Rob Carrick’s receent article is a beauty. His headline is “Under 25? Live it up! Financial advisers can wait.” The article gives very confusing advice, and is by no means “financial and investing wisdom” as he claims. It’s the opposite of wisdom, whatever that is. He main goal point seems to be that young adults should wait before starting to invest (“RRSPs? Nah.” he says) and that they should stay away from the financial industry.
His logic goes like this. The “the financial industry is always trawling for new clients” so don’t invest until you are older. “There’s no need to let the financial industry get its hooks into you just yet.” If you do some investing, “get aggressive, sure, when you’re young, but hold off on the adviser.” “Be wary of the financial industry at any age.” Did the financial industry abuse Rob Carrick as a child? When you’re a bit older, sure go ahead, get an advisor, he says. “My advice to people in their early 20s is to live a little, and then visit an adviser when you really need to.” “Expert help can be indispensable if financial matters baffle you.” He uses an example of a TD poll that concluded that people aged 18-24 are least likely to have consulted a financial planner. Rob, TD is not in the same business as the fast food industry. Advertising targeted at children/young adults is OK.
Rob makes a feeble argument as to why you should until you are 28 to invest rather than, say, 22. Here goes:
There’s a good, strong argument for contributing to RRSPs as young as possible, of course. The earlier you put money in a plan, the longer it has to compound tax-free. If you put $1,000 in an RRSP at age 22, you’ll have $18,344 at age 65 if you assume an annual return of 7 per cent. If you wait until 28 (the TD poll found this is the average age for starting an RRSP), you’ll have $12,223, and if you wait until you’re 32, you’ll have $9,325.
By these numbers, the right age to start contributing to an RRSP is 28. You just lose too much in tax-free compounding if you wait until 32. And what about the $6,121 in gains you miss out on by delaying until age 28? Call it a fair price for enjoying your youth and not rushing into financial adulthood.
I’m not sure how he concludes that the magic age is 28 from those numbers. May I remind you Rob that one is only allowed to contribute up to 18% of one’s gross income into an RRSP every year. In the worst case that would lead to an 18% reduction in enjoyment, in the best case, it would lead to less spending on unnecessary things and minimal impact on enjoyment. You said it yourself Rob, “There’s a good, strong argument for contributing to RRSPs as young as possible, of course. The earlier you put money in a plan, the longer it has to compound tax-free.”