Preparing To Venture Into Investing Comments62 Comments

When I first set out on my personal finance blogging journey, one of the areas I knew I needed to improve upon was investing.

Over the years I’ve been making the mistake of listening to the ‘financial advisors’ at my bank as I tried to venture into investing. At the time I didn’t realize that they were nothing but salesmen. They make money by convincing you to purchase specific investments. It doesn’t matter much to them if you actually make a decent return on that investment.

In the back of my mind I was aware of this, but I somehow thought they’d still be honest enough to want to make me money at the same time. I now realize that was pretty naive of me. People are often only looking out for themselves, especially when commission is involved.

So in the past I’ve been ignorantly accepting low returns on lousy mutual funds. Each year when I go in to talk to them they give me some excuse about the market conditions or how they have a better mutual fund for me to invest in. Thanks for the bullshit!

Do you know what? To hell with mutual fund salesmen. To hell with paying a hefty Management Expense Ratio (MER) for those mutual funds. Why am I wasting my time on that crap when the majority of mutual funds get outperformed by indexed funds. I could be doing nothing more than investing in indexes and making more money. Or better yet I could figure out this investing thing and make some real money.

So how did I finally wake up and smell the roses? First it was when I read a book all about Warren Buffet and his investment philosophies, titled The Warren Buffett Way. The book didn’t suggest investing in mutual funds, but it did highlight why mutual funds are such a bad choice. I learned that Buffett’s strategy was all about putting in plenty of time to properly research companies to determine which are run best. Unfortunately I just don’t have the time to do that.

Next I read Millionaire Teacher. The strategy outlined in that book really appealed to me since it didn’t take a lot of time but consistently outperformed the majority of mutual funds. This was all based around buying index funds and bonds.

While this felt like the right strategy for me, I couldn’t help but long for the big stock market gains that I read about some investment bloggers pulling off. So recently I started reading The Neatest Little Guide to Stock Market Investing. I’m not far enough into it to get full picture of the strategy the author is pushing, but it seems to be more about analyzing companies and their stocks. I still might not have the time to pursue this strategy, but I’m awfully tempted to give it a shot.

One thing is for sure, I’m not going to rush into anything. I’m currently getting ready to buy my first home. So I’m not willing to risk that down payment money on an investment that I might have to wait on. That means putting up with some lower returns in the meantime knowing my money will be available sometime in the near future.

Once I’ve bought a place that’s when the real fun begins. Most likely I’ll wade in with some index fund investing. No that won’t be too exciting, but it’ll gradually get me more interested in paying attention to the market. As I get more comfortable with investing, stocks will be my next target but that will take some thorough research.

I’ll be bypassing the financial advisors at my bank this time around. Instead, my plan is to go online to buy shares and really reduce my fees. There’s no need to pay someone commission for trades that I can do manually on my own.

Maybe I’m better off just jumping in now and investing small. I could end up with decision paralysis if I do too much research beforehand. It’s just tough to know whose approach is best and what strategies to adopt.

For those of you who do your own investing, do you have any tips for getting started? For those who don’t do investing, is there a reason why not?

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By : Jeremy Biberdorf | 19 Feb 2013
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62 thoughts on “Preparing To Venture Into Investing

  1. Money Bulldog

    I watched a program about Warren Buffett once and found it amazing how logical his investment decisions were. If I remember right he used to buy companies that were simply worth more on paper than they would cost him to buy. He also believed in long term Blue Chip investments like Coca-Cola instead of a lot of the financial gymnastics we see today, makes me think about Average Joe’s upside down teacup post yesterday. Yet even with all his wealth he still maintained a ‘relatively’ modest standard of living considering the lifestyle he could afford. Interesting guy really.

    Reply
    1. Jeremy

      Yep he’s very interesting. He thoroughly analyzes businesses to determine if they are quality companies instead of purely focusing on the stock price and historical data. And yeah he invests long term without giving into the urge to check stock prices daily. He knows if the company still maintains the factors that made it a quality company, he doesn’t need to worry about all of the short term fluctuations.

      Reply
  2. John S @ Frugal Rules

    I think index funds are a great way to get started, especially if you lack the time to devote to some solid research of stocks. Many, not all though, advisors can be lead by their own benefit…especially if they’re commission based. That is not to say they all are, but you do need to tread lightly in order to find the right fit. Since you’ll be doing it on your own, keeping costs down is vital

    Reply
    1. Jeremy

      That’s true that it’s not all financial advisors that act that way, but some just are better at hiding it. Obviously some would also care about retaining customers long term. I just hear about what percentage of advisors produce worse returns than the indexes and it doesn’t seem worth taking the risk. I might as well try something reliable to start and then see what kind of returns I can manage on my own.

