This is Part 2 of a 3-Part series in how I started investing. If you’re new here, please take a moment to read Part 1: The Beginning!
In this blog post, I’m going to talk about how I got started managing my own portfolio, as well as the mistakes (and small wins) I made along the way in creating my own DIY investing strategy. :)
So in Part 1, I left off by talking about how I had just learned about Management Expense Ratios (MER) and the existance of the TD e-series Funds from a blog. As soon as I felt like TD Canada Trust was taking more money away from me than necessary with the high MER on the Balanced Growth Fund they had gotten me to invest in, I made it my mission to try and keep as much of my own money as possible.
After doing a bit of research, I decided that the TD e-series Funds were the right product for me to invest in. The funds seemed straight forward enough, and I was excited to get started! However, because the TD e-series Funds aren’t really managed by TD, it was a huge headache figuring out how to switch my account over (especially because there was very little information on the internet about e-series funds at the time). I’ve talked about my issues with TD a lot on this blog, but finally figured it out.
Related: How to set up a TD e-series account
To be honest, when I finally got my account set up and was able to buy e-series funds, I didn’t really know what I was doing. I just started reading about each fund, and randomly purchased ones that sounded interesting. At one point, I had 9 funds in my account: CDN Money Market, Canadian Index-e, U.S. Index-e, European Index-e, Japanese Index-e, CDN Bond Index-e, International Index-e, TD Dividend Growth, TD Balanced Growth.
You’ll notice that I ended up buying another TD fund with a high MER – Dividend Growth. Why did I do that? I have no idea. So you can start to see that even though I was mostly investing in low-fee mutual funds, I was still pretty lost at this point.
I continued contributing to these funds over the next couple of years, building my portfolio up to the point where I had almost $40,000 in 2011. It felt great to see my money grow, but at the same time I was questioning whether or not I was on the right path for my goal of early retirement and financial independence. I didn’t have a strategy, and it really started to bother me.
So I made it my goal to start reading articles about investing. I wanted to read all that I could about mutual funds, ETFs, stocks, and some sort of basic investment strategy for someone in my position. But instead, I found myself researching investment advisors instead. Up until that point, I didn’t believe in paying for someone for financial advice. I figured I was young enough to do my own thing through trial and error. And besides, I had the basics down. I knew I was invested in the right mutual funds, and I had the basic understanding of what I needed to do. But nobody had ever seen my investments before, and I began to crave direction and validation.
After looking into investment advisors for a few weeks, I decided that I wanted a “fee-only” advisor, because I was confident that – once given a plan – I could execute it myself. Luckily, through my previous gig with the Toronto Star, my editor asked if I wanted to be a guinea pig and get complimentary advice from a fee-only financial advisor. Of course I said yes immediately. It was perfect timing.
A Rebalancing Act
Above, I mentioned I was invested in 9 different funds at the time:
- Asset allocation
- 91.7% stocks
- 2.7% bonds
- 5.6% cash
- Geographic allocation
- 51.6% Canada
- 24% U.S.
- 24.4% International
In speaking with the financial advisor, I learned that while my geographic allocation was good, my asset allocation was too risky. He recommended rebalancing to 70% stock, and 30% bond funds. He also advised that my portfolio was over-diversified. By a lot. For example, the allocations contained in both the European and Japanese Index-e funds were also contained within the International Index-e fund. He also called me out on investing in that Dividend Growth fund, which boasted a lame 2.03% MER. Whoops.
The financial advisor told me that I should simply my portfolio from 9 mutual funds down to just 4, and suggested this allocation:
- 20% Canadian Index-e
- 25% U.S. Index-e
- 25% International Index-e
- 30% CDN Bond Index-e
It all made sense to me, so I took his advice (to this day, I’m still invested in those 4 mutual funds with that exact percentage allocation). I continued to invest in my TD indexed mutual funds for the next two years, and it wasn’t until 2013 that I took the next step in my DIY investing strategy and branched out.
Part 3 coming soon…
Often I’m asked to write posts about investing. I haven’t wanted to write about investing on this blog because I’m afraid of giving wrong advice. I’m obviously not a professional, but at the same time I think a lot of you have been in my position before: in your twenties, wanting to start investing, but not really sure where to start. Right? So I’m more than happy to share my story about how I started investing, the problems I ran into along the way, and how I taught myself to manage my own portfolio (it’s an ongoing process). :)
So here’s Part 1 of a 3 Part series.
