Introducing Patrick Bousfield, rookie RRSP investor.
Mr. Bousfield, 26, is a young adult who is doing all the right things with his money. Since starting his career in November, 2009, he's been paying off his debts and building an emergency fund. A $12,500 bonus received late last year went into a registered retirement savings plan.
Now, he's stuck. His RRSP money is idling in an online savings account earning just 2 per cent. He knows he needs a long-term investing approach that will produce higher returns, but he's not sure what to do. His indecision prompted an e-mail to me earlier this week asking for suggestions.
Glad to oblige. What follows is the first instalment of a two-part package on getting started as an investor. Part One looks at the right investments, and Part Two next week will cover the best online brokers for newbies.
Let's get to know Mr. Bousfield a bit in order to get him on the right track for investing. Here's an edited transcript of a recent conversation that I had with him about investing:
How would you describe your investing knowledge level?
It's increasing every day, but it started from not even knowing what an RRSP meant. On a scale of one to 10, I went from zero to a four now.
Have you thought about whether you want to invest on your own, or use an adviser?
I want to do it on my own. I'd rather see if I can give it a go until I get to a certain amount, and then go to an adviser. I think that with such a small amount in my account, I'm going to get killed with fees without getting any real benefit out of it.
Have you asked family and friends for help?
I've tried to ask family members, but It's an awkward subject to bring up. Everyone has an opinion and they're not really looking at it from my perspective as someone just starting out.
How do you feel about the risk of losing money by investing in stocks?
My generation is terrified of it. But I am definitely not afraid of it. I know there are going to be times when I'm going to take a loss.
You mentioned in your e-mail that you've been looking at index mutual funds and exchange-traded funds. Why not mutual funds?
Based on all the articles I've read, it seems like it makes sense to stay far away from mutual funds because of the management expense ratios. What I've found with mutual funds is that you have to watch the fees.
How much do you plan to contribute to your RRSP every year?
I want to max it out as much as I can.
Do you see yourself contributing every month or in a lump sum once per year?
I was thinking that at the end of the year I would throw whatever I can into my RRSP. But it makes sense to contribute every month. I'm already taking 10 per cent [of my paycheque]and throwing it into an emergency fund. Once I get that built up, I'll move the money over to my RRSP.
Are you comfortable with the idea of buying and selling investments through an online broker?
Absolutely. I much prefer doing it online.
Mr. Bousfield's own short list of investing options included the Streetwise index fund portfolios from online bank ING Direct, and ETFs. I suggested he add the e-series of index funds from Toronto-Dominion Bank's mutual fund division to his short list.
Name: Patrick Bousfield
Employment: Works for a reinsurance broker (insurers insuring insurers)
Education: Graduated 2008 from the University of Western Ontario with a four-year undergrad degree in political science and economics
Debts: Student loans and unsecured line of credit
Assets: A small but growing emergency fund and a registered retirement savings plan of $12,500
Housing: Renting an apartment in downtown Toronto
How he got started with retirement saving: "I got my first-ever bonus and instead of spending it, I put it directly into an RRSP account."