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  • Gen Y Growing Up: My first chat with a financial planner
  • How I got started in investing

Gen Y Growing Up: My first chat with a financial planner

Another milestone! Today, I consulted a financial planner for the first time. I’d been meaning to find a financial planner who could review my setup and suggest other best practices, and I learned a lot from the session.

When I told the financial planner how I’d maxed out my registered retirement savings plan. She was impressed and suggested looking into corporate class funds. They’re taxed a little differently than regular mutual funds, and can be more tax-efficient than regular funds when outside an RRSP. I took the literature and promised to read up on it. Based on this Globe and Mail article about corporate class funds, it seems that corporate class funds are good for active investors who like switching in and out of funds, and not so good for buy-and-hold investors who favor index funds because of tax efficiency and low management expense ratios. (TD Canada Trust e-Series has the lowest-MER index funds I’ve seen so far, as the exchange-traded index funds that are increasingly popular in the US are somewhat bulkier over here.)

It was good to get some advice on uncommon concerns, such as international personal finance. How would I need to prepare for the scenario of moving back to the Philippines? I knew that my RRSP investments could be left in Canada, but I didn’t know how to handle my non-registered investments and other accounts in a tax- and duty-efficient manner. It turns out that I can leave money here, but I may not be able to give further instructions from overseas, and withdrawing everything could result in losses or high taxes. One way to handle this situation might be to convert all my accounts into long-term investments, then leave very good instructions. I’m currently planning to stay in Canada for a while, but it’s nice to know what I need to do in order to prepare for other options.

I answered her questions about my existing assets and expenses, and I asked her to help me prepare several retirement scenarios: the traditional retire-at-65 kind of plan, the ambitious be-flexible-at-40 plan, and the calculations for time in between. I wanted to figure out what a basic plan is, then inch that retirement date earlier and earlier. I gave her the numbers she asked for, and she’ll share some plans with me the next time we meet.

Writing about this gave me an epiphany. What I want to develop is not a retirement plan, but a medium-term opportunity plan. I don’t need to know how many dollars I’ll need in order to never work again. I’m not in the habit of postponing life until then, and I certainly hope I can continue doing meaningful work forever. What I want to know is this:

How can I position myself so that I can create and take advantage of opportunities while dealing with the risks?

(This post is not financial advice. Good luck!)

May 8, 2012
I ended up not going with the financial advisor or her advice, instead sticking with index funds with low management expense ratios. I’m not trying to beat the market, and I don’t trust actively-managed funds. The opportunity fund that I started building after this epiphany worked out really well, though. It enabled me to leave my full-time job and focus on building my own business, which is what I’m doing now. Yay!

How I got started in investing

When I was growing up, I raided my mom’s bookshelves for whatever I could understand—and quite a few things that I didn’t at first, but which yielded under repeated reading. In one of her personal finance books, I came across an anecdote about someone who bought stocks of the companies of which he was a frequent customer. When my mom decided it was time for us to learn a little about investing and offered us a choice of several Philippine stocks, I used the same reason to pick Jollibee. Although I didn’t eat at Jollibee that often, I knew lots of people did, so I figured that it would work out the same. I haven’t been tracking Philippine stocks since then, but apparently Jollibee has been doing pretty well.

When I moved to Canada for my master’s degree, I was fortunate to have a combination of research assistantships and scholarships. I never spent more than I had – another lesson drilled into me by my mom. Living frugally helped me graduate without student debt. By that time, I’d grown to love W-, which made it easier to accept IBM’s job offer and go through the permanent residency process here in Canada.

Once I started earning money here, I wanted to apply the best practices from the personal finance books I’d been reading all this time. I set aside a portion of my income for long-term investments. After lots of research, I settled on TD e-funds as an inexpensive way to get started with index funds. I didn’t know enough about individual companies to feel comfortable buying stocks, and books and blogs said it was really hard to beat the market anyway. Index funds were a less intimidating way to get started. Small steps – a tiny investment here to see whether I’d set things up correctly, then more as I became more comfortable with the idea.

I figured that if I hold the funds for decades and get average performance, that’s still all right. If the funds lose value, well, that’s life, and I wouldn’t be any worse off than if I hadn’t been saving. I joined the workplace and started investing just as the financial crisis broke, so it was a little tough buying while people were losing so much, but it turned out all right.

Canada has a Registered Retirement Savings Plan program (RRSP) where you can shelter some of your investments and savings on a tax-deferred basis, so I put in as much as I could. When the Tax-Free Savings Account program started, I moved my emergency fund into that, and then started using it for some of my investments too (also in TD e-funds). For my long-term goals, I needed non-registered investments as well, so more TD e-funds there.

The stock market has been up and down since then. The market value of the portfolio is occasionally below the book value, which looks a little discouraging. When I use the XIRR formula in Excel or other spreadsheet programs to analyze my actual returns, though, it works out okay because the reinvested dividends are also accounted for. Besides, as long as I keep an eye on the money I may need within the next five years, I can let the long-term investments go up and down without panicking.

Investing with uncertain income was a little more difficult for me to get used to. At the beginning of my experiment, I was worried that I might not have enough in cash despite my budget, and I wanted to keep as much as possible in savings accounts just in case. Lately, though, I’ve been able to relax a little and say that at least 10% of this should be put in long-term investments. I look forward to being able to increase this proportion as I become more comfortable with managing finances during this experiment.

It’s getting easier and easier to postpone present spending for the abstract idea of enjoying extra time and flexibility later on. For example, we were at a thrift store looking for books, and we came across some DVDs for movies we had enjoyed. After some consideration, we put the DVDs back because we get a lot of free movies from the library anyway. It’s easy to keep my lifestyle simple now so that I have the space to keep exploring things later.

I still haven’t sold a single stock or index fund I’ve ever bought. Well, I guess the transfer of my Sun Life funds (from the IBM defined contribution pension plan) to TD counted as a sale, because it needed to be transferred in cash, but I put it back into investments once the transactions got sorted out. I haven’t tried doing the paperwork for capital gains in non-registered accounts yet. I might do it one of these years just so that I know how that’s done and so I’m sure I’m keeping all the records I need. At some point, I should probably convert some of these e-funds to exchange-traded funds (ETFs) for even lower management expenses. Bonds and stocks still boggle me, so it’ll be quite some time before I get around to buying these. (If ever!) Many things to learn! My sister is a lot more sophisticated when it comes to investing, I think, but as long as I can figure out something that’s comfortable for me, I’ll be fine.

Investing can be scary for lots of people, but if you can create some space for yourself so that you aren’t as worried about the ups and downs, it seems a little bit easier. The biggest risk of loss comes from having to sell at the wrong time, and that space can help. Many people struggle with saving even just a little, but if you can manage it, it might be worth trying investing. Like in gardening, it’s fun to see things grow without much more effort from you, even though sometimes the seasons can be tough. As long as you don’t have to use up your seeds for food, there’s always next season.