Invest early for long-term success

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This article was published 24/09/2016 (3327 days ago), so information in it may no longer be current.

Deelaka Ratnayake didn’t get hooked on investing because he loved money. He loved the business of making money.

“I was always fascinated by corporations, and when I grew up I wanted to own a bunch of them,” said the third-year student at the University of Manitoba’s Asper School of Business.

He used to tell his friends in elementary school how he wanted to own his own hotel chain. Then he thought it might be a good idea to own a piece of Tim Hortons, but it wasn’t Timbits he found attractive. It was the doughnut maker’s profitability.

Since he started investing, Ratnayake, 21, has learned to only buy Tim Hortons and other stocks when their share price is lower than their true worth in his estimation. Learning that took time. He’s taken his fair share of knocks since he began investing in his first year of university.

“Seeing the mistakes I made and the emotions I went though when the stock was down or up helped me become a better investor.”

It’s a valuable skill set to be sure, but one acquired by too few young adults.

That makes Ratnayake a great financial role model in many respects for young adults — a demographic often lumped together as “millennials.”

While his acquired knowledge is to be commended, so, too, is the fact he has grasped the one advantage millennials have over every other investment demographic: they may not have much money to invest, but they have plenty of time to invest and grow their money.

The problem is a recent TD Bank survey found many don’t take advantage of this fact.

 It found millennials don’t invest for three main reasons: 36 per cent don’t know when or how to invest, about one in five don’t think it’s the appropriate time, and more than one third just don’t see the point of it.

These numbers are troubling, said Jeff Beck, associate vice-president with TD Direct Investing. They amount to opportunity lost, largely the result of perception among young adults retirement is too far away to be concerned about.

“There’s also a perception out there that when it comes to investing, you need a lot of money,” he said.

“The reality is that you don’t.”

That’s true to an extent. Young people need much less to invest because they have a longer time line until they will need their money. That means they can take on more risk, which traditionally involves investing in the stock market, and potentially receive a larger return on their money.

A recent poll by Edward Jones determined about one quarter of young investors grasp the concept they can invest in the markets and handle the ups and, more importantly, the downs. That’s a small number, but it’s a start, said Patrick French, principal of client financial strategies with Edward Jones.

“What that’s getting at is their time horizon is so much longer if they’re thinking about investing for retirement,” he said. “Volatility in the short term presents opportunity for every investor, but more so for millennial investors because if the market is falling today, that means every dollar you’re investing today has a longer period of time from which it can recover.”

Millennials have more opportunities to buy low and eventually, many years later, sell high.

It’s often easier to preach about than to walk the talk. For one, younger investors have a lot more on their financial agenda than concocting an investment strategy. They have student debt to pay off, a home to save for and, generally, a life to lead, often on limited income.

Even those who successfully get a head start know there are specific challenges to overcome.

Nathan Moncrief and Josh Olfert, two Winnipeg millennials previously featured in the Free Press because of their investment prowess in their early adulthood, grew investment accounts by their 20s middle-aged investors would envy.  

Both now work in the investment advisory business and agree the industry is not slanted in favour of millennials.

“The industry tends to chase the higher-net-worth demographic, which means young people aren’t getting the attention they’re expecting,” said Olfert, now an adviser. “No one is incentivized to do so.”

In an industry built on fees as a percentage of capital, it naturally follows it caters to those who offer the largest pie slice — and that’s often people age 40 and up.

So, millennials often have to go it on their own. Fortunately, it’s never been easier.

Online discount brokerages such as TD Direct Investing provide low-cost access to a universe of stocks, bonds, mutual funds and exchange-traded funds (ETFs). Some, such as Questrade, even offer no-commission exchange-traded funds trading. Or you can go with a robo-adviser, which allows you to make contributions to a portfolio of exchange-traded funds at very low cost.

Neophytes with only a few dollars every month to save are often best served starting out at a financial institution with guaranteed income certificates or an index mutual fund that tracks the performance of the TSX Composite Index, for example, rather than trying to beat the market. Both strategies allow investors to contribute very small amounts — $25 a month — to grow their money to a point where they have a large enough sum — at least $1,000 — to buy stocks or exchange-traded funds through an online brokerage account, or use a robo-adviser.

To boot, financial institutions can also provide basic investing advice and financial planning to help you flesh out your financial goals.

Just beware of fees — on mutual funds, savings accounts, chequing accounts… you name it.

Don’t be afraid to be up front about them and your reluctance to pay. Fees can eat into wealth over time.

These concerns aside, what’s truly important is the process of saving regularly. Get started with automatic monthly contributions and move forward from there.

Learn as you go. But don’t procrastinate, because young adults today need to save for the long-term more than any generation in recent history.

“Our generation has to contend with limited safety nets,” said Moncrief, a researcher at LionRidge Capital Management in Winnipeg.

Fewer workers have a good pension plans through their employers.

“More than ever, you have to take responsibility for your retirement savings,” said Olfert.

It’s not a matter of choosing the right investments, which can freeze people into indecision and inaction, so much as investing for the right reasons.

So forget about getting rich quick.

Investing is a long game.

 “It entails sacrificing today for a better future,” said Moncrief. “The more you’re willing to give up short-term pleasure, the more long-term pleasure you can accumulate.”

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