So you’ve worked your way out of your parent’s house in the suburbs, achieved your initial career goals by working as a downtown professional, and now you realize its time to step up your financial game by making better use of your investment portfolio. What should your next steps be?
The first thing any serious investor should do is create a basic plan. Most investors neglect to do any planning and this usually results in poor outcomes and added stress, since when investors don’t know what their goals are, it will be impossible to reach them. A financial plan comes in many forms, and should be suited to your personal taste. If you’re having a tough time getting your day-to-day expenses under control, the best place to start is by making a budget. There are a ton of online resources that can help you create a budget and evaluate your results including simple calculators that will help you get a handle on the big picture, all the way to custom bookkeeping solutions that will treat your personal finances like running a business.
A basic financial plan can be as simple as a one page point form document. List your main financial goals (i.e. buy a house, save for vacations, retirement, etc) and some of your constraints (i.e. low risk, high risk, sustainable investing, etc). On a periodic basis, (monthly, quarterly, annually depending on your time constraint) list a few near term financial goals (i.e. open a brokerage account, portfolio re-balancing) and tack your one page financial plan to your fridge or beside your desk. This will help remind you to keep your plan on track.
If all of this sounds like a lot of work, then you’re probably better suited to working with a team of professionals. If you’re uncomfortable filing your own taxes, work with an accountant or bookkeeper who can file your personal return each year. If making your own investments is too time consuming or scary, find an investment professional who can give you advice and do the paperwork for you.
If your account is under $1 million or so, you won’t be able to use a full service broker, but you’ll be able to go into any bank branch and find someone you gel with. Don’t settle for the first person you meet, because you’ll get the most out of your branch banker when you find someone who you get along with. Don’t be afraid to do an introductory interview before starting a relationship with someone.
At the bank branch, you’ll have access to GICs (Guaranteed Investment Certificates) and mutual funds. You won’t be able to hold individual stocks. But if you open a self directed “discount brokerage” account, you’ll be able to hold any security available to the public including stocks, bonds, and low cost ETFs. All the major discount brokerages are nearly identical, so its best to have your discount brokerage account at the same institution where you do your main banking. Here is a list of discount brokerages from the major Canadian banks:
To open an account at any of these discount brokerages, you have a few routes to choose from. You can use your current online banking profile to populate the account forms online. You’ll still need to submit signed documents (and depending on the account type prove your identity) to the brokerage, which can be done by printing and mailing your signed account application. You can also bring your signed application to any bank branch (customer service desk) of the same institution. If printing out your own forms seems annoying, you can also walk in (or make an appointment) with a branch banker who can open an account for you in the branch, print off your docs, confirm your identity, and send your signed docs to the back office for approval.
Once you submit your account opening docs for approval, it will take a few days to a few weeks for your account to be reviewed and approved. Mark your calendar for two weeks, and check your online profile by that time. If your new account does not show up on your online banking profile within 2 weeks, call the 1-800 number of your brokerage to confirm they have received your application.
Once your account has been approved, it should show up on your online banking profile. Transferring funds can be done using an online banking transfer, but you can also send a cheque payable to your brokerage (not your own name) in the mail. You can also process transfers from other brokerages and investment accounts using online forms available on your brokerage’s website.
Managing your discount brokerage account takes a bit of work to start, but the nice thing about a discount brokerage account is you can tailor your account to meet your own specific needs/goals. You can hold a portfolio of low cost ETFs, stocks, bonds, real estate investment trusts, GICs, etc and any mix of what’s available. Each transaction you make for shares (such as stocks and ETFs) traded on the TSX will cost a one time transaction fee. This fee ranges from $5 to $10 depending on your tier level (bigger accounts and more frequent trades are cheaper). If you’re an hands-off passive investor, its perfectly fine to hold low cost ETFs and make 1 trade a year. You can even program your brokerage account to automatically re-invest your dividends (saving you even more time and transaction fees).
If you have specific questions about managing your discount brokerage account, or you would like me to write more posts on investing with a discount brokerage account in Canada, please reply to this post or send me a DM.