Here is an email from a young reader “John” who had some questions for me. To summarize, John who is 19, is just starting out in the personal finance world and is wondering what he should do. Below is his email:
..if you don’t mind I have some questions about how you started off your personal finance journey at 16. I’m currently 19 and I work part time. I earn probably about $50-$200 Canadian dollars every month. I don’t work much because I value my grades in school but I’d still like to invest my money in a mutual fund of some kind instead of the savings account I currently have at ING. I guess my question is how did you find a mutual fund for yourself at such a young age. The process seems really intimidating for me right now and if you could shed some light on how I could start at a relatively young age as well I’d appreciate it very much.
If I was to give any advice for someone just starting out, I would suggest that you begin by staying out of debt, if at all possible. If you are carrying debt on your credit cards etc, I would forget about investing and focus on saving your part time earnings and paying down the highest interest debt first.
If you have your debt under control, and you have some RRSP contribution room you might want to start your investing there. RRSP’s are most effective if you foresee yourself having a high salary job later in life. I know that a lot of people will say that starting your RRSP when you have low income is pointless, however since you are young and have your whole life in front of you, you can carry forward your tax deductions for when you have a higher income year and enjoy the years of compounding ahead. An alternative would be to start a non-registered account which is basically considered tax sheltered as you currently have low income.
After you have your RRSP or non-registered account setup, your next question was what investments/mutual funds to pick. If I were in your situation and looking to spend $50-$100/month, I would open an online brokerage account with TD and purchase TD-E funds on a monthly basis. TD-E funds are index funds that have VERY low fees, but must be purchased online without an advisor. What is an index fund? An index fund is a fund that tracks the stocks in a particular stock market index based on market capitalization size (TSX, NASDAQ etc).
When I was young and had a very low balance, I opened an account with a CIBC rep. The account was free but the catch was that I could only purchase CIBC mutual funds, which was fine with me at the time. If I were to start today I would go with TD but I would personally wait for a market correction before purchasing equity index funds.
If you’re looking to do more mutual fund research, these are the sites that I use:
John, please note that this is not financial advice, but what I would consider if I was your age in your situation.
The readers on this blog will most likely give some great advice also, so John, I suggest that you read the comments.