I wrote a column recently on how people can approach RRSP investing at a time when the markets are streaking higher and there’s growing concern about a pullback. A young reader came back at me with a question that basically amounts to, “OK, but how can young investors do this without being buried by fees?”
Here’s what I originally wrote, which this reader quoted back in an e-mail: “The easy compromise is to take your registered retirement savings plan contribution and feed it into the market in regular increments. Biweekly is one option, but you could also go monthly or just sporadically. This approach is called dollar-cost averaging, and it’s a proven way to manage your emotions as an investor. In down markets, you’ll invest regardless of your trepidation; in soaring markets, you’re protected from your own exuberance.”
This reader’s question: “With which firm can a young person start investing in Canadian ETFs in regular increments, especially biweekly? What about the brokerage fees for many small amounts invested?”
Here a few practical thoughts on how young people can get started with a regular investing plan at minimal cost:
- Free investing apps: Wealthsimple Trade lets you buy and stocks and ETFs at no cost; TD Goal Assist lets you buy balanced ETFs (a complete portfolio in a single package) from the TD family at no cost.
- Robo-advisers: They’ll design an ETF tailored to your needs and then maintain it over the years; fees for this service are charged monthly in most cases and work out to 0.5 per cent a year, max.
- Online brokers: Questrade and Virtual Brokers offer no-cost ETF purchases, but you pay the usual amount to sell. Scotia iTrade and Qtrade have a limited list of ETFs you can trade at no cost.
Something to watch out for with online brokers is a maintenance fee, usually $25 per quarter, that applies to accounts with balances below $5,000 to $25,000, depending on the firm. Questrade eliminated these fees last October.
All investors need to be fee-conscious – the less you pay, the more you more you keep from the returns generated by your investments. But young investors, with their small account balances, have added reason to mind their fees. Paying $150 in commissions and fees per year on a $10,000 account drags down returns by 1.5 per cent a year. Ouch.
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Rob’s personal finance reading list
Apps that can save you money on car insurance
A rundown of apps offered by auto insurers that monitor your driving habits. If you’re a safe driver, you may benefit from a premium reduction. You have to wonder if these apps could also be used at some point to penalize drivers who don’t meet the safety criteria. And now for a list of seven mistakes people make with their car insurance.
The bad-building blues
A good read if you’re under the illusion that spending big on a condo gets you the best quality. Residents of an exclusive New York luxury condo are experiencing a bunch of construction-related problems, including walls that creak and leaky plumbing.
Could you save money by refinancing your mortgage?
Veteran personal-finance writer Romana King has created a definite guide to mortgage refinancing. Really helpful information here on the cost and process of doing what people in the mortgage biz call a refi. Reasons why people refinance include getting a lower interest rate and consolidating other debt into a mortgage.
An introduction to halal investing
An offshoot of the rising trend of socially responsible investing offers Muslims a way to invest affording to their values. This means screening out forbidden investments such as pork, alcohol, tobacco, weapons, adult entertainment and debt, bonds or interest.
Ask Rob
Q: How much money (ball park) should I have in the childrens’ registered education savings plan?
A: Some quick guidelines: The lifetime RESP contribution limit is $50,000 per beneficiary, and you get a 20-per-cent matching federal grant for the first $2,500 you contribute annually, to a lifetime maximum of $7,200 per beneficiary. Another way to look at this is that it costs roughly $20,000 for a young person to attend university out of town, including tuition, accommodations and other costs. Undergrad degrees in humanities and social sciences cost an average $5,600 or so per year for tuition.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
One of the best personal-banking innovations of recent years cheque-deposit using a mobile phone or tablet – you just take a picture of the cheque within your banking app and deposit it. It’s an even more practical feature during the pandemic. Here’s some how-to information from the federal Financial Consumer Agency of Canada.
The money-free zone
The Toronto Blue Jays are having a hell of an off-season, and I can’t wait for baseball to start (safely). I’m following Jays developments these days with a newsletter called The Batflip by veteran Jays writer Andrew Stoeten.
Tweet of the week
Ramit Sethi’s top money rules are a refreshing change from the usual. Mr. Sethi is a U.S. personal-finance expert who wrote I Will Teach You to be Rich.
Introducing a new Globe newsletter
The Tax and Spend newsletter looks at how the government is taking and spending your tax dollars. Get it in your inbox every Monday. Click here to sign up.
In case you missed these Globe and Mail personal finance-related stories
- Globe Retirement Forum: What has the pandemic taught retirees about managing their investments?
- Started trading stocks amid the GameStop frenzy? Here’s how it can impact your taxes
- How can this student start a socially responsible investing portfolio with her savings?
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: How to survive the gig economy • How to get out of debt • Is now the right time to buy a house? • Crisis-proof your finances • Does investing change during a pandemic? • Can you afford to live downtown? • The cost of kids • Should you move back in with your parents?
- ✔️ A 10-point pandemic personal finance checklist: Create a "wartime" family budget; stop worrying about bank deposits; clean out your big-bank savings account; get relief on car payments; get preapproved for a mortgage; WFH? Save $1,000 a month; save, save, save; build resilience by not anxiety-buying; consider the cost of mortgage deferrals; get ready for the second wave of financial distress.
- 📈 Investing: The case for a tight portfolio of big blue chips dividend stocks; robo-advisers beat human advisors (and they’re thriving), why online banks that are better than the branch; is it time to invest your 2020 TFSA; don’t get your mortgage at a bank; why it’s so hard to invest in preferred shares; stock up on stocks to retire early; and are you following the 10-year rule with your investments?
- 💰 Saving: Food waste is wasted money; why you might regret that SUV and find out if CAA is worth it; juice your PC Optimum points; how an ex-Bay Street lawyer got out of debt; blindly easy tweak to your retirement investments to survive economic downturn; should you buy that latte?
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob Carrick