Heard a good stock tip lately?
You may be chomping at the bit to take advantage of that "sure thing" your neighbour's cousin has been telling you about. But according to money guru Gail Vaz-Oxlade, many Canadians have no business getting into the stock market without getting their financial house in order first.
"One of the problems is we talk about investing as if it's something everybody should do," the author and TV host says. "The average Canadian doesn't even have money in their TFSA [tax-free savings account]. Everybody can't be an investor, people don't know squat.
"You can't became an investor until you become a saver, and if you have money in the bank that you're investing and you're carrying a lot of debt on the other side of your portfolio, you shouldn't be an investor," she says.
In her new book, Money Rules, Ms. Vaz-Oxlade outlines 261 guidelines for "making your money work for you." The book covers everything from budgeting ("#17: Needs must come before wants") to credit cards ("#127: Do not have joint consumer credit") to family (#70: Stop letting your adult children tap your wallet.")
Ms. Vaz-Oxlade has written six books about personal finance issues, and is the star of two hit TV shows, Til Debt Do Us Part and Princess, with a new show premiering this spring called Money Moron. She says there's an appetite for the kind of advice she doles out on the shows because she's talking about the fundamentals of money management, not the "high-flying investor stuff." As well, her TV shows present financial advice in a relatable way.
"What I've come to understand is … people need a mythology to let the important stuff sink through to them," she says. "So by watching other peoples' stories, they recognize themselves."
The people watching her show who are wallowing in debt and fearful about their future have lost track of what money is for, Ms. Vaz-Oxlade says. "We think we can spend the money we haven't earned yet."
"I want you to know that I have a fair amount of money in my bank account, but I live in a little house in Brighton [150 kilometres east of Toronto] and I drive a 2006 Dodge Caravan. … Because I know what money is for. Money is to cover [emergencies], money gives me options, so I can be nimble."
"Instead, what people do is they buy the big house with the granite countertops, they have to have the red-soled high-heeled shoes, they have to have the handbags with somebody else's name printed all over them, because what they're trying to do is peacocking, to impress everyone else. I very often say to people, 'Impress me with the things you can't see, by the debt you don't have, by the big bank account with the emergency fund.' That's how you can impress me."
As for investing, Ms. Vaz-Oxlade says, the first thing you need to do is handle your consumer debt and get some money into an emergency fund. Once you've got that in hand, you need to start learning – about yourself and about how the stock market works. Determine your end goals, how much time you have to achieve those goals and how much risk you can tolerate.
Then, do your research.
"You need to find a course, read a book, follow a blog or three, and learn," she writes in Money Rules. She advocates practising on websites that will allow you to create imaginary stock portfolios, track and trade your investments, and develop some skills as an investor before you dive in.
What you shouldn't do is blindly leave your investments in the hands of a financial adviser, Ms. Vaz-Oxlade says, because, as Rule #7 states, "Your banker is not your friend."
Banks and other financial institutions exist to make money, she writes. Just like car dealerships and electronics retailers "they expect their people to shovel as much product as they can."
You can use a financial adviser to invest your money, says Ms. Vaz-Oxlade, who employs one herself. But just be sure you understand what it is they are selling.
Don't be afraid to ask your financial adviser questions, she adds, and arm yourself with knowledge that helps you to ask the right ones. For example, if he or she shows you the average returns for a particular investment, ask to see the "year-over-year" returns, which will give you a truer representation of a product's performance, she says.
As well, be sure to find a financial adviser whose risk profile matches your own. (See Rule #30, "Even chickens can invest safely.")
"If you say, 'I want to get into equities, but I'm so afraid I will lose my principal,' then you're probably motivated to look into segregated mutual funds and see how they work," Ms. Vaz-Oxlade says.
Segregated funds "look like mutual funds and taste like mutual funds, but the icing on the seg fund cake is the principal guarantee," Ms. Vaz-Oxlade writes. (Segregated funds promise you'll get back 75 to 100 per cent of your capital after 10 years even if the market has tanked.) The management expense ratio is higher with these funds, she says, but MERs are another factor that shouldn't be taken out of context.
"If the MER is 10 per cent and they're getting you 35 per cent, do you care?" she asks.
Later this year, Ms. Vaz-Oxlade will be putting out another book, which she calls the "definitive road map to be financially sound." She says she wants to help arm people with the tools to manage their money to their advantage.
"I want people to stop walking through their life unconscious of what they're doing to themselves. I want them to become conscious."