In a Nutshell: Open a self directed investing account. Set recurring automatic transfers on your pay day from the account where your pay goes, to the self directed investing account. Buy one whole market ETF each time you have enough money in your self directed investing account. Watch your investment account grow!

Three easy steps for beginner investors.

Easy beginner steps to investing...
“Just those three things. You can do that.”
Investing can be a daunting experience. It can be scary. If you're a complete beginner it can seem impossible to even get started. So let me help you find the easiest way to get ahead with investing in just three steps. Deep breath... exhale... proceed...

1. Open a self directed investing account.

2. Set up a transfer that automatically happens each time you get paid, from the account you get paid in, to the self directed investing account.

3. Each time you have enough money in your self directed investing account, buy more of one whole market ETF. 

That's it. Just those three things. You can do that. You've probably learned to drive a car and pass the test to get a license. You've probably gone to school and studied and passed tests. You've probably figured out how to download apps on to your phone and post things on Instagram. If you can do all that, you can do this. It's easy. And in the long run, your finances will be better off. 

"Open a what now?", you may be asking. It's just an account at your bank that gives you control over what investments you buy. It could be a regular cash account, it could be a TFSA account or it could be an RRSP account. If you don't have a self directed TFSA investing account or a self directed RRSP investing account or a self directed cash investing account, then you can open all three. The bank may try to get you to open a margin account that lets you go into debt to buy stocks, but you don't want a margin account. That can lead to debt and pain and grief. Tell the bank no margin account for you, just a regular cash self directed investing account.

Everyone has an opinion on whether an RRSP or a TFSA is better. For 2018 you have a maximum contribution room in your RRSP of $26,230 or 18% of your earned income, whichever is lower. Your personal RRSP room will be impacted by how much you have contributed in the past and so you should check your tax returns for your personal allowed contribution for this year. You can find more information on how to find out your contribution room here .

For the TFSA, in 2018 we got room to put in another $5,500 on January 1, 2018. If you've never put any money into a TFSA and you were over the age of 18 on January 1, 2009, then you have $57,500 room to put in to your TFSA. To check how much room you have you can go to this site

What has worked for me has been to put my money in my RRSP which then gives me a tax savings. At tax refund time, you can take the refund and put it in your TFSA. If you're maxed out on RRSP and TFSA, good for you! You can put more savings in your regular cash self directed account. 

Now I've looked at Bank of Montreal, CIBC and TD investing platforms, and the simplest one to use in this one person's humble opinion, is TD. (I'm not even getting paid to say this! Wow, free advertising for TD.) There could be better investing platforms out there so feel free to find one that works for you. Each bank will have the same options for accounts. So stick with the bank you like working with.

As way of example, here's the link to the TD accounts . You basically want to open three accounts, Trading Account - Cash Account. Tax Free Savings Account. Self-Directed RSP & RIF. If you're looking to open an RESP you can do that too. DO NOT OPEN A MARGIN ACCOUNT!!! You can go in person and get it done if the idea of doing it yourself online kinda scares you.

Ok, so that's step one. I wrote a lot, but let's boil it down. Take a deep breath. What did I tell you to do? I told you to open an account. Come on, you did that when you were a kid with a piggy bank. It's easy. Ok, so you can easily do step one. No big deal.
Opening an account is easy, remember?...
Jian bing, egg mcmuffin, chinatown, Dundas street west, Chinese food

This is even easier than the first step. You get paid and the pay goes into your account. You want to set up an automatic transfer that moves money from your pay account, to your newly opened self directed investing account. 

A good rule of thumb is to save 10% of your pay. (I learned that one from The Wealthy Barber ). Of course you can save more than that. But if you're just starting out with saving, 10% is a good starting point. 

So look at what you get paid on pay day. Make sure that if you take 10% out automatically that you are still able to make all your other automatic payments whether it be for your mortgage or rent, insurance, car payments, electricity, cell phone, etc...

