How To Invest ( for young Canadians)

Elias Benson

6 min readMar 6, 2021

If you’re really pressed on time here’s the quick action step:

If you’re in Canada purchase at least 4–10 shares of VFV each month.

If you’re in the USA purchase at least 2–5 shares of VOO each month.

I explain how to do this at the very bottom of the article.

Inflation is a b*tch. Chequing and Saving accounts suck.

The value of a dollar, as you may know, decreases in purchasing power every single year. What you can buy for $100 today will cost $164 20 years from now, and $269 40 years from now. This is because of inflation, and it sucks. The implications of this? Well, if you were to save $500 a month and keep the money in your chequing account from 20 to 60 years old you would have $240,000. Not bad at all. What you must keep in mind, however, is that what you can buy for $240,000 in 2021 will cost you $644,000 at retirement age (1). If this were our only option, many of us ( rightfully so) would just spend all our money while it’s worth as much as it will ever be.

Fortunately, there are alternatives.

One alternative is a savings account. This is far better than keeping your money in a chequing account with 0% interest. A savings account, if you’re fortunate, will give you 2% interest. This way you’re at least somewhat keeping pace with inflation. With your money in your savings account, you’ll have $366,000 instead of $240,000. Still, though, your money lost roughly half of its value.

The last, and best alternative is to invest the money. If you invest the same $500 a month into VFV you will retire with approximately 1.6 million dollars! (2)This is how you beat you to inflation!

An 8% return is realistic as it is what the market has historically returned on average.

Individual Stocks vs Mutual Funds vs Index Funds

An individual stock, as the name suggests, is the stock of an individual company. Apple, for instance, is an individual stock ( ticker AAPL). If you strongly believe that Apple will continue to dominate as it is currently, by all means, invest in Apple. However, history has shown us that companies, no matter how successful, eventually get beaten out by new competitors. Companies that were once thought of as “too big to fail” such as Sears, Yahoo, MSN, Blockbuster, Barnes & Noble, and Toys r Us, were all destroyed by competitors. You may take a gamble on a single stock in the hopes that this company will continue to prosper for decades to come. Just don’t forget that it is a gamble. Remember, no one company is truly ever immune to failure and bankruptcy.

After asking many of my friends where they’ve invested their money the most common answer I get is that their bank or their parents signed them up for a mutual fund. A mutual fund, essentially, is a professional or a group of professionals who pick many individual stocks for you. The difference between a mutual fund and an individual stock is that you’re not the one picking the companies. Instead, you are paying someone else a ton of money to pick them for you. The benefit here is that the mutual fund manager is likely better at picking individual companies than you are. Mutual fund managers, as you can guess, don’t do this for free. They charge a fee. In Canada, fees range between 1 and 5% (3). Doesn’t sound like much right? What harm could 1% or 3% do? A fee of 3% is the difference between you retiring with $741,000 instead of 1.6 million! That 3% isn’t merely 3%. That 3% represents $859,000! If you ever wondered why banks own big buildings and you don’t, that’s why. If they told you up front that you are going to be paying them $859,000 to pick stocks for you. You would politely tell them to go screw themselves.

Because you’re smart and would prefer not to pay someone $859,000 to manage your money, you invest in index funds ( also called ETFs). With index funds, you pay a fee that ranges from 0.04% to 0.20%. This means that you get to keep 1.5 out of the 1.6 million! With an index fund, you pay $100,000 in fees instead of $859,000. This means that you retire with $759,000 more!

What does an index fund invest in? An index fund, like the S&P 500 (ticker VFV) invests in 500 of the biggest companies in America. This way your bets are spread out among 500 companies and not a single company, so if one of the companies fails or goes bankrupt it doesn’t hurt you much because you have 499 other companies to fall back on.

You might think “ Well since I’m paying these mutual fund managers so much shouldn’t they be better at picking companies than the S&P 500?” That’s what any reasonable person might think. More often than not the more you pay for something the higher the quality product or service you receive. Not with mutual funds. Index funds like the S&P 500 have delivered a higher return than 92% of mutual funds over a 30-year period (4). This means that there’s only an 8% chance that the mutual fund you picked will be the one that performs better than the S&P 500 (VFV). A mutual fund might beat the S&P 500 for 1 or even for 10 years, but almost never for a 30-year period.

By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals.- Warren Buffett

The great investor and billionaire Warren Buffet made a million-dollar bet with a well-renowned hedge fund ( mutual fund for the affluent 🥴) Protégé Partners, that the S&P 500 would outperform them in the decade that followed. Warren won the bet by a landslide. Protégé Partners returned only 36%, while the S&P 500 returned 126%!(5)

Clearly, it is very very difficult to beat the 500 largest companies in America.

You know what they say, if you can’t beat them join them.

Fortunately, you can by investing in VFV.

How do you actually do that?

Here’s how:

Here’s the link to download Wealthsimple Trade. You also get 10$ when you sign up with the link attached.

*Note: I am in no way financially associated with Vanguard, the provider of VFV. I just hate seeing mutual fund managers robbing people blind.

Resources:

How To Invest ( for young Canadians)

Here’s how:

Written by Elias Benson