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Retirement

Getting Started? Invest Early, Invest Often

Are you confused or stressed out about investing? Here are the three key steps to start investing for retirement.

The Evermore Team

The Evermore Team

We all deserve to feel confident about our finances. Evermore is here to make sensible investing accessible to everybody.

Many people find the concept of saving and investing for retirement to be confusing and stressful.

It can be confusing because even the most basic aspects of personal finance are not taught in schools, and many people feel uncomfortable working with numbers.

It can be stressful because many of us don’t know the core principles of what makes retirement investing work.

The good news is, if you break it down into smaller steps, the main ideas are not too difficult to understand.

So then, how do you do it? How do you invest for your retirement?

There are three main steps:

 

Step 1: Set up investment accounts

First, open investment accounts (a.k.a. a brokerage account, a discount brokerage account, or a direct investing account – different companies may call it a slightly different thing, which really isn’t helpful to the average Canadian) at any of Canada’s big banks, or larger independent firms. Each of these financial institutions offer various degrees of functionality and cost. To see how they compare, check out Rob Carrick’s annual review of the largest firms in the Globe and Mail.

Be sure to set up at least these two types of accounts:

  1. RRSP account
  2. TFSA account

Why? Taxes. You want to keep your tax bill low, not just this year, but over your entire life. To learn more, check out Evermore’s e-guide on RRSPs and TFSAs to see how you can use these accounts to your advantage.

The best part about completing this step is that once it’s done, it’s done forever. (Unless you decide to change financial institutions at some point down the road.) It might seem like a pain to get this done, with all those forms and paperwork to complete, but it’s just a one-time thing and you’ll be so glad you did, so maybe treat yourself to a nice meal after you’ve done this!

Warning: when opening a direct investing account at any of the big banks, they may try and convince you to invest in their own high-fee mutual funds at the branch. Check out our blog on the benefits of direct investing to learn why getting the access to the universe of low-fee investments via a direct investing account is so important.

 

Step 2: Save your money

Okay, you’ve opened those accounts. Now you need to get money into them. If you have some extra cash, you can deposit that into these accounts. Just be mindful of the contribution limits for your RRSP and TFSA. You can learn more about contribution limits in our e-guide.

You also need to save money on an ongoing basis. Think of saving as paying yourself first, you deserve it!

There are two approaches you can take:

  1. This is the easiest and fastest approach. Start by transferring over as little as $20 per paycheque. Consider it your own $20 challenge! And after a while if you find you can do more, then ramp it up to $40 or even $100 per paycheque. Bonus points if you set up a pre-authorized contribution (PAC) plan! The only disadvantage to guessing is that maybe you could have been saving more if you started too low, or maybe you might have saved too much and need more cash for today; that’s why it’s best to start lower, and slowly increase over time.
  2. This takes a bit more time to figure out, but it can be beneficial in many other ways. Tally up your (or your household) income and expenses for each month of the year and figure out how much you have leftover at the end of each month. The benefit is a greater sense of control, and a better understanding of where you’re spending money, and what kind of impact small changes might make. To start tracking your spending, you could use Microsoft Excel or Google Sheets, or if you prefer mobile apps, you could try the free budgeting app Mint from intuit.

Whichever approach you choose, make sure you can realistically and consistently stick to your plan.

One way to help you stick to it is to consider leaving a bit of a buffer to avoid cash shortfalls should something unexpected arise.

 

Step 3: Invest your money

So, you’ve set up your accounts and you’ve moved cash into these accounts. Great! Now what?

First, step back and consider, what are you investing for? Why are you doing it? What’s the goal? If you’re unsure what this means, check out our blog post on goals-based investing to help you frame your life goals, and how investing can help you realize those goals.

Most Canadians share the goal of retirement. If you plan to retire, you’ll need a nest egg to help support your retirement goals. To effectively invest for your retirement, follow these key principles:

  • Contribute consistently. Compound returns work their magic over longer periods of time. Investing $500 per month (equal to the 2022 TFSA contribution limit of $6,000) for 40 years and earning a return of 5% per year will result in over $760,000 after 40 years. You’ve contributed a total of $240,000, which means you’ve earned $520,000 more than you put in.
  • Keep fees low. If all you ever save and invest is the maximum TFSA contribution limit over 40 years, a 1% difference in fees could add up to hundreds of thousands of dollars. It’s like paying away 20% or 30% of your retirement nest egg. Check out our video on the impact of high fees and why you’re best to avoid them.
  • Consider investing in ETFs. There are so many benefits to investing in ETFs. They are easy to trade from any investment account. The right ETF can offer instant diversification at a fraction of the cost of mutual funds. There are many available at very low fees. But be careful: not all ETFs offer diversification, and not all have low fees. Do your research before investing in any ETF.
  • Don’t try to time the market. Nobody can consistently time the markets, not even the pros.  Humans tend to be overly confident in our ability to predict the future, especially when emotion is part of the process. Multiple studies show that the best approach is investing small amounts consistently over time.
  • Don’t try to beat the market. It can be tempting to “play” the market, especially when you hear stories from friends and family or see on the news how some people are “killing it”, whether it’s some small cap stock or the latest digital currency. Some people are lucky for shorter periods, but even the hottest fund managers quickly fizzle out. But just like timing the market, these strategies do not work in the long-run, and when you’re investing for your retirement, it’s all about the long-run!

Evermore Capital created the Evermore Retirement ETFs as a way for Canadians to easily invest for their retirement. They are a one-ticket investment, meaning you only need to invest in one fund to get diversified exposure to a global portfolio of stocks and bonds. They are target date funds, meaning their risk decreases over years and decades as you approach retirement. And they are low fee, which means you get to keep more of your hard-earned nest egg for yourself. Evermore has taken all the key principles of successful retirement investing and put them into a single ETF.

To Quickly Recap...

The best way to complete any complex project is to break it down into a series of easier, achievable steps. With investing for retirement, it’s as easy as just opening your accounts, saving some money, and then investing that money. And if you’re able to avoid the pitfalls that so many experience along the way, and you’ll be well on your way to affording a fulfilling retirement.

One final piece of advice: consider sharing these tips with a friend who has yet to take the first steps in saving and investing for their retirement – you could make a huge difference in their future.

 

Disclaimer:

The information contained herein is not intended to constitute an offer to sell or an invitation or solicitation of an offer to buy any product or service by Evermore. Nothing herein should be construed as investment, tax, legal or other advice.

All investments involve risks, including potential loss of principal. Investors should consult their own professional advisor for specific investment advice tailored to their needs and based on the latest available information.

Commissions, management fees and expenses all may be associated with ETF investments. Please read the prospectus before investing. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated.

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