A little research goes a long way for burgeoning investorsAlexRaths/Getty Images/iStockphoto
Jordann Brown's financial wake-up-call came in the form of a letter from the National Student Loan Service Centre. She had graduated with a bachelor of commerce degree in 2011 and the letter outlined what four years of tuition, rent and school supplies had cost her. It wasn't a pretty sight.
"I didn't live an extravagant life and I worked every summer, but I still managed to accumulate $38,000 in student loan debt," says Ms. Brown, now 26 and a marketing manager living in Halifax.
After the initial shock wore off, Ms. Brown was confronted with the reality that her small starting salary would barely cover it.
"I could afford my minimum monthly payments and living expenses, but not much else," says Ms. Brown. "I remember wondering how on earth I was going to be able to afford to get married, to save for a house or to travel when I could barely make my minimum debt payments."
In those stressful days, retirement was the last thing on Ms. Brown's mind. But through some serious discipline, research and smart financial moves, she's gone from being $38,000 in debt to having a net worth of the same amount. That includes about $12,000 in a registered retirement savings plan (RRSP), a $10,000 emergency fund in a tax-free savings account (TFSA) and a $14,000 "house fund." (Ms. Brown has chronicled her journey from debtor to investor on her blog, My Alternate Life.)
"I love the symmetry here: Four years ago I had $38,000 in debt, now I have $38,000 in savings," says Ms. Brown. "You can go far in four years when you put your mind to it."
The stereotype of the investor might go something like this: Wealthy, older, debt-free, someone with a great deal of financial expertise. But as Jordann Brown's story illustrates, anyone can be an investor if they put in the effort.
Many Canadians don't feel like they are the type of person who invests. According to the 2015 BlackRock Canada Investor Pulse survey, which asked 2,000 Canadians between 25 and 74 their thoughts on their financial futures, only 44 per cent of respondents would agree that, "Investing is for people like me." The survey also revealed that 51 per cent of the respondents felt that investing is akin to gambling.
Jane Rooney, the financial literacy leader of Canada, acknowledges that investing can be complex and often has risks. "But with knowledge, you can better understand the risks of the products, your own risk profile, and choose an option that best suits your situation," she says.
"A good place to start is to learn about the main types of investments and about the key characteristics of investments – their return, risk and liquidity. A good grasp of the basics of investments can make it easier to set appropriate investing goals, to work with a financial professional and to keep your money safe from investment scams."
Ms. Rooney points potential investors to the Financial Consumer Agency of Canada (FCAC) Investing Module within Your Financial Toolkit as a good starting point to find information about investing.
Karrie Van Belle, managing director at BlackRock Asset Management Canada Limited, said she finds it surprising that so many Canadians would equate investing with gambling, but that this attitude is reflected in Canadians' tendency to hold a large amount of cash in their portfolio. According to the Investor Pulse survey, Canadians reported having 60 per cent of their total investments/savings in cash and cash products.
"What we see is that Canadians continue to hold high levels of cash in their portfolios because of the perceived comfort and security that cash brings," she says. "But given historically low interest rates and the impact of inflation, holding that much cash in their portfolios simply won't help them reach their long-term retirement investment goals."
Ms. Van Belle suggests that investors consider an exchange-traded fund (ETF), an investment fund that is diversified like a mutual fund but trades on an exchange like a stock for greater flexibility.
"ETFs are a great place for many Canadians to get started with investing," says Ms. Van Belle. "In particular, looking to a set of low-cost building blocks, like the iShares Core funds, can be a starting point to help establish a well-diversified foundation of a portfolio to help meet their individual needs."
Robb Engen is one half of the blogging team on the widely-read Canadian personal finance blog Boomer & Echo, and he started investing at age 19 – before TFSAs and ETFs were viable choices. Mr. Engen agrees that ETFs can be a great choice for the new investor.
"ETFs are great because a broad-based, low-cost ETF is potentially going to save you money over the long term and the data shows that the only real predictor of your future returns is low cost," he says.
Mr. Engen suggests that individuals who have never considered their investment options before should first establish what and when they will need money for in the future.
"If you're going to invest, you want to think about when you will need that money," he says. Retirement may not be the event you need to save for right away, perhaps it's paying off school debt or buying real estate, "and that's okay," says Mr. Engen.
The next step is to do some online research and see what options are out there and what works best for your budget, financial goals and flexibility. A financial adviser can be an integral part of this learning process for some investors, while others will choose the "do-it-yourself" route favoured by Jordann Brown.
Ms. Rooney agrees that research and financial literacy can help people realize that investing isn't just for others, that it can be a part of their financial plan too.
"The very definition of financial literacy, which is to have the knowledge, skills and confidence to make the right financial decisions for your own situation, speaks to this," she says. "When consumers feel that they have the information they need to make a financial decision that is right for them, it increases their confidence."