If you're nervous about the 10%, start out a little smaller at 5% and then get to 10% as soon as you can. Then if you find you don't really miss the money that's going to your investing account, try for 15%. Keep going higher on savings until you find you are missing it. 

If you wind up with money left in your pay account at the end of the month, there's nothing stopping you from manually moving more money into your investment account. 

To me, regularly putting money in your investing account as soon as you get paid is the best way to budget. I've tried regular budgeting and it doesn't work for me. What does work for me, is to move money as soon as I get paid to my investing account and then live off of the money that remains in my chequing account until the next pay day. It's a form of forced scarcity or forced frugality. It leaves me with enough money to go out and enjoy the things I enjoy. And as the bank balance dwindles for the month, I curtail my spending. It's a much more natural way of budgeting for me. And in those scarce times at the end of the month, I never take money out of my investing accounts, I leave it there to grow and compound. Of course you need the discipline to not spend on your credit card for this to work.

If the amounts in your investment accounts don't seem like a lot at first, don't worry, it may seem like a really small amount, but it will grow over time and you'll be glad you did it.

For details on exactly how to set up the automatic transfer, just search for how to do it with your bank. For TD, here's what my search found:

As discussed above, if you've got room in your RRSP, transfer to that one. When you get your tax refund put it in your TFSA if you have room. If you've maxed out both your RRSP and TFSA, transfer your savings to your regular cash self directed investing account.

Ok, so that's step two. Easy. What did I tell you to do? Set up a recurring automatic transfer from your pay account to your investing account. At 10% if you can. Oh and I'd suggest you set the recurring transfer to happen the day after you get paid, just to avoid any timing issues. If you can set a recurring wake up alarm on your iPhone, you can do this. It's no big deal. Easy.  Ok just one more step!
Little amounts can add up to a lot of money...

So you've finished steps one and two and now you have some money in your investing account (whether it's your RRSP, your TFSA or your regular cash investing account). Now comes the time to buy a whole market ETF (Exchange Traded Fund, kind of like a mutual fund with lower fees).

For a long time there have been mutual funds that gave you a whole market balanced exposure but their fees were so high that you lost a significant part of the gains from the market doing well. For example there are mutual funds that charge a management expense ratio of 2.22% and a trading expense ratio of 0.07%. So all the money you have in the fund gets charged 2.29% every year. Considering the performance of a fund I looked at has been 6.51% since inception, you're basically losing 35.2% of the market gains to fees. 

There are also financial advisors who invest on your behalf and manage your portfolio. They can charge 1% of your portfolio or more and sometimes have minimums before they will take you on. If they are investing in ETFs for you, then you are also paying the ETF fees in addition to the 1% or more your advisor charges.

There are also robo-advisors. Nothing too terminator like so don't worry. Companies like Wealthsimple and others put you in a mixture of ETFs to get you a conservative, balanced or growth portfolio. Wealthsimple offers no fee on the first $5,000 though you'll of course pay the fees charged by the various ETFs they hold for you. From $5,000 to $100,000 they charge 0.5% above the fees charged by the ETFs and 0.4% if you're above $100,000 in addition to the fees charged by the ETFs. One of the ETFs Wealthsimple uses for US stocks is Vanguard's VUS ETF which has a management fee of 0.15% and a MER of 0.16%. So effectively on the US portion of your portfolio a customer with more than $5,000 but less than $100,000 would be paying a total fee of 0.81%. So essentially you are paying all the ETF fees plus an additional 0.5%. 

The cheapest offer I can see out there to get a conservative, balanced or growth portfolio is to get a single ETF that does it all for you. Vanguard just launched 3 ETFs that do it for you for a very low fee of a 0.22% management fee. There may be other whole market ETFs out there so do your own due diligence. I'll just use these Vanguard ETFs by way of example.

So essentially you pay only the ETF fee and no additional advisor fee on top of that. You will have to pay for every trade, typically $9.99 at your bank, every time you buy. 

