Saving for retirement doesn't need to be complicated. It is, however, necessary. Regardless of your financial situation, investing is crucial to get you to a worry-free retirement. Here are three simple and straightforward strategies to invest your money with minimal effort.
Tangerine Index Funds
I currently invest my long-term savings in Tangerine’s Equity Growth Portfolio. Simply put, I’m 27 years old and am able to adopt a more aggressive strategy when it comes to investing. I also can be a bit riskier since my employer currently gives me free money to contribute into a group RRSP plan that offers a selection of more stable mutual funds.
Tangerine's investment portfolios replicate certain market indexes, rather than other Brick & Mortar Banks that typically offer conventional mutual funds (*TD e-Series Funds is also another great option). I believe investing in Tangerine’s index funds is great for novice investors, since they have lower MER fees than traditional mutual funds, no annual fees, no account minimums, automatic rebalancing and you don't have to open a discount brokerage account. Although their fees are on the higher end for index funds (1.07%), I believe that the above-mentioned perks outweigh the costs, especially if you have a smaller portfolio (i.e. less than $50,000).
It's also extremely easy to set up an account online. After completing a simple questionnaire about your investing knowledge, risk level, and other qualifying characteristics, Tangerine will tell you which portfolio of theirs matches you the best. After that, you’ll just need to make an initial deposit of $100 or more and you’re ready to go!
In Canada, robo-advisors are generally considered new #FinTech, although they've been around for awhile in the U.S. The concept is that financial advisors can provide financial advice and wealth management services online, for convenience, while a live person is available by phone or e-mail if you need support. Some popular Canadian robo-advisors are: Wealthsimple, Wealth Bar, Justwealth Financial, Nest Wealth, Portfolio IQ and a couple more. With the exception of a few, most of these robo-advisors invest solely in ETFs.
In terms of MER fees, robo-advisors tend to not be as expensive as mutual funds, but still not as cheap as self-directed investing. According to this 2016 Globe & Mail article, the average asset-weighted MER fees typically range from 0.12% - 0.50%. Trading fees are generally covered as well, so you would typically only pay the standard fund fee and the robo-advisor's MER fee.
Robo-advisors, similar to Tangerine’s Index Funds, make investing easy for novice investors. Again, when you typically sign up for an account, you complete a short questionnaire to assess your investing style, and the robo-advisor will recommend a portfolio based on your answers. Similar to investing with Tangerine, robo-advisors will also automatically rebalance your portfolio. If you're looking for a middle-of-the-road option, robo-advisors are a great option.
Self-Directed Investing With The Canadian Couch Potato Strategy
Behold the cheapest option of them all. Although this requires slightly more effort, the effort is worth it if you have a sizeable investment portfolio and want the lowest MER fees. You also have the luxury of choosing your own investments, rather than having to select a pre-made portfolio. No questionnaires for you. Most people choose to invest in ETFs through this strategy. Although this may seem daunting, there are many, many many Canadians who have simply adopted the Canadian Couch Potato strategy and are still very much passive investors. In fact, it’s so passive that Dan Bortolotti, founder of Canadian Couch Potato, has a list of recommended funds that you can easily choose from. Minimal thinking required.
You can easily open up an account with a discount brokerage company, such as Questrade, and start investing. Once you're set up, you will need to rebalance your portfolio, but that shouldn't take more than an hour or two per year.
Balance Convenience With Annual Fees
In the end, you can’t really go wrong with any of the options. However, know that while those MER fees don’t seem like much now, it will be when your portfolio grows. By reducing your MER fees even by just 0.5% will save you thousands of dollars over the span of your life.
For example, Tangerine’s MER fees are 1.07%. There is also a standard Trading Expense Ratio (TER) fee of 0.3%, bringing your total annual fees to 1.10%.
Here is an example of how much you would be paying in fees:
Your Portfolio: $100,000 = $1,100 per year in fees
Your Portfolio: $250,000 = $2,750 per year in fees
Your Portfolio: $500,000 = $5,500 per year in fees
Your Portfolio: $750,000 = $8,250 per year in fees
While it may not seem like much relative to what’s in your investment portfolio, just know that over the duration of your investing years, you have to consider the thousands of dollars you’d be paying in fees. This isn’t something you’d have to pay separately; it’ll just automatically come out of your portfolio.
While the returns on your investments are beyond your control, MER fees are something that you can choose. Make sure you consider all factors when determining which investment strategy to adopt. Also, you can always switch your RRSP or TFSA to another financial institution at any time. In most cases, the financial institution that you're switching to will cover the cost of the transfer fees.
In the end, there’s no wrong choice when selecting from the above three options. So long as you're contributing 15%-20% of your earnings, I believe that these passive investing strategies will lead you to a comfortable retirement.