Investing for Future Millionaires Michael A. Goldberg, B.Comm., B.Ed., OCT Presented by Michael A....

Investing for Future MillionairesMichael A. Goldberg, B.Comm., B.Ed., OCT

Presented by

Michael A. Goldberg, B.Comm., B.Ed., OCT

@MrMGoldbergRichmond Hill Public Library, 2014

Investing for Future Millionaires


1. Investing Basics2. Risk & Asset Mix3. Indexing Investing ETFs & Mutual

Funds4. How to get your Million Dollar

Portfolio Started!5. Try it Out!6. Questions/Sources

Agenda


Investing Bingo!


1. Investing Basics

What’s Investing?It’s spending money on an item of value that you purchase in order to get income, or to grow in value.


Personal Financial Management for Teens

M.A. Goldberg, November 2012


Saving

To Invest, you need to SAVE!!!

What is saving, and how do you do it?


Saving – The 10% Solution

How much should I save?– According to David

Chilton, author of The Wealthy Barber, you should save 10-percent of all the money you receive (income)


With saving, the most important step is to

get started.


Saving Tips – Cut Spending!• The Latte Factor! Avoid getting into the habit

of buying expensive little things like coffees/drinks EVERYDAY!!!

(This could save you $1000s/year!)

• Bag your lunch instead of buying it• Think of the yearly (annual) expense


Five Basic Steps of Investing

1. Set Goals2. Determine what kind of investor

you are (how much risk can you handle)

3. Pick a mix of investments (asset mix)

4. Choose investments5. Keep track of your investments


2. Risk & Asset MixRisk•When making an investment you should be totally comfortable with it.•You should be able to sleep well at night!•If you are worrying about your investment all the time, it’s probably too risky for you.•GetSmarterAboutMoney.ca Risk Profile Quiz!

Image source: http://www.youtube.com/watch?v=kJ-slNvmFYA, Novemeber 2, 2014


2. Risk & Asset Mix• Asset Mix

– Basically the mix/percentage of • Equity (eg. Stocks)• Fixed Income (eg. Bonds)• Cash• Other investment types

– Commodities– Real Estate– Collectibles

…you have in your investment portfolio (list of all of your investments).


Types of Investments– Equity

• Stocks• Mutual Funds• ETFs

– Fixed Income• GICs (Guaranteed Investment Certificates)• Savings Bonds (and other bonds)• Mutual Funds• ETFs

– Cash– Commodities (gold, silver, copper, pork bellies,

etc.) – Real Estate – Others?


Asset MixChoosing your own Asset Mix depends on:

1. Time Horizon2. Risk Tolerance Level3. Financial Goals


Asset Mix AdvantagesAdvantages of determining your own an Asset Mix

•Limits risk through diversification– Don’t put all of your eggs in one basket!

•Can be adjusted as your risk tolerance level changes•Allows you to be risky with your investments, yet

still have some “insurance” if the market goes bad.


Asset Mix Rule of Thumb

Fixed Income (%) = 100 – Age•Example: If you’re 20…

– Fixed Income = 20% of your portfolio – Equity = 80% of your portfolio

•Note: you should always have some cash in your portfolio too


Asset Mix ExamplesAge Equity (%) Fixed Income(%)

<30 80 20

40s 67 33

50s 50 50

60s 20 80

>70 5 95

• These are rough estimates

• Note that this doesn’t include cash

• Your asset mix should be re-balanced annually

• The fixed income age rule, isn’t really followed here


3. Indexing• What’s an Index?

– A benchmark or yardstick that lets you measure the performance of a stock market, part of a stock market or a single investment.

– Examples: S&P/TSX Composite, S&P/TSX Canadian Bond Index.

• From the Investor Education Fund’s glossary Source: http://www.google.ca/finance, July 10, 2014


3. Indexing• Note that index numbers based on the number

100.0 or 1000.0, a starting or “benchmark” number • Charles Dow created the first index, the Dow Jones

Industrial Average in 1896, which tracks the New York Stock Exchange

• Today there are thousands of indices!

Source: http://www.google.ca/finance?q=INDEXTSI%3AOSPTX&ei=Hj-_U8DtGsSNqQGCnYC4AQ, July 10, 2014


Mutual Funds• It’s a type of investment fund.

• Collection of investments– Stocks– Bonds – Other funds or Exchange Traded Funds (ETFs)– Commodities (gold, silver, pork bellies, etc.)

• Management• Funds are controlled by a Fund Manager,

an expert investor or a team of investors who make decisions on when to buy and sell investments within the fund.


Diversification• There are many ways to Diversify through

mutual fund investing.

1. Type of Investment (Equity vs. Fixed Income)

2. Geography (focus on certain countries or regions of the world)

3. Investment Style (eg. Income, Growth, Balanced, Index)

4. Company Size (eg. Large Cap. vs. Small Cap.)


MER

• MER = Management Expense Ratio– MERs are costs represented as a percentage of

your assets in the fund that are paid annually.

