By: Pira Kumarasamy
The stock market in 2015 hasn’t been for the faint of heart, and for millennial investors, the sharp fluctuations might be intimidating enough to keep them out of the game. Fortunately, with so many investing options available, now is a great time to start. With time on their side, millennials have the opportunity to invest for the long term and ride out any temporary waves.
Below, we outline an example of the different stages of an investing career, and the range of options available. One thing to keep in mind is how to best leverage the different accounts available to Canada, including registered accounts like the tax-free savings account (TFSA) and registered retirement savings plan (RRSP). In early career stages, a TFSA may be best suited, while an RRSP is best utilized in higher income brackets. Leveraging the optimal vehicle is just as important as choosing the right investments, so it’s crucial to do research on both fronts.
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Expertise Level: Freshman
Investor profile: As a novice, the freshman investor might be a recent graduate just getting into the workforce with a few hundred or thousand dollars saved that she’s itching to grow. She’s not quite comfortable with the idea of losing money, but wants her money to start working for her.
Investment strategy: The freshman would be best to turn her attention to guaranteed returns in the form of guaranteed income certificates (GICs) or bonds. Both have affordable minimum investments and set terms with relative stability when you hold until term. Both can be purchased through the bank, so no need to open that brokerage account just yet.
Expertise Level: Sophomore
Investor profile: The sophomore is ready for an introduction to equity markets. She has built up a low five-figures of investable savings, and would like to watch her savings grow with the markets.
Investment strategy: The sophomore is best to take a guided approach to investing. She doesn’t have quite enough money or experience to construct a fully diversified portfolio on her own, so she is well suited for a product that will give her instant diversification, like a mutual fund with low management expense ratios. By doing so, she is taking advantage of a fund manager’s expertise with as little as $1,000 to start. She still doesn’t have to open a brokerage account as many funds can be purchased through the bank, and options range from ‘safe’ (fixed income funds) to ‘risky’ (equity growth funds). It’s a great way for her to learn her tolerance for risk.
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Expertise Level: Junior
Investor profile: The junior has become well versed in investing, having tested the waters of guaranteed return investments and equities. She wants something a little more self-directed than a mutual fund, and has become acquainted with the risks and rewards that come with equity markets.
Investment strategy: Exchange traded funds (ETFs) are securities that track an index, and offer a more self-directed approach than mutual funds, typically with lower fees than mutual funds. The ETF is a slightly more advanced approach in that they trade just like stocks on an exchange, and allow the junior investor to break into the market first hand. At this stage, our investor will have to open up a brokerage account with the bank or a discount broker like Questrade.
Also read: Should ETFs Be Part of Your Investing Strategy?>
Expertise Level: Senior
Investor profile: The senior is now a full-fledged investor and would like to get even more hands on. As someone in the early years of her investing life, she knows she has ample time to ride out stock market waves. Her investable savings are in the multiple five figures, so she now has the means to start diversifying.
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Investment strategy: By now, the senior investor may have an interest in doing research and making a few equity picks to complement her portfolio. She can do this on her own or with the help of an advisor, and either way must have a good sense of her risk tolerance. This will dictate the types and quantities of equities she includes in her portfolio. At this point, she may choose to keep a selection of ETFs to add a higher level of diversification, while adding in a few choice dividend-paying stocks. Depending on her risk tolerance, she might add a selection of growth stocks to the mix.
Overall, whichever approach you take, it’s important to do your research and/or consult with a qualified financial professional before making investment decisions. Investing doesn’t have to be scary, and knowing where to start is half the battle.
About the Author: Pira Kumarasamy
Pira is a freelance writer and communications consultant specializing in financial services. She has a strong interest in personal finance topics including areas like the financial markets, student loans and real estate. Pira holds a bachelor’s degree in economics from Wilfrid Laurier University and a postgraduate certificate in corporate communications from Seneca College.