MR here.  I invited Uproar to do a Guest Post on my blog because, beneath his rough exterior and sex jokes, he has a heart of gold and a very clever mind. Although I definitely wouldn’t take his one-liners to heart, his financial advice is incredibly solid and definitely deserves a receptive audience. Financial Uproar is one of my favourite blogs out there. So with that little intro … enjoy!

Nelson Smith is the blogger behind Financial Uproar, which he’s pretty sure is the best blog in the entire world. He smells vaguely like lilacs, and his hair is really quite soft, because he enjoys the little things. He also recently just learned to tie his shoes. You can also follow him on the Twitter, where you will be undoubtedly disappointed.

For many young adults, investing is a world scarier than that time I accidentally stumbled upon an episode of Toddlers and Tiaras. (I refuse to believe that show isn’t a practical joke played by TLC, and we’re all the patsies. But I digress.) There are so many questions, most of which I’m assuming are about investing. What exactly should you invest in? Should you invest in stocks? Or bonds?

The world of investing can be a very complicated place, filled with all sorts of words and abbreviations. It’s time to cut through all the fancy pants terms and products and get down to what’s important – building a portfolio that will outperform 80% of your peers while using at least 80% less effort. It’ll leave you more time to do whatever it is the kids do these days. Ecstasy or something.

On second thought, don’t do ecstasy.

Okay, here’s what you need to do. You need to find the cheapest index funds, and buy them. In Canada, that means buying E-Series funds from Toronto Dominion Bank.

You can either set up the process with TD representatives over the phone, or do it online through a TD Waterhouse brokerage account. They can’t be bought from any other company, so don’t even try. It’ll take an hour or so to set up an account, but it’s time well spent.

Why TD E-Series funds? It’s simple. They are the lowest cost mutual funds in Canada. Say the average fund in Canada charges a 2% management fee. The average fee on an E-Series fund is 0.30%. If you have $10,000 invested, you’ll save $170 per year in fees. Fees are bad, they’ll eat away at your returns. Avoid them at all costs.

Secondly, these funds don’t even try to beat the indexes. All they do is try to match the performance of the TSX, the Dow, the S&P 500, or whatever other index, by replicating those indexes as closely as they can. Remember the high fees charged by regular mutual funds? Because of these large fees, they’re practically guaranteed not to beat the index. If the fund and the index both return 8%, but it costs you 2% in fees, you’re getting (I’m gonna try this without a calculator) a 6% net return on the fund. Meanwhile, the TD E-Series fund would return 7.7%. (8% – 0.3%)

Okay, enough about fees. You’re probably bored, and I don’t blame you. So what should you invest in?

I’m going to make a big assumption with the following model portfolios. I’m going to assume you’re an investor in your 20s or early 30s, one without many other investments. I’m also going to assume you have a half decent tolerance for risk too, since Money Rabbit does not care for wusses. (Which is probably why I can’t get a date with her.)

Diversification is important when you invest. Since Canada is filled with all sorts of resource companies, these companies will dominate the Canadian portion of your portfolio. This is why you want to own companies from all over the world. So, using TD’s E-Series funds, I’d build most of you the following portfolio:

33% – Canadian Index

33% – U.S. Index

33% – International Index

That’s it. Split your investment into thirds, buy the Canadian, American and international indexes, and call it a day. That’s how simple your investments can be.

If you’re a little scared about investing fully in the stock market, add some bonds in there.

25% – Canadian Bonds

25% – Canadian Index

25% – U.S. Index

25% – International Index

That’s how simple investing can be. Just because the market is complicated, it doesn’t mean your investments have to be.

Look at all the extra time I just gave you. You can totally use some of it to go to dinner with me. I’ll pretend to be a gentleman long enough to convince you to sleep with me.

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7 Responses to “Guest Post – Investing Can Be Really Simple. Really.”

  1. Nelson, you read my mind. We do exactly what you mention. We are index investors and we use TD waterhouse for our trading. It’s a great way to do DIY investing. I love how easy index funds are.

  2. I guess I’ll kick off the comments. This might be the greatest post in the history of ever.

    Your move, internet.

    • Well, commenters don’t know how to deal with a post that lays out data in easily understandable terms and that gives unambiguous directions. If you add a story about how you can’t get a job despite having a master’s degree, or tell everyone how you saved 11¢ over the past year by grinding your own flour, you’ll get comments.

  3. I didn’t comment because I know nothing about investing, particularly investing in Canada. But I do want to say that I think all child pageant participants (and their crazy moms) should go live on the moon.

  4. PK says:

    Internet here; I love that a post from Nelson warranted a disclaimer.

    As a non-Canadian, I can’t comment specifically on the choices in this article, but I do approve of your “Keep It Simple, Stupid” style of investing. When it comes to my (non-internet) friends, it’s usually inertia that keeps them from investing in a smart way. Usually I can shame them into doing something with their savings with analogies about burning money in fireplaces, but a to-the-point article like this works just as well.

    MR, you’ve got yourself a new reader!

  5. Jordann says:

    Let’s just say that post caused me to follow you on twitter.

    You managed to capture my attention, even though anything to do with investing generally causes me to involuntarily adopt a distinctively slack jawed appearance. While I’m no where near ready to start investing (too young, too in debt, too without-an-adequate-emergency-fund) this post pretty much sums up how I want my investing to go, set it and forget it.

    Good choice for a guest poster MR!

  6. Two Degrees says:

    Just started my etrading account with TD this week. Excited!

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