Intro to investing in Canada (1/3)

At some point in our financial journey, we needed to be faced with this hard conversation: how to start investing and where do we begin. Having a savings account and a good discipline isn’t enough. It’s crucial to ease our cash into the stock market and be proactive about it.



Although my journey led me to make better financial decisions than before, I’m not a financial advisor and nor I hold enough information to give real investment advices. If you’d like more competent advice, consulting a licensed professional financial advisor would be a good idea.

Let’s look at the benefits of investing your money. Saving and investing will allow you to feel more secure about your future. You can set up a monthly deposit to your investment accounts and feel less stressed about retirement. Knowing that you’re in control of your finances will reduce the guilt when you have to go through major spending. Also, unlike a savings account, you can rest assured that your money will growing more than inflation each year.

We all have a unique relationship with money. Some people may be scared of it, resent it, feel trapped by it, or not understand it. Other people may be happy to receive it, spend it, love it or bathe in it. The journey of investing your money to make it grow would be much easier if you have a positive relationship with money. Being scared or resenting money will only add frustration and hesitation in the process. So, before investing, make sure you’ve made your peace with money. Keep in mind that it’s not just a tool, it’s a friend that would bring you positivity and support to your life.

If you’re in a couple, I’d advice reading The 5 money personalities: speaking the same love and money language by Scott Palmer. It’s a refreshing book that pinpoints money behaviors in your household. Perhaps, one person is ready to take more risks and invest whereas the other one would like to remain on the conservative side. Make sure you can have open and judgment-free conversations so you can align your goals. This book will help you deal with money taboos and clarify your financial future together.

So, where do we begin?

First, can you afford to invest?

The very first step before looking at investments is to understand if you can realistically afford it. Are you aware of how much goes in and out of your bank account? Do you live from paycheck to paycheck? How much do you have left after you’ve paid for your rent, mortgage, bills, groceries, internet, electricity, clothing, etc.

Make a list of your assets (cash, savings, investments, jewelry, vehicle, upcoming inheritance…) and your liabilities (debt, loans, mortgage…). List your income (salary, side hustle, child support…) and expenses (food, rent, electricity & phone bills, groceries, travel, gym membership, subscriptions…). Now, is the outcome positive or negative?

If you need help organizing your monthly bills, take a look at this budget planner. It helps you take control over your finances. You can thus stay on track by writing down your monthly financial goals and create you budget to achieve your savings goals. The elegant colors and the funny stickers will add some fun to your budgeting journey!

After sorting out your budget, make sure to have an emergency fund. This means that you should set an accessible account that can sustain you for 3-6 months in case you lose your job. If you have a positive cashflow and a proper emergency fund, you can start investing. Otherwise, you shouldn’t risk investing money that you may need for your living expenses.

What if you have debts?

If you’re currently in debt, you’re not alone. According to this book by Jerrold Munis, How to get out of debt, stay out of debt and live prosperously, 66 million Americans are in the same boat. It’s a practical guide that explains how to cope with the negative feelings and pressures from the financial burden and how to negotiate with collection agencies. It also helps you with a financial plan to rid yourself of debt once and for all.

Before investing, make sure to pay off your highest interest debt first while continuing to pay the other debts. Avoid taking more credit cards to pay off debt, avoid borrowing more money and try to live within your means. It is possible to invest some money while being in debt but be mindful of the math. Make sure that you can afford reimbursing your debt if you allocate money to your investment fund. Use your budget planner to determine whether now is a good time for you to start investing.

Reasons why your investments fail

Most people think they don’t need to invest because they believe they are good savers, so they stay within their comfort zone. People might perceive investing money as gambling at the lottery and they fear losing their hard-earned money. They might fear losing control over their finances altogether and regret their decisions. They might listen to advice from well-intentioned family members or friends that aren’t financial experts and blindly buy some stocks. They may sell at the wrong moment in a panic because they are poorly informed.

What we need to accept is that no one is in full control of the stock market. No one can make accurate predictions consistently. It takes time and practice to familiarize ourselves with the concept and the riskier the investment, the more time and practice we need.

