I know the basics — the difference between RRSPs and RESPs, what TFSAs are and how pensions work. Beyond that, I’m an investment dummy. How should I save for my kids’ college years versus longer-term things like retirement? What does it look like to say that I’ve got the best investment in Canada working for me? And how much risk should I weigh against the probable rewards?
Now that I’m self-employed, I realize how much I’ve been relying on my old job’s group RRSP, my husband’s projected pension and our forced savings plan (a.k.a. our mortgage) to prepare for old age. And at 44 years old, that “old age” age is starting to feel dangerously close.
When Tangerine approached me to write this blog post about investing, I was apprehensive. But I felt inspired by an opportunity to learn more and hopefully become more involved in my financial future.
Because here’s the truth: I’m pretty limited in my investing experience. I have RRSPs because my old job matched contributions and it seemed crazy to turn down free money. I have RESPs because I didn’t really know what else to do with all of the money my kids get for birthdays and Christmases. I ogle my husband’s pension statements every quarter and dream of the day we can use it all to travel the world, forgetting about the realities of how much it costs to be retirees. And although we’ve had TFSAs, we’ve used them for tax time and then carelessly draw on and never really replenished them.
I’ve made strides this year with stuff like budgeting and have even saved more as a small business owner than I ever have in my adult life (I have to because I can’t just depend on a regular paycheque anymore). We’re getting better at teaching our kids the value of a dollar, and I know they need to see us model good financial literacy.
This is important stuff and it’s time we get serious about it. I’m a wannabe savvy saver and hungry for knowledge, so off I went to learn more about Tangerine’s investment funds.
Ready to learn with me?
Investing for beginners: Canada Edition
This is where I’m at: in just seven years, The K Man will be ready to head off to postsecondary school, so I need money to grow now and be able to access at least some of it during those years without incurring early withdrawal fees. I also need to sock away money that I have no business touching until I’m a ripe 65 or so (and if we can make that 60 thanks to some smart investments now, I’ll consider that a bonus).
So my first stop was figuring out what’s available to me as a Tangerine Client in Canada and learning more about the best investment options for those short- and long-term needs. But the idea of hopping on the phone or heading to a brick-and-mortar bank to talk to an investment expert before I’m really ready to move my money unnerves the introvert inside of me to no end.
I’m in the research phase, after all. I really just want to see what’s out there and what makes sense for our needs. Thankfully, I was able to get a lot of information on my own using Tangerine’s online investment tools.
This is what Tangerine offers:
- Investment Fund Account — for long-term needs, with funds that are diversified with an index-based strategy to reduce Client costs.
- Tax-Free Investment Fund Account — a tax-free investment with diversification, an indexing strategy and low fees.
- RSP Investment Fund Account — designed for retirement, this is best for a long-term investment.
- RIF Investment Fund Account — gives Clients the ability to use money they’ve saved for retirement alongside continued growth potential within that investment portfolio.
OK, first of all, index-whaaa? I learned that an index-based strategy simply means your portfolio is made up of hundreds of investments, offering diversification. (Also known as not putting all your money eggs into one basket.) It involves investing in an entire market rather than picking and choosing individual investments.
My next question became how much is this gonna cost me? I mean, I know it’s not free to invest. Somebody’s got to get paid to do all of this work on my behalf. But like all fees — in banking and beyond — some companies charge more than others. My obvious goal is to keep more money in my pocket by avoiding high fees.
Low-cost investments in Canada & the MER
Tangerine’s site promotes “low-cost investing” over and over, but what does that even mean?
I did some digging.
There’s something called a “Management Expense Ratio” (MER), which is important to pay attention to, especially since Canada happens to have the highest average MER in developed markets[i]. Lucky us.
All mutual funds have an MER and it’s made up of (a) a management fee, (b) operating expenses and (c) annual taxes charged to a fund. The MER is your fee. So it stands to reason that the lower the MER, the better for your wallet.
Apparently, a 1.5 per cent MER is considered high[ii] globally. In Canada, the average MER is actually 2.23 per cent. To make the math easy, if your Canadian investment portfolio is $100,000, you’ll lose $2,230 each and every year to fees on average[iii].
FYI, Tangerine’s MER currently sits at 1.07 per cent. Maybe that’s because of its smart indexing strategies, maybe it’s because they don’t have oodles of branches and can pass those hard-cost savings to Clients. I don’t know. But I know that saves me more than half of the average investment fee.
What are my best investment options, then?
In the final leg of this research phase I’m in, I turned to the interactive Portfolio Selector. Think of it as a risk-assessment calculator.
Here’s what it asked me (each question has a series of answers in a drop-down menu):
Based on my answers, this is the type of investment Tangerine believes suits me and my risk level best:
Based on my unique profile, once I decide on an investment portfolio, Tangerine will monitor it over time and rebalance when needed, ensuring it continues to align with my objectives. For a 1.07 per cent MER[iv], no less!
Finally, I found two tips on Tangerine’s Forward Thinking blog that really resonated with me:
- The price for higher-potential, long-term returns is short-term volatility, so it’s pointless to pay attention to daily market performance headlines (you’ll probably end up second-guessing your portfolio) when you should be playing the long game.
- Having an investment plan is like planning a road trip — how many people would get into a car and start driving without a map or GPS, only to end up somewhere…eventually? Not many.
Overall, thanks to everything I learned on this fact-finding mission, I feel a lot more confident about my options and I’m more ready than ever to pull the trigger.
Want to learn even more? Check out Tangerine.ca and its investment zone.
DISCLAIMER: Tangerine offers banking that’s accessible and flexible, with award-winning Client service, that empowers Canadians to make smarter decisions with their money. Tangerine compensated me for this post, but I did all of the research and gathered all of the information on my own. All opinions are mine.
[iv] At time of writing (10-24-19)