Your just starting out investment portfolio: Part 1

Just getting started? Consider building a phantom portfolio to determine what type of investor you are.



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While on book tour for Money Rules earlier this year, I fielded a number of questions on investing from students. For the benefit of those who weren’t there, here are my investment rules.

Rule #1: You must understand what you’re buying. Too many people go into investing with their eyes closed, simply following the directions they’re being given by someone else. My motto is, “If you can’t explain it to a 12-year-old, you can’t buy it.”

Rule #2: You must understand how long it’ll be until you need the money. Less than 10 years means you shouldn’t put the money into the capital markets since you don’t have enough time to recover from a downturn.

Rule #3: You must be true to your personal risk profile. That means understanding just how much of a chicken you are. Big chicken? Don’t get talked into investing in things with risk since you’ll run screaming from the markets at just the wrong time. Little chicken? Then branch out as far as rules #1 and #2 will let you.

Perhaps the best way to venture into investing is to build a phantom portfolio and practice by watching what the investments do and how you react. Choose 10 investments you’d consider buying. Find a website that let’s you pretend you bought them, or track them using a spreadsheet as if you had bought them. Watch what happens and how you feel about the changes as you learn more about the investments you’ve “purchased.”

The follow-up question that comes after this mini-lecture is usually, “Okay, but there are thousands of things I could invest in, where would I even start?”

It’s a good question. I’ll talk about that in my next blog post.

4 comments on “Your just starting out investment portfolio: Part 1

  1. As someone who learned this the hard way, Rule #2 can't be stressed enough for young investors. You are going to need cash for a number of large expenditures you'll likely be making in your 20's: post-secondary education, car down payment, house down payment, wedding. Look at how much these are really going to cost you. Start putting something aside for growth for retirement, but realize there are all these other things you need to save for and equity investments are probably not the best place to do it.


  2. As someone in the mid-20s, living with my parents, I have saved up enough to pay down my student loans. I have an RRSP managed at work that comprises mutual funds, and a maxed TFSA that I built mostly out of a couch potato practice.

    How should I invest the rest of my money? knowing I will only need it in 2 or 3 years for a wedding and first home purchase?

    Bonds don't pay that well, and same for savings account and money funds. Any suggestions on the most efficient way to invest that temporarily?


    • I can't stress enough that you should keep your money out of the stock market if you'll need it in less than 5 years. Sure, risk free money doesn't pay that well…but you don't want to be in a position where you need $20,000 and it's only worth $15,000.

      I believe Peoples Trust has the highest savings account rates for your TFSA – 3%. That's not bad for risk-free savings.


      • Its not that I would ever need it urgently (my maxed TFSA and RRSP can always turn into an emergency only option). I am just talking about what to do with the extra savings, about 20k+. Looking at the CRA, there are no other investment vehicles available for me.


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