      Reply
    2. PK

      I agree here – it’s good you ditched the junk mutual funds for index funds, but don’t rush into stocks immediately. Before I invested in a single share of anything I did some of those online stock contests first to make sure my ideas were good (like updown.com) and read a ton.

      Reply
      1. Jeremy

        I was actually considering using one of those mock investment accounts just as a test. First I will keep researching and learning the ropes. With so much at stake I want to make sure I do this right.

        Reply
  3. Brick By Brick Investing | Marvin

    Hey Jeremy

    The first thing I will tell you is investing takes a while to get a hold of and learning how to value companies is an art not a science. Given your work ethic displayed on this blog I have no doubt you are going to take this venture seriously. My suggestion would be to continue educating yourself and purchasing large cap dividend growing stocks.

    Quick Tips:
    Research the dividend reinvestment strategy
    Read: The Little Book That beats the market
    Read: The intelligent investor
    Read: What works on wall street
    Read: F Wall Street

    I believe those will give you a sound fundamental foundation. Good luck! And don’t hesitate to ask any questions!

    Reply
    1. Jeremy

      It seems that every book I read has a different approach. So I do think it will be good to keep reading to be able to fully understand different approaches. I had previously been interested in dividend stocks due to their extra security, but I might be more tempted to go with medium sized companies. I guess I won’t know for sure until I really get researching companies and set out what strategy will be best for me.

      Reply
  4. Grayson @ Debt RoundUp

    I am currently invested in some good index funds that are providing some decent returns. My next step is to do what Brick by Brick is indicating and dive into dividend growing stocks. I think that could be a good way to produce some passive income.

    Reply
    1. Jeremy

      It does seem like the right approach, especially for people who are fairly busy already. As much as I’d like to get into stocks soon, I realize it’s going to take a ton of research and analysis. Plus I’d have to do a good job of keeping up with the business news. So I really should try to free up time before going down that path.

      Reply
  5. William Cowie

    Amen, brother! :) I like your thinking. A few things I’d like to add:

    1. Don’t be afraid to begin small. It’s not how big you start that counts, it’s how big you end. And there will never be an end without a start.

    2. When you look at the long term picture and you see all those charts, which year is the best year? It’s always the last year, when all the compounding of previous years keep pushing the next year higher. Moral of the story: the earlier you start, the bigger that last year is. Doesn’t matter how small the first year is: no matter how awful or wonderful, it will be dwarfed by the last year.

    Go for it! :)

    Reply
    1. Jeremy

      Thanks for the support William. Perhaps once I get through this book I’ll try starting small. I have a feeling that once I start I’ll get hooked and really get into it. I just want to make sure I am really ready, especially considering my limited time due to my other commitments.

      Reply
  6. Edward Antrobus

    I’m still with mutual funds because stocks scare the bejeezus out of me. I know I’m still pretty ignorant of the wider world of investing, but buying on etrade costs $35 per trade. Is that actually cheap compared to other brokerages?

    That’s one reason I haven’t waded into stock investing. If a share was $140, the price would have to go up 25% just to break even!

    Reply
    1. Jeremy

      Well you’re unlikely to be buying just a single share. So you’d spread that fee over a decent sized number of shares. I don’t know if etrade is the cheapest option, but it’s worth checking out since they are one of the better known online brokers. If you’re stuck on mutual funds, read the millionaire teacher and you’ll become a believer in buying index funds instead. That route seems a lot safer than stocks or mutual funds.

      Reply
      1. Edward Antrobus

        That example was a little simplistic, but at the end of the day, I’m not at the point where I’m making thousand dollar transactions where $35 is a pittance. If I have $100 to invest, the transaction fee reduces my buying power by a third.
        I’m with mutual funds right now because etrade has many of them for no transaction fee vs index funds which do. It goes back to the previous argument. How long does an index fund have to out-perform my mutual funds for my investment in the former to exceed it in the latter?

        Reply
        1. Jeremy

          In that case I guess mutual funds would make sense. Of course it would also depend if you are investing for the long term or short term. With my bank I think the fee is about $20 per trade unless I do like 100 per quarter. Still it does eat into the returns. If I kept those investments for years that fee would look a lot more reasonable. It beats paying the mutual fund fees every year.

          Reply
  7. Pauline

    I have a little bit in index funds, in a tax sheltered account and even out the price by investing monthly. I don’t know enough about stocks to even try. What I prefer is real estate because you can leverage money, last time I bought a 3 bed property instead of 1 bed, and renting the other two rooms helped me lived almost for free. Considering a 20% down payment, the money on two room beats most index funds but you have to be willing to sacrifice your privacy. Or have a basement to rent.

    Reply
    1. Jeremy

      I do agree that real estate is usually a much better investment, but as we’ve seen by the problems in the US, it’s not the most secure investment. It’s also a little tough for some people to get into considering the big downpayment and strong credit needed. In the city I live in, it’s not too practical since the house pricing is so high. A lot of analysts seem to think the prices can’t remain so high long term. So by investing in real estate it could end up being a major loss.

