haven’t read through the rest of the series, check it out here first as this post is mostly a summary.

And for anyone still confused on the US accounts vs Canadian accounts, please check out this awesome US/Canadian FI Glossary by my friend Chrissy from East Sleep Breathe FI.

Examples of Different Financial Institutions, Accounts, and Funds:

  1. Financial Institutions
    1. Canada
      1. TD
      2. RBC
      3. Questrade
      4. WealthSimple, etc
    2. US
      1. Bank of America
      2. Wells Fargo
      3. Vanguard
      4. Fidelity, etc
  2. Accounts (to open up within the Financial Institutions above)
    1. Canada
      1. Cash
      2. Checking
      3. Savings
      4. High Interest Savings
      5. TFSA
      6. Group RRSP
      7. Individual RRSP
      8. Spousal RRSP
      9. RESP
      10. GIC
      11. Brokerage (aka Non-Registered)
    2. US
      1. Cash
      2. Checking
      3. Savings
      4. High Interest Savings
      5. Roth IRA
      6. Traditional IRA
      7. Spousal IRA
      8. Roth 401k
      9. Traditional 401k
      10. 403b
      11. 457b
      12. HSA
      13. 529
      14. CD
      15. Brokerage (aka Taxable)
  3. Funds (what goes into your Accounts above)
    1. Worldwide
      1. Cash
      2. Stocks
      3. Bonds
      4. Mutual Funds
      5. Index Funds or ETFs
        1. Domestic stock index funds
        2. International stock index funds
        3. Domestic bond index funds
        4. International bond index funds
        5. REITs
        6. Marijuana index fund, etc, etc

Let’s Dig A Bit Further

Don’t confuse the TYPE of account with WHAT GOES IN the account.

For example, the question “Should I invest in a Roth IRA or in index funds?” does not make any sense as that’s not a choice you’ll be making.  You can invest index funds WITHIN your Roth IRA.  Think of the accounts as the different buckets available to you and the funds are what you can fill those buckets up with.  The financial institutions are the locations where your buckets are held making sure your money is protected.

So you do your research, pick the financial institution that best suits your needs (aka low fees to save you money), open up an account with them, then allocate money from your current checking account into this particular account instead.

So now you have contributed cash into this account.

THEN you INVEST that cash with a specific fund.

From the example above, you open up a Roth IRA, contribute cash, then invest that cash in index funds.

All those accounts listed above essentially work in the same way.  You open them with a bank or brokerage.  You’ll get an account number.  They hold stuff. They all are slightly special in their own way.

  • With a checking account, you can write checks
  • With a savings account you often have slightly higher interest rates
  • With a brokerage account, you have the most flexibility and can invest in stocks, bonds, mutual funds, index funds, etc.
  • With a Roth IRA or TFSA, you have a brokerage account with a great tax break in that all earnings inside are never taxed (unless you withdraw your gains early in a Roth IRA)
  • With a traditional 401k/403b/457b/IRA/RRSP, you have brokerage account in which you received a tax deferral break upfront (and the list of available funds are often pre-selected from your employer)
  • With a HSA, you have a brokerage/savings/checking account with the triple tax advantage intended for medical expenses
  • With a 529/RESP, you have a brokerage account with tax advantages geared towards future education costs

When thinking about your investing, make sure you understand that all your accounts are just empty buckets. The magic happens when you invest INSIDE of those accounts by buying the funds listed above.

As to which funds to select?  That’s again up to you and your risk tolerance.  Personally, we are mainly invested in VTSAX in our US accounts and VUN.TO in our Canadian accounts.

Ok moving on.

Here’s a Simple Rough Guide for an Investing Checklist Without Knowing Anything About You or Your Income:

Keep It Simple

There is so much noise out there when it comes to investing, but when you cut it out, it really boils down to this:

  • Utilize your tax advantaged accounts.
  • Select index funds to diversify and keep costs low.
  • Eliminate bad human decision making by automating as much as possible and rebalancing. (Note that with VBAL and VGRO in Canada and the Target Date Retirement Funds in the States, the rebalancing takes place automatically (similar to robo-advisors) so you can skip that one step with these funds.  However, they do come with a slightly higher fee. If you’re looking for a completely hands off way to invest, this is definitely a good option, especially for beginners.)

I cannot tell you which funds to invest in.  Determining your asset allocation is strictly up to you and your risk tolerance. For most people, I would suggest to be 100% in stock index funds until you are approaching your retirement date. But again, it all depends on your personal goals and your risk tolerance.

Now, I could dive MUCH deeper on this subject but A.) you’re over complicating things in your head, it really isn’t that complicated when it all boils down and B.) we all make mistakes when we’re new – we made tons – you can’t be afraid to start and sit on the sidelines because you want to be 110% sure you’re making the right decision and C.) a legend has already created an extremely long and detailed series on this.

May I introduce you to the Stock Series by Jim Collins.

Please, if you haven’t read this entire series or his book The Simple Path To Wealth (which is based off this series), stop what you’re doing and prioritize this.  I’ve tried to simplify things down as best as I could but he goes into way more detail but the morale of the story is keep things simple.  Invest in low fee index funds (or ETFs) that track the overall market.

I can let you know what we invest in, which we update you with each quarter, but I cannot tell you if you should invest 100% in stocks or 60% in stocks.  I don’t know you and your situation.

