Businessman and growing share
Q: What's the best way for a young professional to begin investing for retirement, early in their career?
A: It is important for a young Canadian to start saving early in order to take advantage of the power of compounding returns. It will also take likely thirty years of regular savings in order to accumulate enough money for retirement. If you work for a company that has a pension plan or a group RRSP, make contributions to their plans to the extent that the company matches the contributions and/or provides discounts on securities that you buy. This is free money. If you are investing on your own, maximizing your RRSP first and your Tax Free account(TFSA) second should be priorities for long term savings as both of these registered savings plans are cornerstones of retirement savings for many Canadians. Starting an RRSP or TFSA involves opening an investment account with a bank, brokerage, insurance company, credit union or independent financial advisors, contributing money (lump sum or through regular automatic transfer) and deciding what to buy.
The risk level of your investment account is important and should be based on your financial goals, knowledge of investing, time horizon, comfort with volatility, desired return and more variables. It is not uncommon for a saavy young investor to put all of their long term savings in stock marke focused products knowing there are likely decades before the money is needed and striving for big returns (10%/year) is the goal. For more cautious investors, even at a young age, a balanced approach (part in fixed income and part in the stock market) may provide a more conservative investing style that offers lower average returns but fewer sleepless nights when the stock market is falling. Once you have this investment plan in place, as a new investor with a small account likely, consider lower cost mutual funds for each category of investing (Canadian equity, fixed income, global equity, etc.) where the fund has a history of above average returns and an investment style you agree with. The professional manager running the mutual fund will manage a diversified portfolio of stocks and bonds on your behalf for a fee. Alternatively or additionally, buying a few exchange traded funds (ETFS) is a more basic, lower cost and easy way to invest as well. I would not recommend building a portfolio of only individual stocks unless you have enough money to buy 18 to 30 stocks in order to create a properly diversified portfolio that mitigates risk.