But if you consider a $100,000 portfolio with 0.5% fee at a roboadvisor, that would be $500 a year in fees in addition to the ETF fees. Compare that to buying once a month at $9.99, that's $119.88. Assuming you're just starting out, you may have so little in savings that you want to wait to buy once every two months so you get enough to make it worth investing given the $9.99 trade fee. In that case, your fees above the ETF fees would be $59.94. There would be no percentage taken out of your entire portfolio beyond ETF fees. However, with a $10,000 portfolio, your fees at a roboadvisor would only be $50. Clearly the winner in that case is the roboadvisor. So depending on how much you have, you may want to go with a roboadvisor. At $24,000 the fees at Wealthsimple would be $120 per year, or the same as buying ETFs yourself in your self directed investing account once a month at $9.99 each time you buy. Over $24,000, buying Vanguard ETFs once a month becomes cheaper than going with Wealthsimple. If you're going to wind up with a significant portfolio, you may want to go with a self directed method.

So what are the Vanguard ETFs?

VCNS - Vanguard Conservative ETF Portfolio (40% equity and 60% fixed income)
VBAL - Vanguard Balanced ETF Portfolio (60% equity and 40% fixed income)
VGRO - Vanguard Growth ETF Portfolio (80% equity and 20% fixed income)

All of them have the same 0.22% management fee. All three ETFs hold the same 7 underlying ETFs, just in different concentrations. As a result they give diversifed global stock market and bond coverage.
Try to get global exposure when investing...
​​​​You just have to decide whether you want conservative, balanced or growth. Typically the younger you are the more growth oriented you can be and the older you are the more conservative you become, balanced being somewhere in the middle. But everyone's needs are different so take a look and see whether you think these products are right for you and you can then pick one of the three if you like and go with it to get what could be the simplest way to get broad global stock market and bond exposure.

If you don't want the information, you don't have to read the next little bit, but I like to know what my money is invested in, so to give you a glimpse I'm putting some info here. If you want more info, you can go to Vanguard's ETF site . The top ten holdings and % of the total in each of the 7 component ETFs at Dec 31 2017 were:

US Total Market Index: Apple, Microsoft, Amazon, Facebook, Johnson & Johnson, Berkshire Hathaway, JP Morgan, Exxon Mobil, Alphabet (Google) and Bank of America. Those ten stocks make up 17% of the total for the US Total Market Index. 

FTSE Canada All Cap Index: Royal Bank, TD, Bank of Nova Scotia, Enbridge, Canadian National Railway, Suncor, Bank of Montreal, CIBC, Canadian Natural Resources, TransCanada Corp. Those ten stocks make up 40.5% of the total for the FTSE Canada All Cap Index. So this fund is clearly pretty concentrated on Canadian banks and resources.

FTSE Developed All Cap ex NA Index: Nestle, Samsung, HSBC, Novartis, Roche Holding, Toyota, Royal Dutch Shell, British American Tobacco, BP, TOTAL. Those ten stocks make up 10.4% of the total for FTSE Developed All Cap ex NA Index. 

Canadian Aggregate Bond Index: Canadian Government Bonds of varying yields from 0.5% to 5.75% and an Ontario bond make up the top ten holdings. They make up 13.25% of the total. 

FTSE Emerging Markets All Cap Index: Tencent Holdings, Naspers Ltd, Taiwan Semiconductor Manufacturing, Alibaba Group Holding, China Construction bank, Industrial & Commecal Bank of China, Ping An Insurance Group of China, China Mobile, Hon Hai Precision, Reliance Industries. Those top ten stocks make up 18.4%. The fund in total has 32.6% exposure to China, so this will be very impacted by what happens with the Chinese economy.

Global ex-US Aggregate Bond Index: French, Japanese, German, Euro and UK bonds make up the top ten holdings. Those ten make up 4.2% of all the holdings.

