“Brendan, how do I actually invest my money?”

This question has a few parts, and I’m going to walk you through step by step.

Investing can be risky, especially if you don't know what you're doing. I often hear people say, "Oh, the stock market? That's just gambling," or they share a story about a friend who lost a lot of money. Most people hear this and think, "Okay, I’m not going near that!"

But whenever I ask a few questions, I usually find out their friend put a bunch of money into one specific company, and the value of that stock went down.

Remember when BlackBerry was the #1 cell phone company in the world? Its stock has lost 97% of its value since its peak in 2008. If you had invested $10,000 back then, it would be worth only $300 today. So yes, you can lose a lot of money investing, but don’t let that scare you off. That’s just the wrong way to invest.

I compare it to someone who doesn’t know how to drive trying to navigate the highway at night in winter. It’s the worst possible situation, and they’re likely to get into an accident. There are bad ways to do things and good ways to do things. Learning how investing works is essential to doing it the right way.

To me, there are two critical mistakes a lot of people make when investing:

1. Investing in a single (or just a few) companies or stocks.

Take the BlackBerry example: if you pick the wrong one, you’ll lose money. The solution, or the “right way” to invest, is to diversify your investments. Don’t put all your eggs in one basket! Diversifying into many different businesses is easier than people think, but psychology tempts us to chase “the next big thing.” You have to let go of that mindset.

2. Selling at the wrong time.

Even with a highly diversified portfolio, the stock market fluctuates. That’s natural, it’s just the way it works. Think of surfing: the water goes up and down. Don’t complain about it, because it’s part of the process.

Like waves, the stock market rises and falls. Sometimes, people sell at the wrong time like in 2020, when the stock market crashed. Anyone who sold their investments then lost money. That happened because of COVID, and the entire market went down. Even diversification didn’t help much in the short term. But, like waves, the market eventually rose back up, higher than it was before.

• Why most people lose money: stock picking and emotional decisions.

• Investing is like driving, it’s risky if you don’t know how.

The word “invest” is thrown around alot, but there are tons of ways you can invest your money.

Here are a few examples:

• Real estate, such as buying a property and renting it out for income. This can be a great way to make money, but you usually need at least 10-20k for the minimum down payment. And there is work to manage a rental property and have a tenant.

• Guaranteed Investment Certificates (GICs), you can buy these at any bank, it’s where you agree to lock in your money for a set period of time, in exchange for interest. For example, as of Oct 21, 2023, Tangerine Bank is offering a 5.7% interest rate for 1 year GICs (this is not an affiliate link, I just want to show you an example of a good GIC, and I personally am a big fan of Tangerine Bank, they’re a digital bank owned by Scotia Bank). This means that you could buy a GIC for $1,000 and after 1 year you’d have $1,057. GICs are a good option but traditionally have lower rates than the stock market. Although, right now, rates are exceptionally high.

• Mutual funds, this is where a mutual fund manager picks how to invest your money, it’s usually in bonds and equities (stocks and ETFs). With mutual funds you usually have a dedicated advisor that is your go-to contact for questions about investing, mutual funds are popular because of this. The downside is that the fees for the mutual fund and/or advisor are usually between 1-2%. That might not sound like alot, but if you invest $500 a month ($6,000 a year), earning a 5% rate of return, paying a 2% mutual fund/advisor fee, then after 30 years, you’d have paid $124,549 in fees, and have $294,016 leftover from your investment.

• Stocks, alot of people lose money in the stock market, and it’s usually for 1 of 2 reasons:

  • they stock pick, which is when you select individual stocks. If you do good research and make good picks, this can be lucrative, but alot of people make bad choices.

  • they let their emotions take over and sell at the wrong time. You’ve probably heard, buy low, sell high. In theory, it sounds like common sense and easy to do, but the reality is that when you have all or a portion of your life savings in the stock market, and it crashes, seeing your money go down and down over days and weeks is very difficult, and alot of people panic and sell when things are down, resulting in them losing money by locking in their loss.

