Do you ever feel like you’re slogging away at work but you can’t seem to get ahead when it comes to your finances?
You’re not alone: The average length of time it takes young Canadians to save for a downpayment was listed in a report by Generation Squeeze in 2016 at — wait for it — 23 years.
Perhaps you’ve got a side hustle in a bid to save more money, but you feel like it just covers your expenses. It makes you wonder how you can get out of the circle you seem to find yourself in. Here’s the thing: the answer could lie in investing.
To find out how and why investing could be a viable option, we spoke with Brandon Chapman, financial security advisor at Freedom 55 Financial and advisory committee member of the Greater Vancouver Board of Trade‘s Company of Young Professionals.
How can someone create wealth in such an unstable economy?
Brandon Chapman: There are always going to be risks in the economy, the wealthiest individuals know that taking calculated risks in areas they are knowledgeable and relying on trusted professionals in areas they are not will build sustainable wealth. Real estate, securities, building your own business – they all work. Focus on what is working, interest rates are still at all-time lows, technology innovation continues to drive down the cost of doing business and we live in the greatest country on earth to build wealth regardless of your socio-economic background.
How much money should an individual set aside for their first investment?
BC: Once you have an emergency fund (typically three to six months of expenses), you should be investing the surplus. Sitting on cash doesn’t build wealth, it erodes it.
How does investing actually work?
BC: Buy low, sell high. Simple right? The first step is to identify risk tolerance and time horizon for your money. Some choose to invest themselves through a platform like Questrade. Some choose to work with an advisor, or through a robo-advisor. Typically, high net worth clients choose to work with a human advisor they trust who can educate them and help build a personalized financial plan and avoid making costly mistakes.
Should an individual treat their investment fund like a savings account?
BC: Definitely not, the key to building wealth is to have your money work for you. If you run a business and you keep pulling your employees off the floor, they can’t do their job effectively.
How do high-and low-risk investments work?
BC: It all comes down to volatility and liquidity. Every investment has risk, even cash is subject to inflation risk or reduced purchasing power. There are four types stocks to consider: blue chip, growth, new issue, and defensive – each carry a different level of risk and depending on what your short and long terms goals are you should consider different stocks. A general rule of thumb is that higher risk=higher volatility but also higher potential long-term returns (and losses).
Why should anyone invest instead of putting that money in savings or towards a downpayment?
BC: Anyone owning real estate in Vancouver over the last 10 years has enjoyed some fantastic price appreciation. It was the perfect storm of limited supply, bureaucratic challenges with zoning, and continually dropping interest rates. That being said, real estate is not the be all end all. There are four tax shelters in Canada: your TFSA, RRSP, principal residence, and permanent tax-exempt life insurance. Each solves a different purpose and it’s important to evaluate what your goals are before deciding which combination to utilize to build wealth.
What is the best piece of financial advice you ever received?
BC: Don’t put all your eggs in one basket. Simple, but the number of people I know that put significant amounts of their wealth into cryptocurrencies are in a dire situation now. There will always be flavours of the week but good savings habits, diversification, and a long-term approach don’t go out of style.
How can someone start working towards an investment portfolio today?
BC: If you’re just starting, WealthSimple has a very intuitive platform that will help you get started with your RRSP and TFSA accounts. If you’re a more sophisticated investor you may want to interview a local financial planner to build you a financial plan – it’s much like entering an intimate relationship so fit is key.
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