No matter what age you are, it's always a good idea to start investing. You will always benefit from putting money away, whether it's intended for a purchase that's a couple years away, or for your retirement forty years down the road. While it may be ideal to start saving for retirement early, there is no reason you can't start later in life and still maintain a good nest egg. On a similar note, putting money aside on a new-grad salary will benefit you in the long-term, no matter how much you have to start investing.
Investing shouldn't be complicated, and it certainly shouldn't be exclusive. We've put togehter some tips to help you start investing at any age.
Define a goal
What are you saving for and when will you need to access the funds? Having a clear idea of what you’re saving for will help keep you on track, and help you to make smarter decisions as to how much risk to take in your portfolio. In a well-diversified portfolio, higher risk is generally linked to higher returns. For short term goals, invest in less risky assets; you don’t want to take the chance that there’s a dip in the market when you need the cash. For long term goals, you can afford to assume more risk. Since you won’t need the funds in the near future, you can be more comfortable with year-to-year fluctuations.
Know your fees
Check how much you’re paying in fees. They may not seem like much, but the amount you’ve saved in fees by the time you retire will impact your nest egg significantly. For example, if you were to contribute $5,000 every year for 40 years, a 1.5% savings could mean over $250,000 extra in your account. Shop around for the best rates; taking the time to research low-fee options will be time well spent when you find you can retire earlier, or save more for your child’s education.
Work with an advisor
Choose someone who is a fiduciary (i.e. someone who works in your best interest) and can guide you in making the right investment decisions along the way. To help you find the best person for the job, here are three things you should look for in a financial advisor. Don’t hesitate to ask your advisor questions like how he or she is paid, what services are available to you, and how your portfolio will be balanced.
Don’t overreact to swings in the market
Many investors get jittery when there’s volatility in the market. By staying invested and keeping a cool head, you’ll avoid the biggest mistake of buying high and selling low. Staying calm in these scenarios will do more for your portfolio than trying to time the market ever will. Remember to stick to your plan. Working with an advisor will help keep you on track when the market gets shaky.
Be tax efficient
Pick an account type that minimizes your taxes and allows you the flexibility to take money out if you need it. RRSPs defer tax until you withdraw funds, which means that any contributions you make today reduce your taxable income for the current year. You can also put RRSP money towards a first time home buyers plan or a lifelong learning plan.
A TFSA is another tax-efficient account that uses after tax dollars, but the money grows tax-free and withdrawals are not taxed as income, like RRSPs. This is a great account for short term goals, like saving for your wedding.
Start planning for retirement ASAP
The earlier you start, the better. If you’re young and working at your first job, start investing now with whatever you’re able to contribute. As you progress in your career and see an increase in your salary, you can increase the amount of your contributions. Contributing $5,000 per year from the age of 25 to retirement is about $800k, and about $400k from age 35 to retirement. Having said that, saving for retirement is a good move at any age, and finding a low-fee investment model will help you maximize your savings and achieve your goal sooner.
Nobody can predict the future, but if you want a simple trick to buy low and sell high, contribute to your investment account frequently. Not only does it help you make investing a routine, but you can take advantage of dollar cost averaging, which means you’ll be able to buy more units when prices are low, and fewer when prices rise (the old adage of buying low and selling high).
No matter your age or how much you have to start with, making the decision to invest will give you peace of mind in achieving your financial goals. As always, our advisors are a call or click away to help you get started.