It’s a Wednesday evening and I’m out meeting with a young couple in their mid 30’s. The discussion turns to what they currently have in assets, but more specifically, what they currently have in investments.
“We each have an RRSP with about $10,000 in each of our accounts,” the wife says.
I simply ask, “Do you know what your RRSP accounts are invested in?”
*raised eyebrows* *couple looks at each other* *shrugs*
The husband speaks up… “Ummmm, I think it could be high-interest? No wait, maybe it’s high-risk? Actually, I don’t know. It’s been so long since I’ve looked at that stuff.”
I have different variations of this conversation all the time! Our parents’ generation isn’t perfect by any means, but us millennials are often unsure of what to do when it comes to investing.
In a recent Facebook study titled “Millenials and Money,” it states that only 33% of millennials are happy with the way they are saving and investing. The study also determined that 53% of millennials have no one they trust for financial guidance.
What is the end result? Well, I think many of us simply freeze and do nothing. This turns into missing out on months or even years of opportunity to begin growing wealth and taking advantage of that beautiful thing we call compound interest.
It’s not as complicated as you might think
You may be thinking that investing has to take a lot of time and should also require you to be keeping up with the market news… also known as investor pornography.
Or maybe you think it’s best to read a half a dozen money books so you can become a savvy investor and be as prepared for the markets ups and down.
Absolutely not, forget all of that!
Here are 3 things to do...
Just Get Started!
It’s SO easy to get started in investing thanks to the power of the Internet and technology!
While there are mutual funds that have minimums that you need to have to invest, and plenty of stocks with share prices in the thousands, there are many affordable options — and they’re not just for new investors either.
I often recommend looking into one of the “robo-advisor” platforms that specialize in offering low-cost ETF (exchange traded fund) portfolios. There are about a dozen or so of them in Canada, and if you’re just starting out with investing I would suggest looking into WealthSimple.
You can open up an investment account in less than 10 minutes. All of the documents are signed electronically and you will be asked a series of questions to find an investment portfolio that is matched to your savings goals, your tolerance for risk, and your time horizon.
Getting started in investing has never been easier. Just make it happen!
Contribute to Your Retirement Accounts
First things first, if you work for an employer that offers an employee matching program, take FULL advantage of this program… not partially… FULLY. Every program is a bit different, but often an employer will match 50% of your contributions up to 4-6% of your salary. By not taking advantage of this you’re leaving free money on the table. Don’t leave free money on the table!
If you’re not privy to a program like this, you can open your own RRSP and/or TFSA account (via WealthSimple, for example) and begin making contributions on an automated schedule.
If you’re not sure what account type would be best, I would stick with an RRSP account. Your contributions will be deducted from your total income at the end of the year and you may be eligible for a tax refund (depending on your overall tax situation for the year). If and when you get that refund, I highly suggest you put it right into your RRSP.
An RRSP tax refund isn’t free government money… Trudeau isn’t gifting you a cheque to go away on an all-inclusive vacation. This refund was simply your money and the government is returning some of it to you because you paid too much in taxes.
Time is On Your Side
You become wealthier as an older person because you started investing as a not-so-wealthy younger person. A huge mistake I see all the time is the idea of waiting until you have “made it”. This just means you’ll never begin or you will begin way too late.
If you’re in your 20’s, 30’s or in some cases even your 40’s, there is a long period of time between where you’re at today and the time where you will actually need your nest egg for retirement.
With that being said, in order for you to take advantage of compounding interest, you should get started with investing as soon as possible.
The early years of compounding growth aren’t exciting and can often feel like you're not making huge progress. However, down the road it will become more exciting to see your nest egg grow year over year as you get closer to retirement.
The great thing about having a long time horizon between now and retirement is that it will help reduce the overall impact that market volatility has on your investments. With the right investment behaviours you can ride out the down markets and keep charging forward while the markets are up.
Happy investing! If you have questions feel free to drop me an email!