      Reply
  8. Darnell Jackson

    No. There’s no need to pay commission on trades you can make on your own but you could still get caught up in the “bam-bam” gallery.

    Be aware of some of these “discount” brokerages.

    Whenever they make the most money they do it when the people they are screwing think they are getting a good deal.

    They can make up commissions on stock purchase prices like it’s nothing. You have to use their system to order so you’ll never know.

    I’m just saying.

    Reply
    1. Jeremy

      That’s where it could be beneficial to have brokerage accounts with more than one company. Then you might get a better idea of just how much you’re being charged. In the end I might just use my bank’s self managed investing system, but we’ll see.

      Reply
  9. Peter

    I’m all for just keeping it simple and either starting a simple 3 fund portfolio with index funds from Vanguard or a similar low cost mutual fund company, or even simpler – going with something like Betterment.com where you basically just choose how much you want in stocks vs. bonds – and pay a low annual management fee of somewhere in the range of .15-.35%.

    Reply
    1. Jeremy

      I’m curious as to the returns people are getting on betterment. It sounds like a pretty cool setup, but a lot would come down to how capable their portfolio managers are. I don’t know if we have access to Vanguard index funds here in Canada, but I have heard good things about them. I could see myself starting with a simple 3 fund portfolio if I can find the time to do proper research.

      Reply
  10. Chris @ Stumble Forward

    One thing I would never invest in again is annuities. I’m stuck in one right now and the problem with it is that their are surrender penalties if you pullout before the surrender period is up. For example, my surrender penalty started at 8% which lasted 8 years with a 1% deduction every year.

    As far as mutual funds go I think it all just depends on which company you go with. I had my retirement account with Transamerica for several years and they consistently earned relatively decent returns. In fact my last return I saw from them was around 11% which isn’t to bad.

    However they were taking a 4.5% in sales charge plus a 2% annual fee, which is probably the reason we switch out of them.

    Reply
    1. Jeremy

      I was going to ask what kind of fees they charged on top of that 11% return. That is usually the big drawback of mutual funds. You need to earn so much more to make up for what they charge. Thanks for the warning about annuities. I probably wouldn’t have invested in them, but people should be aware of how their money is tied up like that.

      Reply
    1. Jeremy

      I’ll add that one to my reading list. I do realize that I could see higher returns by investing in stocks instead of index funds, but the time involved is a major factor. I’m already stretched so thin that I don’t see myself being able to properly monitor investments and do all the necessary research.

      Reply
  11. The Happy Homeowner

    “To hell with the mutual fund salesmen”….AMEN!

    I’m in the same position as you when you were starting your blog–needing to learn about investing. I’m already a homeowner, and I plan to broaden my investing horizons sooner than later.

    Reply
    1. Jeremy

      Being a homeowner is definitely an awesome start. I’m sure you’ll do awesome with it if you were dedicated enough to pay off a mortgage. Obviously this takes a lot more research to stay on top of though.

      Reply
  12. Mo' Money Mo' Houses

    I’m in a similar boat as you. I don’t know much about investing, I’ve read a lot of books about it though, but I’m not getting any good return on my investments and what the bankers tell me is just kinda of bullsh**. Then again, I don’t want to risk that much money by playing the stockmarket so I’m more just saving up to buy my first place to be my first big investment, then I’ll start looking at other ways to invest.

    Reply
    1. Jeremy

      Sounds like we’re in nearly identical situations there. Don’t listen to those jerks at the bank anymore. They’re the ones who aren’t qualified enough to make the big money with an investing brokerage. So they try to pad their income with commission. Do look into investing more once you buy a home. You might as well try to make some better returns on your money than what you’d be paying on your mortgage. And don’t you dare censor out bullshit around here again lol. I was tempted to edit that back in.

      Reply
  13. Jose

    We must be in brain sync. I’m putting the finishing touched on an introduction to fundamental analysis for stocks tonight and should be posting it tomorrow. Not exactly the same topic, but pretty close!

    Reply
    1. Jeremy

      I’ll have to remember to check that out. It’s the initial analysis that I’m really trying to figure out first. I’m learning some of what to look for, but putting it all together seems complicated.

      Reply
    1. Jeremy

      Hmm that’s getting to be a lot of book recommendations for someone who is a slow reader. I might have to put all of these in a poll and see which ones get the most votes.

      Reply
    1. Jeremy

      I guess I’ve just yet to come across a good mutual fund. I don’t think those mutual funds with Vanguard in them are available in Canada. It just seems that most mutual funds just don’t stand the test of time.

      Reply
  14. Justin@TheFrugalPath

    Before investing a ton of money into the market try a small amount to see how you hold up. I’m really bad when it comes to individual stocks. Hourly updates, checking the CNBC stock ticker for my stocks every throughout the day. Yeah… I’m terrible at it. While index funds aren’t going to give sky high returns, they fit my investing profile better.

