Listen up Gen Z: How to invest as young person
Types of investment services available in Canada – a comparative chart
If you’re ready to take the plunge to start investing, here’s a breakdown of the three most popular options: self-directed investing, using a robo-advisor, and hiring a financial advisor.
|self-directed||Robo Advisor||financial advisor|
|Financial knowledge required||Intermediate to advanced||None required||None required|
|Minimum quantity required||~$5,000 to $25,000||$0 to $5,000||$1,000,000+|
|fees||Trading: $0 to $9.99 Annual: $0 to $125 Admin Expense Ratio: ~0.30% to 1% but can go up to 2% †||0.4% to 0.8%||• Hourly rate from $250 to $500 • Flat fee from $1,500 to $5,000 for one plan • Fees from 2.0% to 2.5% of assets|
|Use of Registered Accounts||Yes||Yes||Yes|
|portfolio||you create||Algorithm-based structure||Man creates and manages|
|Human interaction and customer service||none||Rarely||Always|
† Fees may also depend on the type of investment products purchased; for example 0% for stocks and up to 2% for mutual funds.
On the way of the DIY investor
With do-it-yourself investing, you take responsibility for your wealth by doing it yourself. DIY investing involves using an online broker. Here are the pros and cons of this type of investment.
- You can be in the driver’s seat of your investment choices if you understand risk and have a solid foundation of investment knowledge.
- You can take advantage of the lowest fees available on the market.
- A major disadvantage is that you will not get professional advice to help you achieve your financial goals.
- You need to keep your emotions in check, especially when the market is going down.
- You also need to be careful about trading frequently or tinkering too much as these transaction fees can come your way.
Where to find an online broker: Here are the best brokers in Canada. Looking for model portfolios? Also check out the Canadian Couch Potato.
High tech with a robo advisor
A robo advisor allows you to make investments without having to manage them, without the higher fees typically associated with hiring a professional advisor. Here are the pros and cons.
- You can get started with your investments and let the technology do it for you.
- It’s a great option for young investors who may not yet have acquired basic investment knowledge.
- Some robo-advisors don’t have a minimum amount to open an account, but some charge anywhere from $1,000 to $5,000.
- Fees on a robo advisor are a bit higher compared to what home improvement online brokers use, but they are cheaper than a financial advisor.
- ‘Cause it’s a laissez faire approach, you don’t have much control over which funds your money is invested in.
- Typically there is a select number of model portfolios to choose from and not much customization.
- Generally, you don’t have access to a human with a robo-advisor, but some platforms offer a hybrid model where you can talk to someone at certain times. Find out what access you’re comfortable with and choose accordingly.
Where to find a robo advisor: Here are the best robo advisors in Canada.
Find the right financial advisor
If you think you would benefit most from having a professional to speak to or meet in person, you should consider a qualified financial advisor. They have the training and experience to take a closer look at your investments than robo advisors or online brokers. But here are the pros and cons for consultants.
- You can manage complicated financial situations with specific goals, e.g. B. receive an inheritance.
- You have the opportunity to ask questions about your investments. They can also affect the investments you hold in your portfolio.
- You can react to the markets and the economy when you need them too. When the market falls behind, they help you stay on top of your financial goals and avoid panic selling.
- Because they offer very personalized advice, their fees are higher than choosing a robo advisor or an online broker.
- They typically take on wealthy clients, so hiring an advisor may be out of reach for some Canadians. Some consultants may have minimum investments of $250,000 or more. A fee-based advisor is an option, but is generally limited to financial planning and “investment strategy” and therefore cannot advise you on the purchase or sale of specific securities.
Where to find: Use MoneySense’s Find A Qualified Advisor tool to find a list of certified advisors. Consider these questions to ask when choosing a financial advisor.
What are the risks for young investors?
Are you the type of person who doesn’t like it when the value of your portfolio goes down? Or are you someone who doesn’t bat an eyelid when your portfolio falls by as much as 34%? Do you remember March 2020?
Well, if you’re just starting out and are getting your feet wet, it wouldn’t hurt to take a more conservative approach, which means making lower-risk investments like Guaranteed Investment Certificates (GICs). Or you might choose to be more aggressive as you have decades ahead of you and want to add riskier but higher-yielding assets like stocks to your portfolio.
Bonds and GICs tend to be on the safer side, while stocks are more volatile, meaning the ups and downs could be worrying for investors. Stock investors usually have to have a long time horizon. Anyway, in general, a good strategy is to have a mix of stocks and bonds to balance your risk. Having lots of eggs in lots of baskets helps diversify, so any impact is mitigated and doesn’t affect your bottom line.
4 questions young investors often ask themselves
- Should I Buy Dividend Stocks?
Personally, I’m a big fan of dividend stocks because it’s a predictable way to generate income. Put simply, dividends are regular distributions of profits to shareholders. Let’s say you own Canadian bank stocks. Each quarter you would receive an amount of money per share you own. You can also sign up for a Dividend Reinvestment Plan (DRIP), which takes those dividends and reinvests them by buying additional shares of the same company. Some enthusiasts keep track of their dividend income and take time to grow it. Some have the goal of living off their dividends in retirement.
- Should I buy bonds?
Traditionally, bonds have been a low-risk investment because they tend to yield lower returns than stocks. While bonds have not shown stellar results in recent years due to rate hikes (bonds fall when rates rise), that shouldn’t discourage investors from adding them to their portfolios. Over the long term, bonds help minimize risk and provide stability when the market goes through a downturn. In addition, interest rates are now more attractive.
- Are mutual funds good for me?
Mutual funds have been popular with investors for decades. The good thing is that a mutual fund can hold many companies in one fund. However, since index funds and exchange-traded funds (ETFs) came along, it means you can buy very similar diversified funds, but at a fraction of the cost. Because of this, mutual funds have gotten a bad rap lately, as they are known to have high fees that may not bring much return to the investor. Active mutual funds’ fees are generally higher than index funds and ETFs because they require a larger team and more research into which stocks to buy and sell than a passive option. If you’re looking for diversification and an easy way to invest in ETFs, a good solution is to consider all-in-one ETFs.
- Are REITs worth it?
A real estate investment trust (REIT) is a company that owns and can operate income-producing real estate or real estate-related assets. There are some advantages when it comes to owning a REIT. First, it gives you access to invest in the real estate market without having to own physical property. Second, it offers a low barrier to entry as it requires significantly less cash since you are one of many investors owning the property. After all, this type of investment is a much more practical approach compared to a landlord or real estate agent. REITs can also provide diversification and help reduce overall risk.
Investing is a lifelong journey
Everyone’s investment journey is unique. Just because something works for a close friend, family member, or “influencer” doesn’t mean it’s best for you. Choose the path that makes sense for your financial needs and current situation.
Once you get started, investing can be an important part of growing your net worth and funding the lifestyle you want. Find out more about stock investing from blogs, podcasts, YouTube and TikTok videos, but make sure they come from reputable sources. Once you know the basics of investing, it’s easier than you think!