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Illustration by Melanie Lambrick

One of the truisms of personal finance is that time is an asset when it comes to investing: The earlier you start, the more time your money has to grow. This is true even if you don’t have a lot of money. For one thing, it’s good to get into the habit of putting something aside for the future. For another, even small amounts of savings will reap rewards over the long term.

Of course, when you’re starting small, you’re not going to be signing up for an expensive financial planner or a wealth adviser who only takes on clients with a high net worth. So how do you begin? This guide will walk you through the basics.

Investing is about risk and reward. Investing gains are rarely guaranteed, and that’s the tradeoff you make: recognizing you could lose money.kate monakhova/iStockPhoto / Getty Images

Invest for long-term gains; save for short-term goals

One thing to keep in mind is that there is a difference between saving and investing. Saving simply means putting money aside, whereas investing means you’re using your money (or another asset) to try and earn financial returns. Remember also that investing is about risk and reward. Investing gains are rarely guaranteed, and that’s the tradeoff you make: recognizing you could lose money.

“As a rule, investing is for long-term goals, saving is for short-term goals,” says independent investment consultant Darryl Brown, who defines short-term as within the next five years. The volatility of stock markets means that they’re not the best place to put money you’ll need in the near future. The ideal investing time frame for stocks, says The Globe and Mail’s Rob Carrick, is 10 years or more.

Mr. Brown recommends that people ensure they have an emergency fund: at least six months’ worth of living expenses put aside in a safe and easy-to-access location, such as a high-interest savings account. Once your emergency fund is set up, you can start directing funds into an investment account to start building a long-term investment portfolio.


Look for ‘free money’: Does your employer have a top-up program?

If you have investment top-ups available to you, they’re a good place to focus your initial investment efforts.

For example, many employers offer matching contributions to workplace retirement savings plans. This means that if you sign up for the company pension plan, group registered retirement savings plan or other similar initiative, your employer will put money in alongside your own contributions. Mr. Carrick calls it “free money” and gives one example of a company that pitches in 50 cents for every dollar an employee invests and, remarkably, still struggles to get people to sign up.

Registered education savings plans (RESP) are another example. They are a government savings tool to help families save for their children’s education. Opening and contributing to an RESP gives you access to government grants and top-ups, and the earlier you open these accounts, the longer your money has to grow. Low-income families are eligible for grants even if they aren’t able to contribute their own cash – but they do have to create an account. If you have children, make sure you’re maximizing your benefits from this program.


Make a budget and set up automatic withdrawals

Even if your income is low, it’s a good idea to get into the habit of creating a budget that includes money for investing. The trick is to pay yourself first, what investor Jack Harding defines as treating saving and investing just like your rent or mortgage – an absolute necessity. “I view savings as a non-negotiable and set up automatic withdrawals to avoid temptation,” he says.

Mr. Carrick also views automatic contributions as the key to a successful investing plan. If you save only when you have the money handy, you run the risk of never saving or not saving enough, he says.

Mr. Carrick recommends setting up an automatic transfer from your bank account to your savings or investment account that happens immediately after your paycheque is deposited. He suggests starting with a small amount that’s comfortable – perhaps 10 per cent of your net pay – and increasing the contributions as you can, such as when you get a raise or a higher-paying job. “One of the great benefits of automatic saving is that you never have to think about saving,” he notes. “Saving becomes so routine you may stop noticing that you’re doing it at all.”

If you’re into apps and fun math tricks, you can also sign up for tools like Wealthsimple’s Roundup, which links to your bank account, tracks the purchases you make with your debit or credit card, rounds them up to the nearest dollar and moves the difference into your investments.

As for actual dollar amounts, it depends on your situation and where you want to invest. Some robo-advisers, for example, have no minimum account balance, and will start investing your money with as little as $100 or $1,000. You can also find no-fee high-interest savings accounts to get your nest egg started.


It’s important to be clear about your intentions for investing: What are you trying to achieve, and why?iStockPhoto / Getty Images

How to make an investment plan

If the first step in investing is finding the money, the second is figuring out what to do with it.

It’s important to be clear about your intentions for investing, Mr. Brown says: What are you trying to achieve, and why? This comes alongside understanding the risks that come with investing and how comfortable you are with them.

