Starting to invest can be one of the most confusing parts of personal finance, with so many conflicting opinions out there. Instead of rigid rules, I’ll share a 5-step framework that works for anyone.
Saving vs Investing
But first, let’s meet “Low-Growth Larry” and “Steady-Investor Sally” to see the power of smart investing vs only saving.
- Low-Growth Larry earns a lot of money and saves $20,000 a year in a TD savings account earning 0.01% interest. Over 30 years, Larry contributes a total of $600,000 but ends up with just $600,931. His money barely grows, despite his sizable contributions.
- Steady-Investor Sally, meanwhile, invests $7,000 a year in a portfolio and earns an annualized 7% return. Over the same 30 years, she contributes a total of just $210,000, but her investments grow to $707,511—outpacing Larry by over $100,000, even though she contributed far less!
The difference? Sally’s investments benefit from compounding growth, while Larry’s money stagnates in a low-interest account.
Think of your investments like a snowball rolling downhill—it starts small but grows larger as it collects more snow (like compounding returns) along the way.
Step 1: Develop your investment philosophy – Start with the WHY.
This is the most important step in your investment journey. Too often, people dive into investing simply because they feel it’s something they should be doing.
But investing without purpose is like setting sail without a destination or a compass—you’ll end up drifting aimlessly.
Instead, have a clear purpose. Why do you want to invest? Is it to save for a down payment on a house? Retire comfortably? Achieve financial freedom? Fund your education? Provide for your family? The more specific and personal your reasons, the stronger your foundation will be.
For me, my purpose for investing is about freedom—freedom to live life on my terms and the confidence that comes with financial security. I’ve been fortunate to build my investments to a point where money isn’t a constant worry, and it’s made a world of difference in my personal life.
This allows me to take calculated risks, both in business and personal pursuits. Knowing my finances are in order gives me the clarity and motivation to stay consistent with my strategy, even when it requires delaying gratification for bigger rewards down the road.
When you know your “why,” you’ll find it easier to stick to your plan, weather market ups and downs, and make decisions aligned with your long-term goals. So, take a moment to reflect and get crystal clear on your purpose. It’s the key to building a strategy that lasts.
Step 2: Figure out how much you can contribute.
Once you’ve nailed down your why, the next step is determining how much you can contribute toward your investments. This is where having a clear contribution strategy comes into play.
Start by reviewing your budget. How much can you realistically set aside each month for investing? If you don’t have a budget yet, now’s the time to create one. Track your income and expenses to identify opportunities for saving. Even small adjustments—like cutting back on dining out or subscriptions you don’t use—can free up extra cash for your investments.
It’s also helpful to automate your contributions. Set up recurring transfers to your investment accounts on payday, so saving becomes a habit, not a decision you have to make every month.
Remember, contributions are the lifeblood of growing your portfolio. The more you invest consistently, the more you’ll benefit from compounding growth.
Impact of Monthly Contributions Over 30 Years
Monthly Contribution | Future Value After 30 Years (7% annualized return) |
$100 | $121,287 |
$250 | $303,219 |
$500 | $606,438 |
$1,000 | $1,212,876 |
This table highlights the power of consistent investing at a 7% return over 30 years:
- Even $100/month grows to over $121,000, showing how small, consistent efforts add up.
- Increasing to $500/month builds a portfolio worth more than $600,000, enough to make a significant difference in retirement planning.
- A consistent $1,000/month can grow into over $1.2 million, offering financial freedom.
I dive deeper into this in a video about how important contributions are to building a massive TFSA—check it out here. It’s packed with tips and examples to help you maximize your contributions and stay on track.
Step 3: Choose Your Investments
This is where things can get tricky. It’s the most time-consuming and confusing part of the process for most people, but it’s also where your investment journey starts to take shape. Spend the most time here doing your research.
Understand Your Risk Tolerance and Time Horizon
Before picking investments, take a step back and assess how much risk you’re comfortable taking. Are you okay with seeing your portfolio dip during market downturns, or would that keep you up at night? Your time horizon—how long you plan to stay invested—also plays a big role. Longer timelines typically allow for higher-risk investments because you have more time to recover from market fluctuations.
If you’re not sure where to start, tools like Vanguard’s free Investor Questionnaire can help. It’s an easy way to figure out your risk tolerance and investment style by answering a few simple questions about your goals, financial situation, and comfort with risk.
Select your investments for the long term; a rule of thumb is five years or more. The true test of your risk tolerance will be your actions when the markets are crashing. As famed investor Peter Lynch once said, “Everybody in the world is a long-term investor until the market goes down.” And what he meant by this is that most people think they can tolerate more risk than they actually can in reality.
Where to start for beginners
- ETFs and Robo-Advisors: These are great for beginners because they’re diversified and require little management or time from your end.
- Individual Stocks: Once your confidence grows, you can explore stocks, but stick to companies you believe in and understand and try to diversify.
- Advanced Options: As you gain experience, consider diversifying into things like real estate, private equity, or even hiring portfolio managers. Personally, I’ve seen a lot of success working with portfolio managers in recent years.
Here’s a list of the pros and cons of some investment options you can consider, pause it here if you need to take note of it:
Pros and Cons Table
Investment Type | Pros | Cons |
ETFs | Low fees, diversified, beginner-friendly | Limited customization |
Robo-Advisors | Hands-off, automated, good for busy people | Management fees can add up, and performance from big players like Wealthsimple haven’t been great. |
Individual Stocks | High growth potential, control over choices | Requires time, research, and can be risky |
Real Estate | Tangible asset, potential for passive income | High upfront costs, time-intensive |
Private Equity | Access to unique investment opportunities | Illiquid, high risk, and often requires expertise |
Portfolio Managers | Personalized strategies, professional expertise | Higher costs, best suited for larger portfolios |
2 Big Mistakes to Avoid
- Avoid panic selling: This chart from J.P. Morgan highlights the importance of staying invested during market downturns. A $10,000 investment in the S&P 500 from 2004 to 2024 grew at an annualized rate of 10.5% if fully invested. However, missing just the 10 best days reduced returns to 6.2%, and missing the 30 best days dropped them to 1.4%. Panic selling often means missing key recovery days, and staying invested is critical for long-term growth.