Part 1: The Beginning
When I graduated college in 2006 I was 23. I owed over $20k to student loans and credit cards. Debt was my first priority, but I knew I wanted to start saving as well – even if it was just a little bit. I was making about $30k/year so I was only able to put aside $50/month ($25 into an Emergency Fund, and $25 into an RRSP) – but it really helped me establish a pattern of saving. And in the future, when I was finally out of debt, saving was already something I was used to doing. It made the transition from making payments on my debt, to making payments into my savings account pretty seamless.
When I first decided I wanted to save for retirement, I was really clueless. There wasn’t a lot of information out there on the internet that I could understand, and there were only about 4 or 5 Canadian PF blogs out there. All I knew was I wanted to start saving for my future, but I didn’t know how to start. So I went to TD Canada Trust (my only bank at the time), and spoke to someone about opening up an RRSP mutual fund account.
I remember sitting in her office, feeling very intimidated. I wondered what she thought of me, and the fact that I could only afford to save $25/month. But everyone has to start somewhere, and she was helpful in answering any questions I had. We went through a questionnaire to determine my risk-tolerance level, and eventually she signed me up for the TD Balanced Growth Fund (MER of 2.24%).
After that meeting, I was really pleased with myself because it seemed like this was the first step to becoming financially savvy. It made me feel grown-up to be investing in my future, and I became obsessed with tracking my little mutual fund’s progress. I set up a spreadsheet and tracked its performance on a daily basis. Seriously.
I understood that I wasn’t going to need the money for at least another 35 years, but I didn’t really get what 35 years meant. I wanted to see my money start to grow immediately. So I continued to check on my mutual fund on a daily basis. My stomach would drop every time my fund wasn’t doing well, and I’d cheer whenever it was doing well. This went on for about 6 months before the stress became too much and I told myself that 35 years = 13,000 days, and there was no way I could continue on like this. I needed to chill out. So I did. :)
It was about a year later that I first heard about the TD e-series Funds. I remember reading about it on a blog, and the big discussion was around Management Expense Ratios (MER) and how bad they were. I remember a few people referencing the TD e-series Funds in the comments and acknowledging how low their MERs were, and how they were likely the best mutual funds around.
When I went to check the MER on my Balanced Growth Fund, I was horrified and a bit embarrassed. How dare TD take so much from me! I felt like they were stealing profits from me, and the more I looked into the TD e-series Funds, the more I wanted to give it a try. Not just because I wanted to get away from funds with high MERs, but because I really wanted to learn how to manage my finances on my own. I wanted to know where my money was going, and I wanted to be doing it myself. The idea of DIY investing was really starting to appeal to me.
Part 2 coming soon…
I don’t know how many times I hear my friends tell me that they never check their credit card statements, have no idea what is included in their cell phone plans, or have no idea what their money is invested in.
In just the past few years, I’ve caught countless fraudulent charges on THREE different credit cards, incorrect billing on my cell phone account, and was almost caught in an international apartment rental scam. :| It can happen to anyone.
That’s why I’m in favour of mobile banking apps because I can check my balances and recent activity wherever I am. I also like any sort of program that will help me keep track of my spending. I personally like Quicken (because it’s super in depth), but lots of people are into Mint.
But what about investing? When it comes to giving somebody else large sums of your hard-earned money to invest, it can be pretty scary. That’s why I’ve always managed my own portfolio – I can keep track of where my money is going. However as I get older, and earn more money, I definitely want to diversify my portfolio. And although I’d love to keep doing it myself (and I likely will), I’m keeping an open mind when it comes to finding somebody else that would be better suited to helping me achieve my financial goals.
Anyway I recently came across the Be Fraud Aware website – a program by the B.C. Securities Commission, and I thought it was kinda cool. I immediately downloaded their free app. (This might only be relevant to British Columbians, but maybe your province or state has a site or app like this too.)
Basically this app lets anybody identify, spot, and report investment fraud – wherever they might be. I think this will be a really helpful app for people to get information, and report something immediately. Plus, it’s a way to stay up-to-date on the current fraud trends.
My favourite part of the app was reading through the disciplined persons list. It’s pretty detailed, and lists each person’s violations, sanctions, and payment ordered. For a nosy personal finance blogger like me, that’s really interesting. :) Plus, I actually do feel more secure having this app with me. I don’t know how often I’ll use it, but it’s nice to know that it’s there if I need to reference something.