Hi, friends! Sorry for the disappearing act. When I went to NYC, I was in full-on vacation mode: no work, no blog, no email, no nothing. It was wonderful. Unfortunately, the minute I got home, I was hit with one of the worst colds I’ve had in… I don’t even know how long. I’ve been stuck on the couch since Tuesday, and only just started to feel a bit better yesterday. But I’m here now!
Today’s post has been a long time coming. When I held those meet-ups in Vancouver and Toronto last summer, one topic that came up over and over again in our discussions was investing – and many of you asked when I’d write about it. (PS – Should we do more of those this year!? You tell me!) The truth is, back then, I still wasn’t comfortable with my investing knowledge. But as I’ve read more and more books and blogs about it, and finally started to see my money grow, my comfort level has gone from I-don’t-know-anything to I-know-a-few-things. So, I figured it was time to tell you about my journey with investing over the last 10 years. Note that this post is crazy long. I considered dividing it into a couple posts, but I love seeing it all in one place.
Are you ready for this? Let’s start from the beginning…
I was 19, when I put my first $25 into a mutual fund. I didn’t know what I was doing, or anything about how mutual funds worked. I’d just heard that if I put money into an RRSP every month for 10-20 years, I’d have $1 million one day. So I walked into my bank (CIBC at the time), met with a financial advisor and told them I wanted to open an RRSP. The advisor asked what level of risk I was comfortable taking on, and I stupidly said, “none”. I had no money, as it was, so I didn’t want to risk losing any of it! As a result, I walked out with $25 in a low-risk mutual fund RRSP, and an automatic savings plan setup to make that happen once/month. I remember being so excited to tell my dad I’d done that, as he’d been encouraging me to open an RRSP since I turned 18. I “invested” $25/month for 3 years, before putting my big girl pants on, switching banks and moving my ~$900 RRSP (at low-risk, it obviously didn’t grow) over to it…
I ditched the “big banks” in 2007, and moved all my money over to Coast Capital Savings Credit Union. I was sold on their free chequing account, and loved the customer service I received each time I walked into my branch (the receptionist eventually started greeting me by name), so I immediately setup an appointment with one of their financial advisors to move my RRSP over. Of course, I still didn’t do any research on their products, or really understand how mutual funds worked at all… I was just drinking the Coast Capital Kool-Aid, so to speak. This time, though, when my advisor asked what level of risk I was comfortable taking on, I said, “medium”. I was sad my $900 hadn’t grown at all, and knew I didn’t need the money until retirement, so it was “time to get serious”. I moved my money into a medium-risk mutual fund RRSP, and increased my contributions from $25/month to $50/month.
Between 2007–2009, I increased my contributions from $50/month to $75/month and then $100/month. In 2010, I contributed a total of $1,200. In 2011 – the year I realized I was maxed out with all my old debt – I only contributed $450. But then I contributed $1,500 in 2012, and it’s only gone up since. While these amounts may not seem like much, remember I was also working for the BC Public Service from 2007–2012, and contributed $16,378 to my pension during that time. Spread out over 54 months, that’s ~$303/month I was putting away for retirement, on top of the $100/month I was putting into my RRSP. Of course, I had no control over how much I contributed to my pension, and used to hate seeing it come off my cheques… but it paid off, after I quit (we’ll get to that later). When I left my government job and moved to Toronto for the job I have now, I realized I couldn’t bank with Coast Capital anymore, and moved my money again…
After not paying a penny in banking fees for 5 years, I had no desire to switch over to one of the big banks. So, I decided to open free chequing and savings accounts with Tangerine (then ING DIRECT Canada), as well as a medium-risk index fund. Now, I didn’t technically have to move my RRSP over from Coast Capital. I could’ve kept it, and just setup an automatic savings plan with my Tangerine chequing account. However, after 5 years of investing my (small amount of) money in the balanced mutual fund my advisor had chosen for me, I could tell that my returns were… well, crappy. At that point, I still didn’t know anything about investing, but I knew I had put $6,500+ into my RRSP and didn’t have much to show for it (we’ll talk about why, at the end). So, for the first time ever, I actually did a little bit of research on Tangerine’s index funds, before deciding to open one.
I emphasize a little bit of research because, the truth is, Tangerine made it too easy. With only 4 funds to choose from, versus the dozens that other banks seemed to have, I went for the one that matched my risk tolerance. And their fund fact sheets were so easy to read through that I actually felt like I knew what I was getting myself into. On top of laying things out in simplest terms, they showed numbers and examples that actually made sense – including how much it would cost to invest in the fund. Up until this point, no bank had ever talked to me about how much an investor had to pay to invest in mutual funds. I don’t know if I thought it was free, but I certainly had no concept of what I was paying. When I read that Tangerine’s funds had a management expense ratio (MER) of 1.07%, I did a little more research and discovered it was one of the lowest offered by any bank. That was apparently all the info I needed, to feel confident about moving my money over and closing my mutual fund RRSP with Coast Capital…
I’m still mad at myself for putting so little money in savings in 2013. I earned more that year than any other year before, but put just $2,300 into my Emergency Fund and $1,500 into my RRSP. There’s no excuse, really, but I do know what happened. After aggressively paying down $30,000 of debt over 2 years, I was just done. My gazelle intensity died. And, as you can see, up until that point, I’d hardly amassed any substantial savings before. On top of that, I didn’t have any clear goals. Anyway, 2013 wasn’t a great year for my savings, but at least it’s behind me… and things seriously kicked up a notch in 2014.
