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How to Start Investing as a Canadian in your 20s

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Doing almost anything in your 20’s can seem impossible, especially when it comes to personal finance.

As a twenty-something, my finances often fluctuate how they do when you’re building a career and establishing your footing in the world as a professional.

1. Set Specific Goals

I’m a firm believer that goal setting can pave the way to success. Identifying the financial goals, you hope to accomplish as you begin your investing journey is a good way to start and keep yourself motivated.

Ask yourself: do I want to set short-term, mid-term, or long-term goals? What am I saving for right now? What do I want my future to look like?

The account you need to set up will vary depending on the goal you have in mind.

Saving for a down-payment is different than retirement planning and different than saving for a vacation.

You should also set some money aside in a high-interest savings account for an emergency fund to avoid withdrawing your investment. One approach to saving or investing is implementing the Pay Yourself First strategy, which encourages saving and investing a portion of your money first before settling any debts.

After all, while some may feel comfortable with a few months’ worth of savings, others may sleep better at night if they have closer to an entire year accounted for. Again, this is personal.

Job stability is also another factor, as those who feel that their career’s future is less certain or who are seeking a career change may want to ensure that they have a higher amount of living expenses than others.

There is another factor that makes it hard to save money in your twenties that is worth mentioning, and that is peer pressure. You may find that at this stage of life the amount of money that you have is quite different than your peers — and that’s okay! Everyone’s financial pace is different, and the fact that you are even thinking about the amount of money that you should have in your accounts is proof enough that you are headed in the right direction.

2. Create a Budget Dedicated to Investing

Just because investing is becoming a part of your personal finances strategy doesn’t mean you should forget about other financial obligations that you may have.

Consider your debts, income, and expenses when starting to invest to ensure you have a solid budget that will help you keep everything on track.

Knowing your priorities and responsibilities is essential in maintaining your financial stability, and it all starts with a specific budget that illustrates all of your expenses and spending habits.

3. Keep Things Simple with Passive Investing

As mentioned above, the idea of investing in your 20s is to get yourself started and not have to put a ton of focus into it!

Generally speaking, there are two approaches to investing: self-directed investing and passive investing.

Self-directed investing requires the investor to make trading and selling decisions themselves. The self-directed investing approach typically pertains to stock trading.

Passive Investing

You may have guessed that passive investing takes the hands-off route. For a small fee, your investments are managed on your behalf by a professional. These investments typically include Exchange Traded Funds (ETFs), Mutual Funds, and Guaranteed Investment Certificates (GICs), among other passive investing options.

If you’re new to investing, the latter is the best way to become familiar with investing while keeping your money safe.

Below, we’ll take a closer look at Exchange Traded Funds, Mutual Funds, and GICs, along with how they’re a primer on how investing works.

Exchange Traded Funds (ETFs)

ETFs, or Exchange Traded Funds, are one of the best ways to keep your investments simple. An ETF is a portfolio containing primarily stocks and/or bonds.

A robo-advisor is an automated investing and wealth management platform that manages ETFs on behalf of the client. They do not require individual stock research and allow you to choose the risk level of your liking. Plus, they help you start building a diversified portfolio.

Using a robo-advisor doesn’t mean there’s a robot controlling your investments. Rather, trading decisions are algorithm-driven and managed by a financial pro behind the scenes. Your portfolio manager is responsible for adjusting investments depending on the state of the stock market.

You have the opportunity to start learning your way around the stock market and watch your investments fluctuate without the worry of being completely in charge of them.

Of course, it does cost money to have a robo-advisor, but fees are pretty low compared to alternatives. This fee is known as a Management Expense Ratio (MER) and usually ranges between 0.25% to 0.75% of your investment total.

Mutual Funds

Similar to ETFs, Mutual Funds aggregate various investments, such as stocks, bonds, and other assets that pools your money with other investors. Mutual funds are actively managed by a financial advisor and typically cost a little more than a robo-advisor, but come with a human touch.

Guaranteed Investment Certificates (GICs)

Guaranteed Investment Certificates (GICs) are locked investments with guaranteed interest. Funds in a GIC are inaccessible for a fixed amount of term. Essentially, it’s a type of investment that provides a higher return than savings account without the risk of losing your principal. They are usually insured by the Canada Deposit Insurance Corporation (CDIC) or affiliated credit union insurance provider.

GICs have both a fixed term and a fixed rate return. The fixed-term is the catch here, seeing as if you have to withdraw early, you could lose money. Many GICs do not let you withdraw the money before the completion of the term.

4. Invest in Yourself

This tip is a little more generic, but important, nonetheless. I’d argue that investing in yourself is one of the most important investments you can make!

Investing in yourself can mean a lot of things. For example, it could mean investing time and/or money in developing a skill, honing your creative abilities, or working on professional goals. It’s a smart way to set your future self up for success, just like other kinds of investing are!

If you’re twenty-something and feeling defeated by your financial prospects, you’re capable of much more than you think.

Starting might be the hardest part, but that’s a sign that a brighter future lies down the line. You never know where your investments might take you and where you’ll be when it’s time to read up on investing in your 30s.

Our Final Thoughts

Naturally, investing seems overwhelming and intimidating to new beginners. However, with clear planning and a basic understanding of what risk means in investing, the process of getting started is quite simple.

The best first step you can do for yourself is to take it one day at a time and stick to a plan that works for you, and, of course, to never stop learning about finances and how to improve your financial situation.

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