– Most MERs for mutual funds in Canada cost 2-4% per year for equity-based and “actively managed” funds


Dollar Cost Averaging• Definition – Making regular payments (for

instance $100.00 per month), regardless of the price of the investment.– When the price of the mutual fund is higher, you

get less units.– When the price of the mutual fund is lower, you

get more units

• Over time, the average price per unit becomes smaller and smaller, which lessons the risk of price fluctuations over time.

• This can easily be done with mutual funds


ETFs

• Exchange Traded Fund definition:– A fund that chooses investments based on a

market index or sector. ETFs trade on a stock exchange. They are not actively managed, so costs tend to be lower than regular mutual funds.

• From the Investor Education Fund’s glossary

• ETFs often follow one particular index.• Example: The iShares “LargeCap 60 Index

Fund” follows the S&P/TSX 60 index (basically the 60 top companies, by market capitalization on the TSX) trading on the TSX with the stock symbol XIU


Diversification/Asset Mix

• Like Mutual Funds, ETFs can cover many different industries, types of investments, countries, etc.

• All of this diversification can be purchased using Canadian products in Canada!


4. How to get Your Million Dollar Portfolio Started

• You need an account with a mutual fund company, broker (eg. iTrade, Questtrade, etc.) or bank– Brokers usually need $1000.00 as an initial

investment

• You need to be 18• You need to have a minimum investment,

often $500.00 or $1000.00

• You need to read the fine print!• Once you start, track your results• Rebalance your portfolio every year


• Developed and promoted by MoneySense magazine• Pick a few ETFs and target asset mix • Diversify according to your asset mix, and personal

tastes.• Couch Potato Examples

– “Classic”• 33.3% Canadian Equity• 33.3% American Equity• 33.3% Canadian Bond

– “Global”• 20% Canadian Equity• 20% American Equity• 20% European/Asian Equity• 40% Canadian Bond

• Important: Rebalance your portfolio once per year!!!• See MoneySense’s Buyer’s Guide to ETFs for more examples

Couch Potato – A Simple ETF Strategy


Investing & Taxes

To Save Money use Tax Shelters• TFSA (Tax-Free Savings Account)• RRSP (Registered Retirement Savings

Plan)• RESP (Registered Educational Savings

Plan)• RDSP (Registered Disability Savings

Plan)• Usually used more as a savings account


5. Try it Out!

• 10 Investment Choices• See the Results!


ETF Providers in Canada (TSX)– iShares ishares.ca– BMO etfs.bmo.com– Horizons horizonsetfs.com– Powershares powershares.ca– Vanguard vanguardcanada.ca– FirstAsset firstasset.com– RBC funds.rbcgam.com/etfs– Purpose Investments purposeinvest.com– First Trust www.firsttrust.ca

• Full TSX ETF List:– http://apps2.tmxmoney.com/etp/discovery/providers


Additional Mutual Fund Information

• Morningstar is a great website for mutual fund information– www.morningstar.ca


Investing Bingo Revisited & Feedback!


Questions?


• Bortolotti, Dan, “The Complete Couch Potato Roadmap”, MoneySense (November 2009), http://www.moneysense.ca/2009/12/17/the-complete-couch-potato-roadmap/, February 16, 2010

• Gerlsbeck, Rob, “Buyer’s guide to ETFs”, MoneySense (November 2009), http://www.moneysense.ca/2009/11/01/ready-to-build-your-own-portfolio/

• http://www.getsmarteraboutmoney.ca/tools_and_calculators/glossary/definition/Pages/index.aspx, February 2, 2010

• http://www.getsmarteraboutmoney.ca/tools_and_calculators/glossary/definition/Pages/exchange-traded-fund-etf.aspx, February 16, 2010

• http://ca.ishares.com/product_info/fund_overview.do?ticker=XIU, February 16, 2010• http://www.getsmarteraboutmoney.ca/en/managing-your-money/planning/investing-

basics/Pages/default.aspx#.VEvI6MmEwvk, October 25, 2014• http://www.getsmarteraboutmoney.ca/en/tools_and_calculators/Quizzes/Pages/risk-

profile-quiz.aspx#.VFZFWMmEwvk (Risk Quiz)• http://www.getsmarteraboutmoney.ca/en/managing-your-money/planning/investing-

basics/Pages/Choose-your-asset-mix.aspx#.VFZVmsmEwvk (Choose Your Asset Mix)• http://www.tmxmoney.com/en/sector_profiles/exchange_traded_funds/education/

what_are_etfs.html (“What is an ETF,” TSX, November 6, 2014)

• I created the artwork with “Wordle,” an application on wordle.net. (February 16, 2010)

Works Cited

Investing for Future Millionaires Michael A. Goldberg, B.Comm., B.Ed., OCT Presented by Michael A....

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