One of the biggest money mistakes I’ve made over the past three years is leaving a huge chunk of savings just sitting in my RRSP and TFSA accounts in cash.
Well OK, not huge, but more than $10,000. So I’m not jetting off into the sunset on a private plane or anything, but it’s also not nothing.
I was, apparently, not alone, since trend pieces are popping up about risk-averse millennials who are saving their money and stashing it in savings accounts earning barely anything in interest.
Luckily, I’ve clearly started to take a more active role in managing my money and rectifying past mistakes over the past few months, including switching to a no-fee bank account and re-examining my automated payments. The next item on my hit list? Investing.
I’ve always known about the power of compound interest, but it’s so easy to get lulled into the status quo of putting away a bit of money every month and then forgetting to manage it. I had absorbed a fair bit of investing information just from reading the MoneySense magazines my mom would leave lying around the house for me to find (thanks, Mom!) so I mostly knew what my priorities were going into any kind of investing strategy.
The most important things I was looking for in investments were
- Easy to set up (because clearly I was dealing with enough inertia as it was)
- Low management fees (because they really are as bad as everyone says they are, and if you’re paying over 1%… stop it)
- An indexing approach (because I have no interest in buying or selling individual stocks. I have enough stress as it is)
I had heard wonderful things about the Couch Potato Portfolio, but here’s the thing: I had been hearing the same thing for years and years, and hadn’t done anything about it. Clearly, I needed a simpler solution to get me in the investing game.
That’s when I started looking into this robo-advisor trend I’ve been hearing about. Basically, it’s a new approach to investing that takes the best of a low-cost index fund approach and combines it with the best of tech, including algorithms that handle things like rebalancing your portfolio after certain thresholds are met. Some of them even offer additional services, like the ability to contact a real-life advisor if you need to.
I knew that there were many big U.S. financial tech startups offering this, but I wanted to find a Canadian company. After doing some research, I found Wealthsimple, and it seemed like a great option.
When I signed up for an account, I filled out a survey for them to gauge my risk tolerance level, and I even had a one-on-one call with an advisor to double-check my answers and make sure I knew what I was getting myself into. We went over all the basics on the call:
- What are these accounts for? (Retirement)
- When do you think you’ll need the money? (30 years, give or take)
- Do you anticipate taking any of the money out to buy a house, achieve other goals? (Nope, I have other accounts saving specifically for my other goals, in much lower risk formats.)
After dotting the i’s and crossing the t’s, I was all set up with my Wealthsimple account. Now, to get some money into it.
I began the process of transferring my stagnant RRSP and TFSA accounts from my old bank, which to be honest, is the most time intensive part of the entire process, and the only one that can’t be done online. They have almost all of the contracts you need to sign available for e-signatures, which was a dream, but I guess there are just some things that haven’t gone digital.
Once all the paperwork was submitted, it was a waiting game for the accounts to transfer, and for Wealthsimple to use the funds to buy into the market. And wouldn’t you know it, I ended up buying in right before the markets went a little sideways over the past week. All right, a lot sideways.
Here’s the thing: I’m thrilled to have invested when I did.
Why?
I knew my time horizon.
The reason I chose to invest this money in a mix of investments that hits a 7 out of 10 on the risk scale is because I know I have 30 years for the money to grow. Since 1929 (a crazy stock market year if there ever was one) the market has had an annualized return of 6.19% when you take inflation into account. Were there huge losses? Sure. Were there huge gains? Sure. But for the long haul, the markets went up. That’s the game, and I’m glad I got into it earlier rather than later.
I had a plan.
I know this because I did my research and made a plan before getting into these investments. Having a plan is one of the major reasons I was able to glide through my first big market downturn with a smile on my face, even looking at what could have been an alarming drop in the amount of money in my investment accounts.
I didn’t do anything about the downturn.
As per the plan, I did absolutely nothing on Monday, or during any of this market madness. I didn’t panic, sell, and lock myself into taking a loss on my all-of-two-weeks worth of investing. I also didn’t speculate, stress myself out, try to buy stocks individually and totally disregard all the reasons I went with an indexing strategy in the first place.
I got a pretty great email from Wealthsimple advising exactly this on Monday in the height of the media craziness, right in line with the trend of robo-advisors helping to keep their customers calm through digital communications. It was great to get the reassurance that doing nothing was the right strategy, and I stayed the course.
I’m in the market, and that’s what counts.
At the end of the day, I’m thrilled to have invested when I did. Not because of the huge drop in the value of my portfolio right now – that would be nuts – but because regardless of whatever’s happening right now, I finally took the next step to follow through on a strategy I’ve been thinking about for a long, long time. I stopped procrastinating, got into the market, and my money has 30 years to take advantage of the power of compounding.
Sure, this week was bad. But other weeks will be much better, and the best part of my strategy? I never have to worry about predicting those weeks, any more than I had to worry about avoiding this week. I’ll just keep swimming.
PS. If you’re interested in getting started investing yourself, you can get your first $10,000 managed for free for a year by signing up with Wealthsimple using this link.
Nice work finding a good investing fit for yourself. Love you attitude about it, too. While we “lost” a painful amount in the last week, we’re sitting tight. It’s only a loss if you sell!
