Listen up Gen Z: How to invest as a young person
As a young investor, should you manage your own stocks, use a robo-advisor or hire a professional? Find out what’s best for you as we weigh the pros and cons.
As a young investor, should you manage your own stocks, use a robo-advisor or hire a professional? Find out what’s best for you as we weigh the pros and cons.
Photo by Keira Burton from Pexels
With so much investing info out there that can be both confusing and conflicting, it is challenging for Gen Zers and Xers to figure out how to get started, especially when you see social media “finfluencers” promoting individual stocks. Young investors not aware of the associated risks with day trading could end up making bad investment choices. Before dumping your money just anywhere, do your research and understand how an investment works along with the inherent risks and rewards. But first things first, let’s look at your options on getting started.
If you’re ready to take the plunge to start investing, here is a breakdown of the three most popular options: self-directed investing, using a robo-advisor and hiring a financial advisor.
Self-directed | Robo-advisor | Financial advisor | |
Financial knowledge needed | Intermediate to advanced | None required | None required |
Minimum amount required | ~$5,000 to $25,000 | $0 to $5,000 | $1,000,000+ |
Fees | • Trading: $0 to $9.99 • Annual: $0 to $125 • Management expense ratio: ~0.30% to 1%, but can go up to 2% † |
0.4% to 0.8% | • Hourly rate of $250 to $500 • Flat fee from $1,500 to $5,000 for a plan • Fees of 2.0% to 2.5% of assets |
Use of registered accounts | Yes | Yes | Yes |
Portfolio | You create | Algorithm-based build | Human creates and manages |
Your involvement | High | Low | Medium |
Human interaction and customer service | None | Rare | Always |
† Fees can also depend on the types of investment products purchased; for example, 0% for stocks and up to 2% for mutual funds.
DIY investing is when you take on the responsibility of your assets by “doing it yourself.” DIY investing involves using an online broker. Here are the pros and cons for this style of investing.
Where to find an online broker: Here are the best brokers in Canada. Looking for model portfolios? Check out the Canadian Couch Potato too.
A robo-advisor allows you to have investments without having to manage them, without the higher fees that are usually associated with hiring a professional advisor. Here are the pros and cons.
Where to find a robo advisor: Here are the best robo-advisors in Canada.
If you think you would benefit most from a professional person you can talk to or meet in person, consider a qualified financial advisor. They have the education and experience to look at your investments more closely than robo-advisors or online brokers. But here are the pros and cons for advisors.
Where to find one: Use the MoneySense Find A Qualified Advisor tool to help you find a list of credentialed advisors. Consider these questions you should ask when choosing a financial advisor.
Are you the type of person who doesn’t like to see your portfolio’s value drop? Or are you someone who doesn’t bat an eye when you see your portfolio drop by as much as 34%? Remember March 2020?
Well, if you are just starting out and getting your feet wet, it wouldn’t hurt to take a more conservative approach, which means taking on lower-risk investments, such as guaranteed investment certificates (GICs). Or you may decide to be more aggressive since you have decades ahead of you and want to add riskier but higher return assets to your portfolio, such as stocks.
Bonds and GICs tend to be on the safer side, whereas stocks are more volatile, meaning the ups and downs could be concerning to investors. Stock investors generally need to have a long time horizon. Either way, generally a sound strategy is to have a mix of stocks and bonds to balance out your risk. Having many eggs in many baskets will help to provide diversification, so that any impacts will be softened and won’t affect your bottom line.
Everyone’s investing journey is unique. Just because something works for a close friend, family member or a “finfluencer,” it doesn’t mean that it’s best for you. Choose the path that makes sense for your financial needs and current situation.
Once you get started, investing can be a key part of how you grow your net worth and fund the lifestyle you want. Continue to learn about stock market investing through blogs, podcasts, YouTube and TikTok videos, but be sure they are from reputable sources. Once you know the investing basics it’s easier than you think!
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You haven’t mentioned the couch potato method which is self-managed but also involves an ‘advisor’ and is low fee