    Reply
    1. Jeremy

      I think I’m the same way. That’s why I’ll likely focus mostly on index funds and experiment a bit with individual stocks. If it plays out I’ll probably shift focus, but the index funds should at least do better than the mutual funds I’ve been holding.

      Reply
  15. Kim@Eyesonthedollar

    I think it’s hard to go wrong with a broad index fund that has a low management funds. If Vanguard is available in Canada, they are very easy to work with and have very low costs. I think I’d just start with whatever small amount you want to start with. You can certainly think yourself out of it if you study it too much.

    Reply
    1. Jeremy

      With all the Vanguard mentions I’ll have to look into it, but I think I read that we can’t get them here. Instead I’ll just get some other index funds with low fees.

      Reply
    1. Jeremy

      I suggest you to do plenty of research in the meantime. Personally I want to start while paying off a mortgage because I know the potential returns are so much higher than the mortgage rate I would get.

      Reply
    1. Jeremy

      I’d look into the ones recommended by others in the comments too. Since they’ve probably read a lot more about investing, I think their choices are probably pretty good. The Millionaire Teacher is great if you have limited time to spend on investing and would consider focusing on index funds and bonds.

      Reply
  16. Liquid

    Buying a home is an investment in itself so I would count all the time you’ve saved for a down payment as part of your investment journey too :) Looks like you have a pretty good idea how you want to get started. Indexing is a great way to get your feet wet (I really like the XIU index etf) and then pick individual stocks as time goes on. Now you just have to pick a discount broker :D etrade is a popular one like you mentioned. Some brokerages like Questrade is offering free trades on ETFs which is nice for someone who plans to use the couch potato method. Every large bank also has their own brokerage division, and most charge $10 to $30 per trade. I’m using TD for convenience since I do my regular banking with them too, so transferring money between accounts is instant. Lots of options out there though :) Good luck.

    Reply
    1. Jeremy

      I like the sounds of free trades on ETFs. I’m going to have to rack your brain on this stuff some more. I am leaning towards the couch potato method at least to start. When I get more free time I’ll try picking some individual stocks. There’s no point in taking higher risks when I would be too busy to do sufficient research and monitoring.

      Reply
  17. Cody @ Samurai Trading Academy

    I think you are definitely on the right path to be looking into the discount brokerages instead of the full service ones. The age of broker who gives you his “hot tips” that end up costing you thousands in fees that pay for his yacht is coming to an end. The funny thing is that a lot of the cheapest online brokers now have research areas that are just as good if not better than the full service guys offer!

    It also sounds like index funds is a good place to start for you. If you’ve got the time for proper research then individual stocks may be the way to go but that can be a difficult game unless you fully understand your short and long term goals going in. Most people haven’t planned out their goals in enough detail and this is where they run into trouble and make poor decisions over time.

    I’m guessing you know about Buffett’s 2008 index fund versus hedge fund bet? If not then do a quick search as you’ll probably find it quite interesting.

    Reply
    1. Jeremy

      Thanks for the reassurance Cody. I didn’t hear about Buffet’s bet since I haven’t been looking into investing that long. It’s an interesting gamble though. It seems that he would be the odds on favorite considerably how many managed funds lag behind index funds. So based on everyone’s opinion I probably will get into index funds for now. When time permits stocks would make more sense if I had the time to actively monitor and research everything. Individual stocks would be a lot more exciting, but a lot riskier especially if I’m doing it with limited time.

      Reply
      1. Cody @ Samurai Trading Academy

        There are a lot of other options out there too rather than just trading stocks if you want to be a bit more active.

        There’s some excellent options out there in futures or forex for buy and hold traders that have some pretty low costs associated with them. One of the issues these days is the extra regulation and capital requirements put on stock traders so many swing traders and investors have moved elsewhere.

        If you’re not actively day trading then it might not be much of an issue, but it could still be worth looking at other markets. For example, you could always trade something like ES (S&P E-mini Futures) or similar markets with longer term holds and that would avoid a lot of the massive research needed for multiple stocks.

        Reply
        1. Jeremy

          Hmmm that’s something to consider, but I’d probably still be leaning towards stock market investing when I do get the extra cash to invest. Part of the reason is that I have a number of strong contacts who would be able to help me out with my strategy and possibly some stock recommendations to look into. In other markets I just wouldn’t have that kind of support.

          Reply
    1. Jeremy

      I’ve had them recommended to me, but since I don’t do my banking with TD, I think that route is a little bit of a hassle. Might still be worth pursuing though.

      Reply
  18. CF

    Brian and I are preparing to move our rrsps into a brokerage and invest in ETFs for much the same reasons. Looking forward to hearing more about your upcoming house hunting!

    Reply

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