As a new investor (or about to be investor), start with what type of investments you want to make: Mutual Funds, Index Funds and GICs (bank products) or Stocks, Bonds and ETFs (self directed).
If you want to invest only in mutual funds, Index Funds and GICs, all of this can be arranged through your bank account manager (who I recommend you get to know by name and visit at least once a year).
Your banker will be able to help you choose from a selection of funds and GICs your bank offers. Usually you can set up an automatic contribution from your account which basically sets your investments on auto-pilot. A note of warning on mutual funds: the management expense ratio or MERs (the fee your bank takes to manage the mutual funds) can be high compared to other investment options such as buying individual stocks or ETFs. Ask your banker to show you the MERs for each fund you’re considering and calculate what the fee would be on a sample portfolio.
If you want to consider investing in individual stocks, bonds or ETFs, you can have your banker set you up with a direct investing account or a broker. I recommend that everyone have at least a small direct investing account, if only to use it to learn about the stock market.
A direct investing account can be set up in a number of ways; for a new investor, I recommend using your TFSA because any gains will be protected from taxation. Another good option is to set up an RRSP direct investing account (although there are usually annual fees associated with this option).
A few important considerations for self directed investing:
- Take a look at the costs associated with buying and selling stocks. If they seem high, shop around. Another bank or platform may have better rates.
- Before you start actually buying stocks, ETFs, mutual funds, etc. set up a sample portfolio with investopedia or google finance so that you can track the ones you’re interested in.
- Assess your own risk tolerance – how comfortable are you losing money? If you’re not comfortable, pick the safest investments (you may still lose money, just not as much). If you’re completely fine with the potential of losing money, then pick the riskier, high-growth opportunity investments because there is also a chance you could make lots of money.
- Before you walk into your bank account manager’s office, read the bank’s website and get to know the products that they offer. Come prepared with questions (and there are no stupid questions). Your bank will earn money for any bank products you invest in, so make sure you understand them. It’s your banker’s job to make sure that you understand what you’re buying.
Article by Jessica Alen, MeVest Contributor