Last spring, I decided to transfer my pension from the BC Pension Corporation into my RRSP. When you pull your pension early, they give you a commuted value, which is essentially the future value of your contributions, according to some unknown interest rate and formula that your pension provider won’t explain to you. Anyway, BC Pension Corp. decided the $16,378 I contributed would be worth $27,634 by the time I turned 55, so that’s the amount they were willing to give me. I put every penny of it into my RRSP last August, and have happily watched it grow to more than $30,000 since then (even with some serious dips in September/October). Taking control of my pension is one of the best financial decisions I’ve made to date, because now that money has the opportunity to bring me some serious returns! On top of that, I have to admit that seeing the balance of my RRSP go way up is a huge reason I was so inspired to start saving more. In 2014, I put $7,700 into my Emergency Fund and $3,500 into my RRSP.
Now, let’s get into the nitty gritty of where my money is today and why. As I mentioned a few weeks ago, one of my goals this month was to consolidate two RRSPs into one, and amalgamate all my TFSAs (I had many). After so many attempts at trying to have multiple savings accounts for multiple goals, I was once again reminded that I just suck at small savings goals. I just want one lump sum of regular savings, one TFSA investment fund and one RRSP investment fund – that’s it. I finally made all of that happen last week, and here’s how it looks:
My regular savings account is now part Emergency Fund, part planned spending. I’d like to maintain a balance of at least $5,000 at all times (the Emergency Fund aspect of it), which means I’ll throw extra money into it for travel, weddings, etc. It’s basically just my way of giving myself some peace of mind, but also having cash on hand for things that come up.
RRSP Index Fund
Before I talk about my TFSA investing strategy, I think it makes sense to first talk about my RRSP. I don’t think it’s worth writing a post with my opinion on the RRSP vs. TFSA debate, but here’s my personal stance in two sentences: 1) TFSAs are awesome. 2) For the next few years, I’m only going to contribute enough to my RRSP that it counters what I make in freelance income, so I’m not hit with a huge tax bill later. So, I’ll continue to contribute $3,000-$5,000/year, but I really want to focus on maxing out my TFSA.
TFSA Index Fund
Oh, I guess I just told you what my plan is here, haha. But seriously, Canadians are currently able to contribute a maximum of $36,500 to their TFSAs (next year it’ll go up to $42,000), and I want to max mine out. It’ll likely take me 2-3 years of serious saving to make that happen, but that’s what I want to do. As soon as it’s maxed out, I’ll continue to contribute the maximum amount we’re allowed to (currently $5,500/year) and then invest the rest of my money in my RRSP, some ETFs in the future, etc.
As of right now, both my RRSP and TFSA are held in Tangerine’s Balanced Growth Fund, and there were a few things that helped me choose it over the others. First, whenever you open a new investment account, banks have to ask you what your risk tolerance is. Tangerine asks a series of questions, which always lead me to this fund. It’s the only medium-risk fund they have, so that takes care of one deciding factor. Second, I consider everything I’m putting into these two accounts to be part of my long-term investing strategy, so I’m comfortable with its asset allocation. Using the “age-old” question, and knowing I’m a somewhat conservative investor (but am comfortable with more risk than I used to be), I know that stocks (equities) should make up ~80% my investment portfolio (110 – age 30). The Balanced Growth Fund is only at 75.4%, but the next fund up is at 99.3%. I wish I could say I’m comfortable with that, but I want to be able to sleep at night, haha. Third, the fund has had returns of between 8.61 – 11.13% per year for the last 3 years. Oh, and then don’t forget the low MER. At this point, I think Dan Bortolotti would call me a novice investor, but I’m going to call myself a Jr. Couch Potato, since I’m only investing in Tangerine index funds. When I’m ready to dive into the world of ETFs, I’ll likely look at Vanguard… but that’s for another day.
Mistakes Made in My First 10 Years of Investing
So, that’s that – my journey with investing so far. (Are you still reading? Love you, if you are! haha) Considering I was maxed out with $30,000 of debt just 4 years ago, I’m pretty happy with where my net worth stands today. Unfortunately, as this timeline shows, I also made almost every mistake in the book, during my first 10 years of investing:
- I trusted that my bank had my best interest in mind. As you can see, I’ve always invested my money with the same institution I do my daily banking with, which seems to be the norm – but that doesn’t mean it’s smart. If you take the time to research all the best options, and are willing to invest your money elsewhere, you’ll likely see much higher returns than what your bank could ever get you. I learn this lesson every day at work (dealing with mortgage brokers vs. banks) and the same is true for investing. The one instance where it’s worked out for me is that Tangerine has some of the most recommended funds of all banks, and I just happen to bank with them, too.
- I didn’t understand what mutual funds were, how they operated or how much it cost me to invest in them. I don’t know what CIBC’s MER was, but I later learned that Coast Capital’s was 1.73% + a flat fee of $45/year. <— That is insane! It means that if I only had $1,000 in the account, I’d have to pay $62.30 ($17.30 MER + $45 fee) for them to manage the fund. If I got anything less than a 6.23% return, I’d earn $0. It’s no wonder why my small savings didn’t budge.
- I didn’t take enough risk. The younger you are, the more risk you can take on – I wish I had understood that, when I first started out. Instead, I started with a low-risk fund, and have only recently been investing in something that’s more appropriate for my age. Think of all the returns I lost out on…
- I didn’t save enough. Period. And that one makes me sad.
Despite all the mistakes I’ve made, the one thing I am grateful for is that I started “investing” when I did. Sure, if I could go back, I’d tell 19-year-old Cait to put at least $200/month into a medium-to-high risk fund instead (and if you’re 19, that’s my advice to you!), but at least I started with something. I’m grateful for all the appointments I used to make with financial advisors, and I’m grateful that I took the time to move my money around, when I could see it wasn’t growing. I may not have much to show for it yet, but all the mistakes I made have got me to where I am today – and I’d say things are looking up. :)
Care to share any mistakes you’ve made/lessons you’ve learned, in your own journey with investing?