• Exchange-traded funds and index fund investing, you may have heard about index funds, the S&P 500, and ETFs. These are by far my favourite investment type. ETFs are like buying a basket of stocks, so instead of hand picking stocks and not knowing if you’re making the right choice or not, ETFs allow you to buy hundreds or thousands of stocks easily. That’s where the S&P 500 comes, in with a ETF that tracks the S&P 500 (meaning it invests in the largest 500 US companies) you’re investing into all 500 companies, so if a few of them perform poorly or even go bankrupt, you’re literally not putting all your eggs in one basket.

There are many more types of investing, but I’m a big proponent of exchange-traded funds and index investing, and have the majority of my net worth invested in that. In the next step of my guide, we're going to talk about "how" you can get access to actually invest in these kinds of investments.

It's important to consider all of the different investment options available to you. Investing is not a get rich quick activity, in fact, it's a get rich slow activity. That's why, before you move on to the next step, I encourage you to do some reading and research about two or three of the investment options above, so you can get a bit more familiar with them. And please send me an email if you have any questions.

"What is a brokerage? Is it a bank?"

In order to actually start investing in exchange-traded funds and index funds, you need a way to invest your money there. That’s what a brokerage is for. Just like how a bank account is for getting a chequing account and e-Transfers. A brokerage allows you to open an investing account so that you can actually invest your money.

The brokerage I recommend for most people is Wealthsimple because they don’t charge any transaction or administration fees. There are others like TD Direct Investing and CIBC Investors Edge, but they charge fees between $6-10 for every single buy and sell transaction.

Wealthsimple offers “Managed Investing” where they pick all the stocks and ETFs for you, you just choose a risk level between 1-10. They also have “Self-Directed Investing” where you hand pick the stocks and ETFs. In Step 5 of this guide, I will talk more about specific investments and my personal favourite ETFs.

Both “Managed Investing” and “Self-Directed Investing” are good options, it just depends if you want to have Wealthsimple invest your money for you, or if you want to have more control over it.

If you’re not sure, I'd suggest “Managed Investing” to get started. Then in the future, you can begin to dip your toes into “Self-Directed Investing” if you desire. It’s very flexible and you're never locked in with your choice.

You may be asking yourself, is Wealthsimple safe? The answer is yes, but don't just take my word for it. Wealthsimple is a Canadian investment organization fully regulated by the Investment Industry Regulatory Organization of Canada (IIROC) and your funds are protected through the Canadian Investor Protection Fund (CIPF).

Next, I'm going to tell you about the different account types available. You've probably already heard about Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP). It will be a lot to digest, so in the meantime, I'd recommend you start getting your Wealthsimple account setup.

If You Are Under 18 and Want to Invest

If you are under 18 and want to invest, you’ll need someone 18 or older to open an account for you under their name ‘in-trust’ for you. An ‘in-trust’ account means the account is designated for you, this is not the same thing as a ‘trust fund’. Wealthsimple does not offer these kinds of accounts, so in your case I would suggest Questrade instead. Use my referral link or code (376218210487967) and we both get $50!

Once you have your brokerage setup, you need to open an investing account. Think of the brokerage like a bank, and then you need to open an account, but instead of opening a chequing or savings account, you’re going to open an investment account.

These are the 3 most popular types:

• Tax-Free Savings Account (TFSA)

• Registered Retirement Savings Plan (RRSP)

• Non-registered account (sometimes referred to as a Personal account)

If you're serious about investing and reaching your financial freedom, your main goal should be to max out your TFSA and RRSP. Max out means to contribute the maximum amount available to you. These accounts offer you fantastic tax advantages, to reduce the amount of money you have to pay in taxes. Alot of people don't really think much about taxes, since it's deducted from your pay cheque before it even gets deposited to your bank account, but do you realize how much money you pay in taxes EVERY year?

Example

Let's take an average Canadian salary of $56,500. The average tax rate for this person is around 22% which means they'll pay $12,430 in total taxes (includes federal tax, provincial tax, and CPP/EI premiums). Let me ask you something. How many things did you buy this year that costed you $12,430? For most people taxes is the largest expense they have, but they often don't even realize it!

On top of your regular employment income taxes, if you invest your money, and make a profit off it, you will have to pay taxes on the profits.

