A Training Guide for Rookie Investors

04/16/2012 4:00 am EST


Rob Carrick

Columnist, The Globe and Mail

This young investor doesn’t want his money idling in a low-interest savings account, so what can he do? Rob Carrick, reporter and columnist for The Globe and Mail, explores the best options.

Introducing Patrick Bousfield, rookie retirement investor.

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.

[An RRSP is roughly the Canadian analog to the American 401(k). Please note that this story was written to a Canadian audience. If you have any questions about how the advice given in this article affects you, please contact your investment advisor—Editor.]

Now, he’s stuck. His RRSP money is idling in an online savings account earning just 2%. 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 installment 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 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 ten, I went from zero to a four now.

Have you thought about whether you want to invest on your own, or use an advisor?

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 advisor. 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% [of my paycheck] 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.

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