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.
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 a $50 bonus for investing $500 through Wealthsimple using this link.