Luckily, there are tax advantages available to you with both the TFSA and RRSP. They both work a little differently. I could go on and on about all the specifics about these two types of account, but right now, I'm going to give you a high level overview:

TFSA

The Tax-Free Savings Account has annual contribution limits, it's currently $6,500 per year but on Jan 1, 2024 it will increase to $7,000 per year. You can use this free calculator to determine how much contribution room you have available to you: https://www.moneysense.ca/save/investing/tfsa-contribution-room-calculator/

When you buy investments and grow your money, you don't pay any taxes on your profits. Also, when you take money out of the account, you also don't pay any taxes.

RRSP

With the RRSP, it is a little more complicated. You can contribute 18% of your employment income (if you have a pension this number will be different for you), up to a maximum of $30,780.

If the person in our example, making $56,500 per year contributed the maximum amount allowed which is 18% of your income, that would be $10,170 in our example into their RRSP. The government designed the RRSP account as an incentive for Canadians to save and invest for their retirement, so as a result of this, the government actually will defer the taxes you need to pay on whatever amount you contribute to your RRSP, until you retire. That means this person in our example will pay 10,170 less in taxes this year. That's a saving of $2,500!

Since your employer automatically takes taxes off your paycheque, you would receive this money back in the form of a tax return in the spring. And you can do this every single year.

Don't forget this important step

Let me ask you another question, how many times has the government given you $2,500 of free money? I'm going to guess the answer is "never". Now, since you got some free money, it's really important that you PUT THIS MONEY TO WORK! Do not spend it. Put that into your TFSA (since we maxed out the RRSP in our example).

Now, on top of the tax benefits with the RRSP, I haven't even gotten to the part about how your investments grow TAX FREE inside of a TFSA and RRSP. So that means, if you invest $5000 and that grows to $5,500, you get to keep that $500 as profit, and if you make good investment choices (we'll talk about that in tomorrow's step, you can expect your money to grow alot bigger than that $500 profit.

Next steps

I generally recommend for people to prioritize a TFSA first, then to focus on the RRSP. Your ultimate goal should really be to maximum both of these accounts, and then start investing in a non-registered account, that's just a regular account with no tax benefits.

If you have any questions about these types of accounts, I encourage you to do some research online to learn more about them. And if you’re interested, you’re welcome to book a one-on-one call with me to talk more in depth about them and how they fit into your specific financial situation.

If you don’t know which account type to open, a Non-registered account is always a good default option. As you can always open a TFSA and RRSP in the future.

Next, I'm going to tell you about specific investments you can buy inside of your TFSA or RRSP account, and I'll share exactly what I'm personally invested in.

Specific Investments

Once you have your brokerage and account setup, the next step is to determine what investments you are actually going to buy.

With Wealthsimple, you can buy stocks and Exchange-Traded Funds (ETFs). I generally don’t suggest stocks, unless you know exactly what you’re doing and which stocks to pick. ETFs are great as you get incredible diversification investing into lots of industries and countries, etc.

Brendan’s Favourite ETFs

• VFV: 500 largest US companies (e.g. Apple, Microsoft, Amazon, NVIDIA, Google)

• VCE: ~50 top Canadian companies (e.g. RBC, TD Bank, Enbridge, Shopify, CN Rail)

• TPE: ~900 international developed-market companies (e.g. Nestlé, Toyota, ASML, SAP, Unilever)

Other Good ETFs

• VEQT/XEQT: ~13,800 companies in one ETF covering the entire global stock market (Canada, US, Europe, Emerging Markets)

• XIC: ~220 Canadian companies (entire Canadian stock market)

• VUN: ~3,750 US companies (entire US stock market)

• VEE: ~6,000 emerging market companies (e.g. China, India, Taiwan, Brazil, South Africa, Mexico)

I prefer my 3 Favourite ETFs above because it allows me to choose what percent I invest in each ETF. For example 70% US, 15% Canada, 15% International. VEQT is also a good "all in one fund" but the allocations are set by the fund manager, currently it's 45% US, 30% Canada, 18% International Developed (Europe, etc.) and 7% International Emerging (China, etc.)

So if you want simplicity, you can just invest in VEQT, or if you want to control the allocation, you can choose the individual funds like I do (VFV, VCE, etc.)

Coming soon:

• Self-directed vs Managed Investing

• How often should I invest? (Dollar-cost averaging?)

• What’s better: lump sum vs regular contributions?