Thank you! I’d be lying if I said there wasn’t a slight twinge of pain looking at the numbers, haha, but not needing the money right away (and having gone into this knowing that) is such a big help. I can very clearly see why people are advised against any level of risk for savings they need soon!
I am also looking into indexing right now. I’m a lot less knowledgeable then you but I’m trying to learn as much I can. Was the reason you moved your money from you bank to wealthsimple because of lower management fees? I am in the process of moving all of my bank account to credit union to take advantage of no fee banking. I was going to discuss moving my two rrsp’s and then different investment options but now I’m curious about the benefits of the robo-advisor account. I am also looking to start a TFSA.
I actually learned almost everything I know about all of this from books and MoneySense magazine, so if you’re diving into this now, I’d definitely recommend anything Gail Vaz-Oxlade has written, or Suze Orman.
I moved to Wealthsimple largely because the accounts at my bank weren’t invested in anything at all – just sitting in an account in cash. The first (and only) time I talked to a bank advisor, she said that I didn’t have enough money in the accounts to start investing, which was odd, but oh well. Wealthsimple has higher fees than if you were to build an indexing investment strategy yourself using something like Questtrade or TD eSeries funds, but they’re still well under 1% and it’s been such a smooth process. At some point as I get more confident I might move to a more self-managed strategy, but for what I need right now this was perfect.
I might do a longer post about specifically why I saw the value in the robo-advisor approach, but in a nutshell that’s it! Also, yay no-fee banking, it’s the *best.*
You’re handling this like a pro — hard to believe you’re just a beginner!
I’ve been expecting a correction (and dare I say the words: bear market) since the end of 2014. I said so in posts. I wrote a disclaimer in my investing ecourse. When students emailed me about how excited they were to start investing, I told them not to jump in yet. The more months that went by, the more ridiculous my caution sounded… but the more certain I became.
Honestly when “Black Monday” hit I breathed a sigh of relief. The correction happened, I could stop waiting for it now. I lost money, but not that much. More than 20% of my wealth is in cash. I’d just spent the past 12 months paying of my MBA student line of credit instead of investing, even though the interest rate on the debt was less than 3%. After all, you don’t cry correction and than over-expose yourself to the market. I’ve been afraid for months, and you can see that in the way I allocated my assets lol
You were unlucky, but not stupid. You made the right investment decision. A bad day doesn’t make a bad strategy. Like you said, you’re in it for the long haul, and you’re going to be just fine.
Bridget thank you so much for the reassuring comment! It’s great to get the perspective of someone (much, much) more experienced than I am. I’m always in awe of people who can dive deep enough into investing to spot these kind of trends coming and adjust their strategies accordingly – as I ramp up and get more confident you might just have yourself another student, haha.
haha I would love to have you. Email me when you decide, and I’ll hook you up with a discount code for the course.
Always interested in helping fellow bloggers get started in the market.
I feel like you are me, writing a finance blog! I also started seriously examining my stuff and money habits this summer (and I too thought I was decent before). And I also just opened a new investment strategy just before monday!
Im adding your blog to my reader 🙂
Hi Casey – that’s awesome, good for you! I clearly know from personal experience that it’s so easy to coast into “Sure, the money stuff is fiiiiiine, no worries” so kudos to you for examining it! I took a peek at your blog and oh my gosh, keep up the great work on the half marathon training – I’ve done two and both times were the definition of hard work in the training phase, haha. It’s not easy but it’s SO worth it.
I wouldn’t worry too much, at least I know my Tangerine Equity Growth didn’t get hit too hard and it went back up throughout the week – such is the up’s and downs of the market. But now reading about WealthSimple, I feel like it’s time too move away from that 1.07% MER fee Tangerine charges!
The Tangerine Equity Growth was one of the options I was seriously considering in the spring, when I was looking around at really convenient, easy ways to get into the market. It was juuuust a bit high on the MER side, but still somewhat reasonable for how convenient it would have been, especially since all of my day-to-day banking is with Tangerine. I’m glad I went with Wealthsimple instead, but can’t take too much credit for the decision – mostly, the paperwork to switch my RRSP and TFSA to Tangerine was just too much trouble at the time.
I agree that seeing accounts bounce back a bit this week was nice, and that it’s just the regular fluctuations of the market! I consider myself very lucky that I’m in a place to not worry too much about day-to-day stuff, since I have such a long time horizon 🙂
Not to be aggressively trolling your comment section like a total weirdo but you both might like this: http://www.moneyaftergraduation.com/ETFvsMF
Haha this is awesome Bridget, thank you! That was by far the clearest explanation and comparison that I’ve ever seen about it. (And I’m pretty sure I’ve worked my way through *several* of your older posts so don’t even worry about it. It was really nice of you to share this!)
I love your page, so simple to understand and you give great information. Does WealthSimple work only for Canadian residents? Or can anyone (Australians) also use this? And if you fully self manage your account, will your fees be lower? Any help would be great 🙂
Hi Des!
My husband and I have our retirement savings invested properly, but what would you suggest for good savings account for emergency or future car replacement funds? Who or what type of account offers ease of access yet some interest for these types of savings accounts?
Hey K,
If you’re in Canada, I’d suggest taking a look at EQ Bank – they’re online-only, but they pay 2% interest on savings accounts! That’s where I have my emergency fund and house downpayment savings 🙂