The smart way to invest in 2018

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I thought investing was about being smart or good at math...

This post pays respect to the best method of investing I know. You see, one of the biggest misconceptions I used to have about investing was that you needed to be really smart or good at math to make money appear in your bank account. I've since learned that this is simply not the case.

For a long time, I also believed that I needed a large amount of money to start investing (like.. an impossible cycle to start), this I've now learned, was also not true.

Over the years I've learned that picking individual stocks, while exciting, is just extremely hard to repeat over the long term. Moreover, paying fund managers to invest my money for me racks up management fees. I used to justify these fees by thinking "well I'm a professional at my job, I should hire one for my money", but if you look at the statistics, fund managers don't perform all that well compared to the market index. For years I did a combination of these 2 forms of investments, stock picking and mutual funds. That was until I discovered Indexing.

Index Investing

This method is for people who want to be investing, but don't want it to dominate their every waking second. They understand the market will grow their money, but don't have time to sit at their computer and pour over spreadsheets and news articles to form in-depth analysis on what to buy or sell to beat the market. While they continue building savings, they just want to start growing their money in an easy way.

[][[0Below I summarize the three options recommended by a fantastic resource: The Canadian Couch Potato by Dan Bortolotti (read more). 

I personally invest through Option 1 and 3, while my wife invests through Option 2 (currently).
 

As always, I'm only documenting things I'm actually doing personally - there are many other options out there, I encourage you to research thoroughly before deciding what's best for you.

Option 1

Tangerine Investment Funds

The simplest way to get started with indexing is with one of the Tangerine Investment Funds, which are available online. What I personally like most is that it is modern, easy to use and most importantly there are no account fees, no minimum account sizes and once you’re set up the funds are virtually maintenance-free. I personally have accounts with Tangerine and would like to extend to you a free cash bonus if you decide to sign up, use my personal orange key for the bonus: 53997765S1

Consider the Tangerine funds if:

  • you're looking for a no-brainer way to get started growing your money
  • you’re looking for a simple solution for an RRSP or TFSA account
  • your portfolio is relatively small (< $50,000)
  • you make automatic monthly contributions from your bank account
  • you want to buy a single fund that is rebalanced automatically for you
  • you don’t want to be bothered with opening a discount brokerage account

How I invest:

 

Option 2

TD e-Series Funds

If you're looking for even lower fees, consider TD’s e-Series funds. My wife invests with these funds and says you can customize your portfolio with any asset allocation. They are ideal for the investor who wants slightly more convenience than ETFs with lower fees than Option 1. However, it's important to note for non-TD customers, the e-Series funds are only available through an online account with TD Canada Trust or a TD Direct Investing discount brokerage account. I personally bank with TD but do not invest in these funds myself, however as mentioned above, my wife uses them and enjoys the experience so far.

Consider the TD e-Series funds if:

  • your household accounts with TD are atleast $15,000 (annual fees may apply on smaller RRSP balances (avoided with automatic contributions)
  • you like the convenience of mutual funds but want more flexibility
  • you are comfortable using a discount brokerage to place mutual fund orders
  • you make automatic monthly contributions from your bank account
  • you are willing to rebalance your portfolio every year or so

How I invest:

 

Option 3:

Exchange-Traded Funds (ETFs)

What I love the most about ETFs, is that they offer extremely low management fees and a much greater variety than index mutual funds. But, because they are traded on an exchange, you will need to buy and sell them through a brokerage which will typically charge $10 as commission (less feasible for investors making frequent small trades.) Therefore, I've found a brokerage that makes trading ETFs commission-free, virtually eliminating all costs with this option.

For this and other reasons, I personally use Questrade for buying my ETFs. As a Questrade customer, I do recommend the brokerage if you are comfortable buying and selling using a trading interface (I taught myself through videos).

If you decide to sign up, I offer you my QPASS which will help you start your investing with some extra cash. Use QPASS: 875617536418577

Via Canadian Couch Potato: the three largest ETF providers in Canada are iSharesBMO and Vanguard which all have a range of low-cost products that are suitable for building Indexing portfolios. With such a wide range, I follow the suggested 3 fund portfolio maximizing my diversification and returns (button below)

Consider ETFs if:

  • your portfolio is at least $50,000 or so (or through a zero-commission brokerage like Questrade)
  • you are comfortable using a discount brokerage to trade on stock exchanges
  • you have the discipline to keep trading to a minimum
  • you have multiple accounts (RRSPs, TFSAs, non-registered) and want the greatest flexibility when it comes to tax-efficiency
  • you are willing to rebalance your portfolio every year or so

How I invest:

 

If you would like more information on why this method works, check out these FAQs here.

 

Also check out the Canadian Couch Potato, a fantastic resource for index investing.

 
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Benjamin GardenComment