My Investment Advice for Young Adults

Rather than just bash Rob Carrick’s advice for young people, I’ll offer up my own advice:

  • Start investing as early as you can. The earlier the better.
  • As soon as you have some money, invest some of it. If you have a paper-route or a part-time job, invest 10-20% of it for the long term. Get in the habit. Invest monthly. You won’t miss that money.
  • If you are babysitting for cash, tutoring for cash, earning tips, basically if you earning ANY employment income, file a tax return and declare all your income to build up RRSP contribution room.
  • If you have RRSP contribution room, start an RRSP and contribute to it. Find a company that will not charge you any annual RRSP fee. I recommend something like TD’s Mutual Fund Account. Set up an automatic monthly contribution if you have steady income. Max out your available contribution room every year.
  • Set up one or more ING Direct Savings accounts or one ore more savings accounts at your bank. If there is anything big that you want to save up for, use that to save up for it.
  • Don’t get a credit card unless you have to. Keep your credit card limit low. Pay off your balance every month. Don’t be dazzled by rewards plans.
  • When you get a large chunk of money from a birthday, a scholarship/bursary, a tax refund, don’t put it in your chequing account or convert it to cash. Deposit it into a savings account. Sit on it for a bit. Don’t make an impulsive purchase.

Think any of my advice is bad? Think I am missing something? Let me know.

5 thoughts on “My Investment Advice for Young Adults”

  1. I think it’s great advice. When my son gets older (he’s 6 months) I hope that I can get him to do some or all of the things you’ve suggested.

    I think Carrick’s advice would have been more appropriate for someone like me when I was in my early 20’s. I never really knew anything about personal finance until I was in my late 20’s (maybe I didn’t want to know?) and if I could have avoided debt and maybe even saved a bit – it would have helped a lot later on.

    I do remember one of my mistakes during university was thinking that I would graduate and get a good job right away. This didn’t happen and added to the debt problem. The other problem was that I thought that when I got this ‘great’ job ie making 40k a year or so (back in ’92) then I would have lots of cash to pay off debts/travel etc. The word to describe that plan is “naive”!

  2. I just got through your archives – I didn’t realize that you weren’t a home-owner or mortgage-owner as I like to think of myself. I would agree in your case that maxing out the rrsp is the way to go since returns in the rsp are likely to be larger. What is your longer term game plan? Invest in rsp until a certain age ie 45? and then buy a house and work on paying it down?

  3. I’ve just been reading through the archives while I suffer with insomnia here tonight (don’t let the time fool you — with insomnia, 7 am can still be nightime 🙂

    I think that this is generally good advice, and the first and second points are priceless. However I might quibble with two points in certain situations. The first is the credit card: they have to be used very carefully and with exceptional discipline by young people, but they can be very handy to have for emergencies and building a good credit record early… but never carry a balance on it.

    For RRSPs, I am by no means an expert in the area, not having one myself. As a career student, I haven’t had to pay income yet, so getting income tax deductions by saving to an RRSP hasn’t been a priority. This may be the first year I’ll have to pay tax, so I asked my dad about whether I should set up an RRSP — he said that it just didn’t make sense for someone in my situation. Since you have to pay tax on what you take out of the RRSP, and since I’m in the very lowest tax bracket now, it would make more sense to just pay the tax on the money now, especially if I hope to be in the next tax bracket up (or more!) when retirement comes around.

    Of course, that doesn’t mean I shouldn’t plan for an RRSP now: save for it, buy a mutual fund/ETF/etc and have that earmarked for the RRSP when I do get a job so I’ll be able to max out my contributions right away…

    Interesting, before I submitted I found some other posts where you mention the benefit of contributing early and deferring the deduction. I’ll have to discuss that with my dad!

  4. Potato, definitely contribute to an RRSP, then deduct later when you feel like it. Either as soon as you make enough money to be taxable, or as once you are in a larger tax bracket so the deduction becomes more beneficial. I would basically just use it in your first full year of full-time pay.

    Be careful when asking close friends and family for advice. I was lucky in that most of my dad’s advice turned out to be good but some of it was not good and advice from in-laws and other relatives was especially bad. In fact the poor advice from in-laws was the reason I started this blog (I realized there must be lots of people as uninformed as them). The problem with relatives is that we are often prone to treat their advice as being more credible than the advice we might get from a stranger. Honestly though, we need to treat advice from relatives with just as much skepticism as anyone else’s.

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