US Aggregate Bond Index: Federal National Mortgage Association, Government National Mortgage Association, and Federal Home Loan Mortgage Corp make up the top ten holdings. Those ten make up 16.6% of all the holdings.

That's all 7 of the component ETFs that are held in all 3 of the whole market ETFs from Vanguard. Again, figure out if you prefer conservative, balanced or growth based on your own needs. Essentially, with just one ETF holding, you can have a globally diversified stock and bond portfolio that gets rebalanced by Vanguard. This is the easiest path I can think of to becoming an investor. No decisions on this or that stock. No decisions on rebalancing. Just keep buying the same ETF over time and get global exposure.

Over time as you get money in your investing account, you can just keep buying more of the same ETF. Vanguard plans to rebalance the ETFs at it's own discretion so you don't need to worry about that. It's all done for you. (And no I'm not being paid by Vanguard for this either. I just had a chat with a buddy who gave me some feedback that some people might find a lot of the investing world difficult, and so I'm trying to come up with the easiest way for someone to get started. Vanguard to me, seems to be the easiest. A close second in my mind is Wealthsimple although for a higher fee if you're getting to a portfolio worth more than $24,000.) And remember I'm just using the Vanguard ETFs as an example, it's not a recommendation to buy their ETFs. You can do some research and find out what globally diversified stock and bond whole market ETF works for you.

I suggest waiting until you have at least $1000 before buying your next bunch of ETFs, or buy every two months. Just to make sure you aren't spending too much on the $9.99 trade fees many banks charge. 

Now there was quite a bit of writing in step 3. But don't' get overwhelmed. What did I tell you to do? I basically said, if you find investing daunting and you want the easiest way to invest without having to do a lot of research and a lot of work, then just buy one ETF that owns the entire market for you and rebalances for you. The three ETFs I'm aware of that do it are Vanguards VCNS, VBAL and VGRO. There could be others, so do some research and find the ones that work for you. Then just decide if you want a conservative, balanced or growth oriented portfolio and buy that one ETF. And as more money comes into your investing account, keep buying more of that same ETF.

There you go! That's the end of step 3. Easy right? If you can order and buy Star Wars socks on  and get them shipped to your house, I'm talking to you Justin, then you should be able to figure out how to buy an ETF with your investing account... No big deal. 

Now you just have to sit back, keep investing in the market, ignore market fluctuations. It will go up and it will go down. Even the best investors can't time the markets so don't try. Just know that if you steadily keep investing in the market you're likely to do alright financially given long term market returns. And if you take a balanced portfolio with some equity and some fixed income exposure it should help guard against swings and provide some stability. And once you've started investing in your portfolio, don't rob from it, let it grow for your future. 

So to recap. Three simple steps to a better financial future.

  • Open a self directed investing account.
  • Set up automatic savings that get transferred each time you get paid into that self directed investing account.
  • Buy and keep buying an ETF that gives you a globally diversified stock and bond portfolio.

Keep buying each time you get enough money sitting in your investing account. Watch it grow over time. 

Easy right? No big deal. Ahhhhhh.

Now remember, I'm not a financial advisor, and I have no tax expertise either. So do your own research and due diligence on TFSAs, RRSPs, ETFs etc. Seek financial advice if you need it. Consider this just one person's opinion on an easy way to invest. You must decide for yourself what is the best way to invest for you.

Be a SmarterSquirrel... Save. Invest. Enjoy.
Lessons Learned:
  • If you find investing daunting or too time consuming there is another way
  • Three easy steps can get you to a better financial future
  • Open a self directed investing account
  • Set up a recurring automatic transfer of money from the account you get paid in to the self directed investing account
  • Buy a globally diversified stock and bond ETF with the money in your self directed investing account and keep buying more of it each time you have at least $1000 sitting in the account
  • Alternatively you can buy into the ETF once every 1 to 2 months to keep your fees low
  • Don't pay too much attention to the market ups and downs, in the long run it should continue upwards as markets always have in the past
  • ​Watch your investment portfolio grow
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