Twenty-six, he has two degrees, works seasonally at a golf club and lives in his parents’ basement. Why, I asked, don’t you take off? You have freedom and youth. Why not use them? He laughed a little and told me I sounded like ‘an old hippie.’
“It’s different now,” he said, “way worse. There are no decent jobs, all university gave me was debt and what am I supposed to live on? Here I’m getting fed, have my space, come and go as I want, and the price is right. Why the hell should I leave?”
Society dies a little every time a young person ducks risk. A boy-man who would rather know where his next meal’s coming from (mom) rather than test his limits in the world will likely never start a company or fight for an ideal. It’s all about risk. If you eschew it when you’ve nothing to lose, you will flee when you do. And then life is just a collection of days.
I’m constantly surprised at the conservativism of youth now. When it comes to money, they seem the first to pile into GICs, scramble to avoid losses or line up overnight to willingly trade their mobility for a condo and a mortgage. Makes you wonder what hopeless old farts they aspire to be, or are destined to become.
Such thoughts were kindled hours ago when I received this note from Toronto:
I am currently mentoring a 19 year old co-op. Okay, so it’s more like we talk financial matters at 2 am during night shifts at work, but he has very little knowledge regarding finances other than he’d like to have some more than what he currently has.
I’ve been trying to explain various matters to him – invest for one’s retirement early, tfsa vs rrsp, the potential future bankruptcy of most pension schemes, why I feel the real estate market will go down, that he needs to read and read and read. How does one start out if one is a clueless 19 year old with maybe $50 or $100 month to save? And why would one save that money instead of going out and having a great time with friends?
I remember I first began investing with a savings account, and then with Canada Savings Bonds. Investing with a brokerage account seemed foolish then as the fees would have equalled or exceeded any returns I could have made. I am reluctant to get into specifics with the young gentleman as I understand that one has to start saving for the future, and the earlier one starts the better, but how does one begin? Would it be possible for you to do a post for all the investing newbies out there?
Well, I’m sure there are books on such things. Or should be. But here are a few thoughts to impart to your young friend while you toil during the night.
Start with the money you piss away every week. Smokes. Meals out of vending machines. The little stuff, it adds up. Accumulate this, but don’t save it.
Open a TFSA, a tax-free savings account. The government lets you grow the money you put into this, and will never tax you when it comes out. So, obviously, you want it to increase, which will never happen if you just save to collect interest. The limit on new money is $5,000 a year. The growth allowed is infinite.
Don’t open the wrong kind of TFSA, like most banks tell you. No savings, no ‘high-yield’, no GICs or money market fund. You will not even keep pace with inflation, and get nowhere.
Use an online brokerage, instead, one with cheap trades and access to unlimited assets. Now, purchase some ETFs (exchange-traded funds) for the TFSA. These are like mutual funds, but without the do-nothing manager who charges enough to keep himself in new Porsches. They’re far less volatile than individual stocks and over time will reward you.
A decent place to start is XIU, a fund which paces the biggest companies on the Toronto stock exchange, giving good exposure to energy, banks, gold and other commodities.
Increase your position every month with more pissing-away money until you reach the $5,000 annual TFSA limit. Remember, the TFSA lets you also catch up on missed contributions from past years.
If markets crash, buy more. Never panic and don’t sell. You have decades to weather the storms and ride the advances. Fearless, smart young people buy when their parents are terrified.
Once you max the TFSA, put money into an RRSP, opened the same way. Here your limit is 18% of what you make in a year, but start now. Make payments monthly. Invest them in more ETFs, adding exposure to the S&P 500, emerging markets, corporate bonds and real estate income trusts.
Get your work to reduce payroll taxes by filing form T1213 from the CRA web site. Now use the extra cash in your paycheque to make the investments.
Do this month after month after month. Soon you will have what others envy – actual wealth. Investments. Liquidity. Options. Don’t blow it, buying some tarted-up concrete box with 5% down and a mortgage designed to suck the juices out of you. Do not be misguided by your parents’ bleatings to follow in their footsteps, since this is a new time. Forget the pressure of peers who are happy to swap freedom for faucets.
And if you can’t, get new friends.
But above all, try. At 19 there is no fail.