Set a goal for your investments

Putting money aside is more fun when you can look forward to your reward. You’re basically not spending your money now so you can enjoy reaching your goal later. First, define why you’d like a big sum of money. Are you saving and investing for vacation, a down payment or retirement? What’s your timeline or deadline? Is it a long-term or intermediate-term goal? It also helps to write down your goal and hang it somewhere visible to keep you disciplined and focused.

Be realistic and precise in defining your goal. You should save money but don’t live miserably in the meantime. Start by breaking down much you can afford to save per month in order to attain your goal and talk to your bank to set up an automatic deposit. Usually people save and invest 10-15% of their monthly income. If you happen to have extra money from gifts, tax refunds etc. make sure to save it.

The Joys of Compounding

Gautam Baid is a portfolio manager who wrote this book to explain the fundamentals about investment rules. Compounding is the reason why people should invest rather than simply save. When you open a savings account, you get simple interest, which is calculated on the principal (the original amount you have in your bank account). When you start investing, you get compound interest, which is calculated based on the principal AND on the cumulated interests. You end up with more money since you get interests on previous interest. Over time, if you invest on a regular basis and with larger sums of money, this will make your money grow way faster than if you let your money in a savings account.

What’s your risk tolerance?

The stock market is somewhat a volatile platform. It means that someday you win and someday you lose. Knowing how you can handle the feeling of losing versus the reward of winning will define the profile of your portfolio. In other terms, how aggressively would you like to invest. Stocks tend to be more volatile than bonds. If you’re young and would like to invest aggressively, choose 80% stocks and 20% bonds. If you’re more conservative and risk averse, choose 60% stocks and 40% bonds.

When you meet a financial advisor at a bank to set up your investment account, they will give you a short quiz. It’s a simple method to define your risk tolerance. Whichever way you decide to invest, don’t invest in things you do not understand and pick a trusting advisor.

Now let’s pick your platform

Most people invest their money through a bank. Banks offer convenient services tailored to the customers’ goals. All you need to do is book an appointment with a financial advisor and they’ll be happy to introduce you to all their investment-related services. Make sure you go to your appointment with your list of goals and timeline. Communicate your doubts and worries about risking your money and ask as many questions as you want. There’s no rush so read all the fine prints before signing up and take your time to read through all the paperwork. Remain skeptical when they offer you cash for opening a certain account. Don’t forget that they may get commissions if they get you to sign up through a certain service even if you do not need it.

In Canada, I opened a TFSA investment account at TD bank and Tangerine. Both of them have similar rates. TD bank has lots of ATM around the city, which is convenient when you need cash, and I enjoy Tangerine’s friendly online platform and I like how they break down your spending categories, so you know where you money goes.

Banks will usually pick your stocks and bonds for you. You don’t have to do the research or get involved in the process. You can set up an automatic transfer from your checking account to your investment accounts and the magic happens on its own. The MER (management expense fee) is slightly lower for Tangerine but TD bank seems to have access to a larger variety of stocks. Do not hesitate to shop around for banks and different options. Going to a bank is the simplest one for the most beginner investor. If you’d like to learn more about the different types of investments and have more control over where your money goes, check out the next article on the different types of investments!

If you’d like to sign up with Tangerine, here’s my orange key. It’s a referral code from my profile. If you input it when you open your account, we will both get $100!

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In conclusion, smart investments in the stock market will bring you a step closer to financial wealth because of the compounding effect. Saving money in a savings account isn’t enough because inflation grows faster than the interests you receive each year. Get ready to invest your money by making sure you can afford it and take control over your budget. If possible, try to reduce as much debt as possible. Investing money can fail if you listen to poorly informed people so make sure you invest in what you understand. Set realistic long-term and intermediate goals and be precise with your deadlines. The easiest way to invest as a beginner is to look for a bank with investment accounts and services. Take an appointment with a financial advisor and s/he will help you familiarize yourself with your risk profile and set up a portfolio that fits your goal.