Investing 101 Series: Where to Start

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The journey of investing can be both exciting and daunting, especially if you're a beginner navigating the vast landscape of financial markets. But hey, no worries! We're breaking things down to get you started on the basics. Whether you're aiming for financial growth, planning for the future, or just eager to learn, we're here to accompany you on your financial education journey.

The below cover three basics of where to start from the type of account to open to where to open it and how much money you need to start your journey.

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(1) What Type of Account to Open

This step may seem obvious, but you need to determine whether you will hold your investments in a regular account (i.e., unregistered account) or in a registered account (i.e., TFSA, RRSP, Roth IRA - defined below), which can make contributions (i.e., deposit money) and allow your funds to grow tax-free. 

If you have an employer sponsored retirement program (401(k) plan in the U.S.). If you are not contributing to your employer sponsored plan - do so immediately! Such employer plans usually match your own contributions up to a certain percentage - typically between 1% and 8% of your yearly salary. You should contribute as much as possible to obtain the matching employer contributions. 

Once your contributed the maximum to obtain your employer’s portion of the contribution, you should consider opening a Registered Retirement Savings Plan account (“RRSP,” a tax deferral vehicle) or a Tax-Free Savings Account (“TFSA,” a tax sheltering vehicle) in Canada or a Roth Individual Retirement Account (“Roth IRA,” a tax sheltering vehicle). These accounts should be of particular interest to the long-term investor. A word of caution here because there are tax penalties to over contributing on registered accounts. Yearly RRSP contribution amounts are based on calculation of prior income and prior contributions (unused contributions carry over from one fiscal year to the next). These amounts can be found on your prior year's tax return - your tax authority calculates this for you. The yearly TFSA contribution amounts are the same for everyone with a lifetime maximum of $95,000 as of 2024. Once you have “maxed out” your permitted RRSP and TFSA contributions is when you will have to open a non-registered account. Contributing to a non-registered account before making use of these tax sheltering and tax-deferral vehicles is quite literally leaving money on the table.

(2) Where to Open Your Investing Account

The second consideration is where to open this self-directed investor account. Think of your account as a box. In the box are your investments. The question is, where do you want to keep this box. Most banking and financial institutions offer self-directed investor accounts and may charge a monthly or yearly fee which is often dependent on the amount you have invested. Many platforms will also have minimum balance requirements and charge a fee per trade (i.e., for every block of securities you purchase). The advantage of using your main banking institution’s platform is you will have your investments in a one stop shop with the remainder of your finances, and will likely have access to a full set of services, including experienced customer service, which is useful when you’re just starting your investing journey and may have plenty of questions. You can also seamlessly set up automatic contributions from your checking account to your investor account. If  you are investing via a registered account (See Step 1 above), you will want to retrieve your yearly statements to benefit from your income tax savings – your institution will send these to you once tax season comes around so be on the lookout for those. 

It is worthy to note that with the increasing democratization of retail investing, there are more and more trading platforms, and applications, as well as e-banking institutions that allow you to easily open investment accounts to buy and sell securities. Certain fintech (i.e., financial technology) platforms have even eliminated the standard per trade fee that traditional financial institutions and brokers have typically charged. 

Unless you intend to become an avid trader, the typical retail client (which is what the average Jane/John Doe is called in the investing world) who is investing for the long term should choose their investing platform based on the ease of use, the quality of the customer service team and the educational features to guide them along the way.

(3) Choose an Amount to Invest

Now that you have likely determined what type of account and where you will hold this account, you’re probably thinking about how much and where to put this money to work. Investing your hard-earned money can come with anxiety. As a new investor (and all investors really), you need to be realistic as to what the markets can do for you. There are far more people who have lost it all on the market than people who have become overnight millionaires. There is no such thing as a risk-free investment on the market. risk associated with any investment. 

As a new investor or a new DIY investor, you should think less about making a specific return at first and focus on the process. Once you start dabbling more in the world of investing, you will get more comfortable and branch out into different types of investments and develop your personal investing strategy. This could take weeks or months and until then, stick to what you know.

For example, if you’re a fan of new technology, perhaps you buy shares (also known as stock) from a technology company that you know and already use their products (think iPhone and Apple) or perhaps you love a good DIY project and would like to purchase shares from your favorite hardware store (think Home Depot and Lowes). This will make it easier to follow what the company is doing, where it’s heading, not to mention making it more interesting for you. 

Alternatively, ETFs (Exchange Traded Funds) are another great place to get started. You may be familiar with their earlier cousin the Mutual Fund. ETFs are different from Mutual Funds, but the base concept is similar - it is a collection of securities (shares (a.k.a. equity) or bonds (a.k.a. debt)) put in a fictional basket, you then buy a portion of that basket (a unit). ETFs can track an index, an industry, or commodities (i.e., raw materials), among other things. ETFs are traded on the market like you would a company share, unlike Mutual Funds which are traded once a day once markets are closed.

The goal here is to simply start your investing journey. Ultimately, you should choose an amount of money you are comfortable parting with - it can be as little as $100 or as much as $1,000. Once you’ve taken that first step, you should make regular contributions to your investment

account. Regular contributions can mean different things, for some it could mean bi-weekly contributions of $25 and for others it could mean monthly contributions of $200. The amounts and the frequency are not important at this stage so long as you start and remain consistent. Before you know it, your account will have a few hundreds or thousands of dollars after which you can then start looking into which securities you want to purchase as an investment. Again, slow and steady is the key. 

Once you have completed your initial set up, feel free to continue your journey with some Key Investing Guidelines.