My General Guidance:

  • Pay off your debt! LEGIT MURDER YOUR DEBT ASAP! Highest interest gets killed first in my books. No debt snowball nonsense for me.  Kill off that high interest first.
    • I’m ok with with holding on to a mortgage if the rates are low, otherwise I’d say prioritize killing off all other debt.
  • While you are paying off your debt, work on building up an emergency fund of at a bare minimum of 1 month of your expenses and also contribute up to the matching percent of your 401k or Group RRSP if your employer offers a match.
  • Keep your 3-6 month emergency fund in a high interest savings account.
  • If you have any large upcoming payments due in the next 1-5 years (i.e. a down payment for a house), keep those funds within a high interest savings account or another relatively safe account (i.e. money market fund).
  • If you are 5+ years away from retiring, I’d personally be aggressive and invest 100% in stock index funds or ETFs.  Totally depends on your risk tolerance and diversification level.
  • If you are closer to retirement (3-5 years out), I’d reel back in from that 100% allocation to closer to 60% stocks and 40% bonds as you approach retirement. (Some would argue against this and would remain heavy in stocks, but I’m very conservative and want to have bonds to be able to rebalance over to stocks as I enter retirement to help deal with Sequence of Returns Risk – aka a Glide Path.)
  • If you are an early retiree, this 60/40 split has a much lower chance of surviving for 30+ years compared to a 90/10 or 100/0 split and I’d highly recommend reading the Safe Withdrawal Series by Early Retirement Now where Karsten digs WAY further into the numbers on the WHY behind this is true. (This is a VERY long and technical series but a gold mine for safe withdrawal rates.) So for us, within ~5 years of early retirement, we plan to do a Glide Path be back in into 90-100% stock index funds for the long haul.

Here Are Some Things NOT To Do:

  • Hold cash within your retirement accounts
    • You are investing for the LONG HAUL within in these accounts.  Just because you contribute into a retirement account does not mean you’re set.  You need to ensure HOW you are investing within that account.  Opening up the account is the first set but you need to ensure that the cash you shift over to that account (from say your checking account) then gets shifted into something other than cahs aka an index fund or ETF.
  • Stock Picking
    • While it may seem exciting, by investing in individual stocks you are likely to incur additional risk, under performance, and human error compared to just buying and holding an index fund that tracks the overall market.  Sure put 5-10% of your portfolio into individual funds as your “fun money” if you feel the need but I wouldn’t encourage much more than that.
  • Chase Past Performance
    • Past performance does not guarantee future results.  When you chase a fund with a high past performance, you’re essentially buying high after it went up so much in value in the past and now missing out on the fund that likely to go up in the future.  Stop focusing on the past, no one knows what the future will hold and the past is not the proper indicator to try and predict the market or a particular fund.
  • Time The Market
    • Listen up, NO ONE can accurately time the market.  Not you, or me, or the best analysts out there.  Jumping in and out to avoid a market crash or changing strategies due to market fluctuations is likely a very costly decision!I’ve received a ton of messages recently asking “Should I buy now that stocks are on sale?” and the answer is “You should always buy when you have the means to do so, regardless what the market is currently doing”. Ignore the noise.  Make a plan and stick with it.
  • Pay High Fees
    • I know, I know, I have totally harped on this already but I you to remember that a teeny 2% fee could mean almost HALF of your portfolio is gone 40 years from now.  Please let that sink in.
  • Only Thinking About The Short Term
    • It’s so easy to be swayed by short term performance. You may see the market drop by 10% panic and sell everything you have thinking you made the right move. You didn’t. Essentially you did the exact opposite by selling low instead of buying low/selling high. You turned a paper loss into an actual loss.
  • Sitting On The Sidelines
    • Investing may seem like an intimidating and scary monster and because of that, you may opt to delay investing for awhile. While I agree you need to read and do your research, you also cannot sit on the sidelines for your entire life. Someone consistently investing $200/month starting at age 20 would have over $750,000 by the time they turned 65 assuming an average rate of return of 7% (~$108,000 of your own money). If you waited until you were 30, you’d have to invest $420/month for 35 years (~$176,000 of your own money). If you waited until 40, you’d have to invest $935/month for 25 years (~$280,000 of your own money). If you waited until 50, you’d have to invest $2,390/month for 15 years (~$430,000 of your own money).

Ok guys, what did we miss?  After reading this series, Beat the Bank by Larry Bates, The Little Book of Common Sense Investing by John Bogle, the Stock Series by JLCollins or his book The Simple Path to Wealth, AND the Safe Withdrawal Rate series by ERN – what additional questions do you still have? If you have Instagram, check out my friend Jeremy over at Personal Finance Club (with almost 100,000 subscribers) who truly does an amazing job at simplifying investing with easy to understand graphics. Not going to lie, this was exhausting to put together but really hoping it benefits many people out there as this really isn’t covered in exhaustive detail in many other places. Would it be beneficial to have step-by-step screenshots of me opening an account within Vanguard and Questrade to show you how to open an account and place a trade?

If you haven’t already, check out the 7 other parts to the Investing 101 Series:

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10 thoughts on “Investing 101 – Part 8: Putting It All Together”

    1. Court and Nic

      Thanks Chris, appreciate you reading through this even though you aren’t a newbie to investing. Hoping it helps many others out there!

      Reply
  5. Karen

    Thanks for the Investing series! I’m very new to investing. One question, I have a TFSA which I haven’t contributed in the past 3yrs and is within a wealth management company (100%), is it worth it to transfer it to Wealthsimple and trade in ETFs?

    Reply
    1. Court and Nic

      You’re welcome Karen and my apologies for the late response back!

      Likely, yes, it is worthwhile to transfer to a self directed brokerage. I’d check with the company that it’s currently with to see if they charge any sort of fees to leave before making the decision. But once you do, the process can all be handled from the new brokerage side.

      Reply

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