Mr. Brown suggests creating an investment policy statement, or IPS. You can do this on your own or with the help of a professional. The IPS is your investing road map. It will include things like your objectives, your risk tolerance, your liquidity requirements and any other personal factors. The idea is to create a plan that will help you reach your goals without getting sidetracked.


Look for low-fee investing options (including apps)

“All investors need to be fee-conscious,” Mr. Carrick writes. “The less you pay, the more you keep from the returns generated by your investments.”

When choosing an investment vehicle, it’s important to be clear about what fees are involved, both in buying and selling and in maintaining the account. This is especially pertinent to investors with smaller account balances, for whom a flat fee of $10 for a trade or $25 for account maintenance can really make a dent in the total amount invested.

Mr. Carrick suggests a few options for low-fee investing:

  1. Use an app: Free investing apps such as Wealthsimple Trade and TD Goal Assist, which offer no-cost options.
  2. Go robo: Robo-advisers, which have low overall fees and are friendly to investors with small balances.
  3. Try online: Online brokers such as Questrade and Scotia iTrade, which have no-fee options when buying exchange-traded funds.

Paying investment fees that are too high, Mr. Carrick notes, can eat into your returns to such an extent that you might have to work for years longer to make up the difference, which is why it’s key to be on top of the issue from day one.


DIY is split into two categories: robo-advisers and self-directed investing. Robo-advisers offer a “set it and forget it” approach while self-directed investing involves a lot more hands-on effort.iStockPhoto / Getty Images

Robo-advisers vs. self-directed investing: Pick the investment tool that works for you

As online investing tools have become more common, do-it-yourself investing has turned into an extremely popular option, especially among younger people without a lot of money to invest. Because DIY investing is low-cost, it is ideal for people just starting out.

DIY is basically split into two categories: robo-advisers and self-directed investing.

Robo-advisers offer a “set it and forget it” approach, whereby you create a personal investing profile and start depositing cash and the system chooses what to buy and when.

Self-directed investing, on the other hand, involves a lot more hands-on effort : You set up an account, choose what to buy and when, and make the purchases yourself. While some people do all the research on their own, too, others might hire a for-fee financial adviser to set up a plan for them, or follow a recommended portfolio online.

Another consideration is whether to use something like a tax-free savings account or an RRSP, and if so, which one to choose. In general, investors with lower income are better off focusing on their TFSA, while those in higher income brackets will get more benefit from RRSP contributions.

This is because of differences in income tax treatment. With an RRSP, you get a tax break when you contribute, but have to pay income tax when you pull the money out later, usually during retirement. With a TFSA, you’re contributing with after-tax income, which means no bonus tax refund now – but no tax to pay later. The idea is you want to pay the tax at the time when your income (and tax rate) is lower, which generally means during retirement for those with big salaries, and now for those just starting out.

Remember that TFSAs and RRSPs are investment buckets, not investments per se – you use them as a container to hold the investments you buy.

So what should you buy? It’s tempting to look for the next hot stock or up-and-coming industry. But for most investors, Mr. Carrick says, the best approach is to keep things simple. That means using diversified portfolios with a mix of stocks and bonds or guaranteed investment certificates that reflect your age, your investing needs and your comfort level with the potentially sharp ups and downs of the stock market.

That might still seem complicated, but Mr. Carrick breaks it down to two options that he defines as “easy and easier.”

The first is self-directed investing, as mentioned above. In this case, he suggests using your investment account to purchase an asset allocation ETF, which is a fully diversified portfolio of stocks, bonds and, occasionally, a dash of cryptocurrency. This is a low-cost, all-in-one option – you only need to buy one thing and all the diversification is built in. “A lifetime’s successful investing could easily be based on pouring money into a balanced ETF for several decades,” Mr. Carrick says.

The even easier option, he adds, is to sign up with a robo-adviser. They cost slightly more than self-directed investing, but that’s because they offer additional value to you in terms of support and guidance. Robo-advisers will also put your money into a diversified portfolio of ETFs (and occasionally other kinds of investments) that are chosen based on your personal investing profile.


The bottom line
Get started investing
  1. Pick a low-fee investing platform such as a self-directed investing account or a robo-adviser.
  2. Set up automated contributions from your bank account into your investing account.
  3. Use the funds you deposit to purchase a diversified portfolio that meets your risk tolerance and other needs.