At 16, the age many teens learn to drive, Jordan Donich wanted to pick up an entirely different kind of skill: Investing.
Now a thirtysomething Toronto lawyer with his own firm, Donich Law, he says he's happy that his stepmother opened a trading account for him the moment he showed interest.
That early experience let Mr. Donich dabble in the world of stocks, bonds, diversification and compound interest. And because he was still so young – with a long time horizon stretching out in front of him – he could take risks he might not be as comfortable with now.
If one or two investment decisions blew up? Oh well. He could brush himself off and try again.
"The good thing about starting young is you make all the mistakes at the best time," he says. "It's better you do that when you have less money because you have more time to recover."
Jason Abbott, a financial planner and investment advisor with WEALTHdesigns.ca Inc., in Toronto, agrees that making investing mistakes at the beginning is not only common, but a right of passage for particularly savvy investors.
"If you're in your 20s, don't be afraid to screw up! Everyone is going to make mistakes. Learn from them," says Mr. Abbott.
But Douglas Boneparth, a 32-year-old certified financial planner, isn't so sure. The author of The Millennial Money Fix: What You Need To Know About Budgeting, Debt and Finding Financial Freedom, and founder of Bone Fide Wealth LLC, a New York firm specializing in millennial clients, says even younger investors should try to avoid errors if they can. With sky-high mortgages, looming student debt and other expenses, young people simply don't have money to play with. Every dollar counts.
"When we make mistakes, they have a much bigger impact on our finances and future than they had on generations before us," he explains.
Luckily there are ways to avoid rookie moves. Here are five mistakes to learn from so you don't eventually make them yourself.
Blunder No. 1: You're just not ready
This is one of the most common errors Mr. Boneparth says he sees in his office. A new client is ready to jump into the market before he or she really should. He calls it, "investing before they have the right to invest."
Maybe they still have debt they need to pay off first. Earning 7 per cent interest on an exchange-traded fund is obviously a mistake if they're shelling out 21-per-cent interest on credit-card debt.
Then there's cash. Maybe it sounds boring, but building a cash reserve to cover between three and six months' worth of expenses is still important, he says. Do that before dabbling in the stock market because that emergency fund is, literally, money in the bank – and insurance against stormy economic times.
Blunder No. 2: You choose the wrong reason to invest
Ask yourself why you want to invest while you still have a student loan looming or you're two paycheques away from being flat broke. Mr. Boneparth says some millennials succumb to peer pressure to invest.
"I get it. Investments are sexy. They really are," he says. "You're not going to a party and talking about life insurance."
Instead of diving in, decide why you want to invest in the first place. What are you hoping to achieve? To build retirement income through a registered retirement savings plan (RRSP) and access the money to pay for your mortgage down payment through the government's home buyer's plan? That's a good reason. Buying stocks because you think it sounds exciting is not.
Blunder No. 3: You think investing is evil
Sure, after watching the stock markets implode twice in the past 20 years – thank you, dot-com crash and the more recent financial crisis – young people might be hesitant to invest in the stock market at all. One 2016 study showed that in the United States, at least, 85 per cent of millennials call themselves conservative investors and 82 per cent said the 2007 financial crisis was to blame.
Others worry that their hard-earned dollars invested in a mutual fund or ETF could wind up funding a corporation to which they're ethically opposed.
Fortunately there are plenty of options for conscious consumers who want to invest in companies with a good environmental, social and governance (ESG) track record. Millennial investors are leading the charge with 65 per cent more likely than aging boomers to let ESG considerations guide them, according to the Responsible Investment Association.
One option? Find funds such as iShares Jantzi Social Index Fund (XEN) which excludes companies involved in military funding and tobacco, among others.
Blunder No. 4: You don't reinvest your tax refund
Got a tax refund? While it's tempting to use it to pay for bills or a trip to see the parents, resist. Reinvest that money instead. Because you have time on your side, that money will grow and be there for you later.
Take $1,700 – the average Canadian tax refund – and invest it for 30 years in an ETF that earns a reasonable 6 per cent, and it will be worth $10,238.38 if the interest is compounded monthly. That's more than $8,500 in do-nothing-but-wait interest.
Blunder No. 5: You spend way too much time tweaking
Just starting your first job? Concentrate on building your career – not trying to make a mint in the stock market, cautions Mr. Abbott. The more training, experience and connections you make leads to a better career trajectory with higher earning potential long-term.
But that doesn't mean you can't invest, too – once you're ready. In fact, waiting too long can have serious repercussions on your long-term financial goals because you're missing out on the power of compounding interest over time.
Rather than wasting time poring over stock reports and fund records each day, however, take a passive approach to building your portfolio, Mr. Abbott explains. Only look at your investment reports twice a year.
Still spooked? Start with a $500 initial investment and then make automatic $100 weekly payments. If you earn 7 per cent, that's $533,897 in 30 years. No fancy stock broker or DIY trades required.
"Don't pick stocks. It's a fool's game," Mr. Abbott says before recommending a robo-advisor for investors just starting out. "Investing should be on autopilot at this stage."