By the time you are in your thirties with the job, the kids and the mortgage, you're likely feeling a financial squeeze. But investing isn't out of the question? You can still get started using dollar-cost averaging, which involves investing small dollar amounts at regular intervals. Here are five tips on how to launch your portfolio. The online version of this article at tgam.ca/globeinvestor has many more tips and details.
1. Dollar-cost averaging
Dollar-cost averaging is often set up through a systematic plan that transfers deductions from a paycheque or bank account into a mutual fund. Besides allowing small investors to get into the financial markets, many advisers recommend it as a way to minimize the risk of investing at a market top. It can make downward fluctuations work for you by picking up units when prices are low.
2. Index funds the way to go
Warren Buffett, arguably the greatest investor of our time, has long said the best way for investors to own stocks is through index funds. As he wrote in his 1997 letter to Berkshire Hathaway Inc. shareholders: "Most investors will find that the best way to own common stocks is through an index fund that charges minimal fees." Index funds simply buy the stocks in a market index, enabling them to charge considerably lower annual management expense ratios than mutual funds with portfolio managers who pick stocks. Among the lowest cost index funds are TD e-Series Funds.
3. Directly sold mutual funds
Some mutual fund companies don't pay trailer fees to financial advisers and planners. This means they can charge low management expense ratios on even their actively managed funds. Some examples are Beutel Goodman and Company Ltd., Steadyhand Investment Funds and Leith Wheeler Investment Counsel. Their MERs are higher than index funds, but come with extra services that may make up for the extra cost. Namely, front-line staff can assist (at no charge) with asset allocation, rebalancing and other tasks related to funds offered by the company.
4. Dividend Reinvestment Plans
Small dollar amounts can also be invested over time through dividend reinvestment plans offered by companies paying dividends. DRIPs allow registrants to reinvest dividends without charge; they also often come with share purchase plans (SPPs) that permit the purchase of shares directly from the company without charge and frequently at a discount from the market price.
5. Family matters - parents
During the life stage of marriage, children and mortgage, your parents are typically approaching old age. As a recent rash of Ponzi schemes highlight, the elderly are predominantly the victims of such scams. Adult children in Canada not only have a moral obligation to watch out for parents, they have a legal one. "Generally, adult children are liable to pay parental support if their parent supported them financially when they were minor," tax and estate lawyer Christine Van Cauwenberghe says in her book, Wealth Planning Strategies for Canadians 2010.
© 2007 The Globe and Mail. All rights reserved.