- Staying on the Sidelines: Waiting for the “perfect time” to invest is a losing game. Even investing at the worst possible times often outperforms sitting in cash.
Start with the basics, learn as you go, and don’t overthink it!
Step 4: Choose your accounts
Choosing the right investment account can greatly impact your after tax return. In Canada, TFSAs, RRSPs, FHSAs, and non-registered accounts offer unique tax benefits. Here’s a comparison of $10,000 invested over 30 years at 6% growth, using these assumptions:
- Tax Rates:
- Current: 40% (RRSP refund)
- Future: 20% (RRSP withdrawals)
- Non-Registered: Annual growth taxed at 40%
- Time Horizon: 30 years
Account Comparison
Account Type | Initial Investment | Reason for Growth | Growth Before Taxes | Total Tax Paid | After-Tax Balance |
TFSA | $10,000 | Grows tax-free; no additional contributions. | $57,434 | $0 | $57,434 |
RRSP | $10,000 | Tax refund reinvested, starting at $14,000. | $80,408 | $16,082 | $64,327 |
Non-Registered | $10,000 | Growth taxed yearly, reducing compounding. | $57,434 | $28,542 | $28,893 |
The RRSP comes out ahead with an after-tax balance of $64,327, thanks to the upfront tax refund and tax-deferred growth. However, this works best if your retirement tax rate (20%) is lower than your current rate (40%). The TFSA is a close second, growing to $57,434, entirely tax-free, making it ideal for flexibility and withdrawals without tax implications. The non-registered account lags significantly, with only $28,893 after taxes, showing how annual taxation can drastically limit compounding growth. That’s less than half of your take home RRSP in this example!!
The key takeaway? Maximize tax-advantaged accounts like the RRSP and TFSA before considering taxable accounts to make the most of your investments. For more details on the best account order of investing in Canada, check out my other video on this topic!
Step 5: Buy the Investments, then Track Performance
Once you’ve chosen your investment accounts and strategy, it’s time to actually buy your investments. I’ll focus mainly on how to actually buy stocks and ETFs here.
How to Buy Stocks and ETFs
- Pick a Platform
- Wealthsimple: A user-friendly platform great for beginners. It offers commission-free trading for stocks and ETFs, making it affordable to start.
- Questrade: Ideal for more active investors or those looking for advanced features. It has low trading fees, and ETF purchases are free.
- Set Up Your Account
- Choose the type of account you want to open: TFSA, RRSP, FHSA, or a non-registered account.
- Provide your personal details, verify your identity, and connect your bank account for funding.
- Fund Your Account
- Transfer money into your investment account. This could take 1–2 business days, depending on your bank and the platform.
- Place Your Order
- For ETFs: Search for the ticker symbol (e.g., “VFV” for Vanguard S&P 500 ETF). Decide how many shares you want, review the cost, and place a market or limit order.
- For Stocks: Follow the same process as ETFs but consider your confidence in the individual company before purchasing.
Monitoring Your Investments
Analyze Performance
Keeping an eye on your portfolio is important to make sure you’re on the right track. Compare your returns to benchmarks like the S&P 500 to see how your investments stack up. If one part of your portfolio (like stocks) has grown way more than others, it might be time to rebalance to keep things aligned with your goals. Also, don’t forget to check for sneaky fees or taxes—they can quietly chip away at your returns if you’re not paying attention.
Track Your Net Worth
Tracking your net worth is a great way to see how you’re doing overall. It’s simple: add up everything you own (like your investments, savings, and property) and subtract what you owe (like loans or credit card debt). Watching this number grow over time is super motivating and gives you a big-picture view of your finances. I’ve even got a free Net Worth Tracker you can use—download it here to make things easier for you.
Be Consistent
The key is consistency. Whether you check your investments monthly, quarterly, or even once a year, pick a schedule that works for you and stick to it. Monthly is great if you’re just starting or like to stay on top of things. Quarterly works if your portfolio is more stable. If you prefer the long view, annual tracking is perfect.
Learn From Mistakes
We all mess up sometimes—it’s part of investing. Maybe you panicked and sold during a market dip, or you stayed in cash too long, waiting for the “perfect time” to invest. What matters is learning from those moments. Adjust your strategy, focus on your long-term goals, and avoid letting short-term emotions throw you off track. The more you learn, the better you’ll get at sticking to your plan.
Hire Someone?
If managing your own investments feels like too much, hiring a portfolio manager can be a great solution. While many people can handle investing themselves, life gets busy, or if you’re not achieving the results you would like, sometimes it helps to have an expert take over. That’s what I did with part of my portfolio and for many of our clients, and it’s been a game-changer.
The key is finding someone unbiased who’s not just selling products for high commissions. Look for someone focused on helping you grow your money. There will be a cost to manage your assets, but that often includes personalized management and strategy towards reaching your goals. Interview several portfolio managers, and make sure their approach aligns with your investment philosophy and ask lots of questions about fees and services.
Whether you manage your investments yourself or hire someone, the key is to just get started. At Blueprint Financial, we try to make investing as simple as possible. If you want to learn more, check out the website for our investment resources and services, and download our free guide on how to build a $1 million TFSA.