March 2, 2009, 6:00 am

How to Start Investing – A DIY Growth Investment Strategy Part 1

by: The Financial Blogger    Category: Financial Planning,Investment, Market and Risk,Trading
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– Pay yourself first –

The purpose of this post is not to go back to the basics of investing terms and making the different between a stock and a mutual fund. As I meet with several young professional and entrepreneur, I noticed that most of them have something in common: they make money, they know they need to put money aside to retire but they don’t really want to take care about it. So if you haven’t find a good financial advisor, this is a good post to get started in the investment world.

Setup a budget and pay yourself first

Start saving young is beautiful as this is the time of your life where you don’t have much debts already in place ( you are actually working pretty hard to get all your payments in place as you are buying your first house, your first new car and maybe having your first kid). So before you get all those payment, you are better off taking a bi-weekly amount (according to your pay check date) and start systematic investment. Your investment amount should be your very first payment once you cash in your pay check.

There are many ways to establish your budget and setup how much you should put towards your investment account. I actually suggest that you use a retirement calculator first and then, try to fit the number in your budget.

Since your retirement should be a priority (do not underestimate the power of compounding interest!), you should try to figure a way to include your bi-weekly savings into your budget instead of doing your budget and then trying to fit a bi-weekly savings investment in it.

The retirement calculator will help you out determine how much you need to put aside each pay in order to retire comfortably. In order to have a realistic results (the goal here is not to make beautiful charts and think that you are good for retirement with a systematic investment of $100 by pay check!), you need to include reasonable assumption.

For example, inflation rate should not be below 2%. Some people will argue that you should consider 2,5% in order to be really safe but I would say that anything between 2% and 2,5% is fine. Then, you need to determine how much you will make as investment returns. For now, I suggest you take something between 5% and 6% (net of fees). You will have a better idea of which number to put in with my second post of this series (how to determine your investor profile) on Monday.

You can also play different scenario with different age at retirement. You will be surprised to see how 3 years at work can make a huge difference on your retirement. By the way, never underestimate your life expectation. You should calculate your retirement as you would die older than 90 years old. My two grand-mothers are 88 and 86 and they are in top shape. I bet it’s going to be your case too!

In order to help you out, I have searched a few retirement calculators that you can use to determine the amount to be included in your systematic investment.

RBC retirement calculator

National Bank retirement calculator

Scotia Bank retirement calculator

CNN Money retirement calculator

MSN retirement calculator

Bloomberg retirement calculator

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what’s DYI Growth Investment?

Even if I am not starting to invest, it’s good to reexamine my basics assumptions and make sure I’m in track. I’ve just tried the retirement calculator from National Bank. I like it because it’s pretty visual!!

by: The Financial Blogger | March 2nd, 2009 (10:08 am)

Hey Sophie,

DYI was a big typo! I meant DIY (do it yourself) investment strategy.
too much coffee, not enough sleep!!

thx for pointing it out ;-D

I have also found that many people really dont understand or underestimate the power of compounding and tell themselves “oh its too early I have 35 years to get there” 3 years later in savings can cost you tens of thousands of dollars, I wrote about compounding just a little while ago point that out.

by: The Financial Blogger | March 2nd, 2009 (12:40 pm)

you are absolutely right. In fact, when I meet clients in their 20’s, I ask them when they want to become millionaires and not do they want to become one 😉

ohhh haha I thought it was a new strategy!!

According to my investor profile, I am a Moderate Investor. I realized that I am more conservative than I thought I would be. I was reading about my ability and my willingness to take risk. How can I determine those?

FB: I had many clients in early 20’s, most of them believed becoming a millionaire is not really possible, until I showed them compounding and early investing, most of them lived with parents and have a good income low expenses but live pay-check to pay-check, now most of them are savings about 15% of their income it took some time to get there.

Sophie: Most people are more conservative than they believed they would be specially with the current markets. some of the major factors that go into determining your profile is : Time horizon, Current amount of savings, net worth, debts and income.
time probably being the biggest factor

Regardless of whether you’re a growth or value investor, it’s important to educate yourself and understand your own needs, and how that fits the appropriate risk profile. And as discussed in FB’s previous posts on finding a good advisor, it’s crucial that they understand where you want to go with your investments and where your current and potential future obligations are.

The systemic investment strategy in this article, is this dollar cost averaging?

by: The Financial Blogger | March 2nd, 2009 (4:18 pm)

yes, systematic investment is to invest on a weekly, bi-weekly or monthly basis. This is the best way to increase your portfolio (I don’t believe in the big lump sum at the end of the year or the loan in order to catch up unused RRSP contributions).

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