Monday, April 3, 2017

How to start getting wealthy?




When it comes to growing your savings, a lot of people do not know where to start and are often intimidated by the idea of investing. What they end up doing is leaving all their savings in a normal savings account or a Tax Free Savings Account, which gives them about 0.5%-1% return per year. It really hurts to hear that people are just leaving their money in a savings account, and letting inflation slowly eat it away. I am not saying to take all the money out of your savings account and invest, but be realistic about what you need for emergencies and to put the rest somewhere else. 

Here are two simple accounts that you can easily setup at your current bank, by going to your local branch or doing it online. I'll recommend going to a branch, since there's usually paperwork that needs to be completed, which will be easier to do in person.

  1. Mutual Funds - It's pretty much getting someone to manage your money and to grow it for you. Your return will most likely be better than a savings accounts. To start off, I'll recommend that you go to a TD branch and open a TFSA Mutual Fund e-series account. Once you are setup, I'd recommend investing into one of the TD e-series index funds, which in my opinion is far superior than other mutual funds that are offered. The key thing about mutual funds are the cost for managing the fund, known as the MER (Management Expense Ratio), which are often given in a percentage. MER tells you the percentage of the funds it requires every year to manage it. If you invest $1000 into a mutual fund with 1% MER, it means that $10 from your investment will be used to pay the fund manager and other expenses. If the mutual fund didn't make or lose any money that year, you'll end up with $990 next year. When a mutual fund posts a return of 10% last year, but has a MER of 2%, you essentially only get 8% growth in your investments.
  2. Discount Brokerage - Most banks will provide this service. This will allow you to purchase stocks and bonds while charging you a commission fee per transaction. Some brokerage accounts are now charging a yearly administration fee if you don't meet certain criteria. Once it's setup, you can start trading Stocks, Bonds, ETF (Exchange-Trade Fund), and much more. To start off, I would recommend that you setup an account with your bank, purchase an index ETF, then setup a DRIP(Dividend Reinvestment Plan) for your account. The DRIP will take any dividend and reinvest it into the ETF so it can grow. Usually, DRIP does not charge a commission fee when it is reinvested. An ETF (Exchange-Trade Fund) is sort of like investing into a company that invests into a broad range of other companies depending on the ETF. Index ETF usually follows an index fund like the S&P/TSX; they'll invest into all the companies that the index is tracking. The S&P/TSX tracks the top 250 companies currently listed on the Toronto Stock Exchange, so when you buy an ETF that follows the S&P/TSX, you are essentially invested into all 250 companies. How's that for diversification?
The main difference between a mutual fund and a brokerage account is that Mutual funds usually allow for monthly contributions without any additional charges. Whereas the brokerage account will usually charge commission for every purchase. Therefore, if you are starting small and planning to make monthly contributions, then start with the mutual fund option. If you want to make a one-time purchase and leaving that money alone, then go with the brokerage option. Both options will be better than a normal savings account.

This should get you started in the right direction. But after that, you'll have to do more research on what else you can do with your money. Start small and slow so you don't get overwhelmed and become discouraged.

2 comments:

  1. This may not apply to you but we set up DRIP's for our grandkids and its a great way to obtain maximum growth (and income) when one only has small amount to invest.

    Check out my post at My Own Advisor site:
    http://www.myownadvisor.ca/try-this-average-retirement-plan-to-wealth-part-1/
    http://www.myownadvisor.ca/try-this-average-retirement-plan-to-wealth-part-2-of-2/

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    1. I have only recently setup DRIP on my investment account. I knew about it but was always "too lazy" to set it up. When I started this journey in April I immediately got off my ass and call my broker right away. Your post is really useful, I definitely didn't buy enough share to allow the DRIP to work. My next step is to boost up my holding to get DRIP going. I like your stock recommendation, I am definitely considering investing in a few big Canadian Bank like CIBC.

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