Is there a simple idiot proof way to invest for the long term without knowing anything about investing? I say yes.
So how did I simplify the process? With literally thousands of stock offerings to choose from and multiple markets the possibilities are overwhelming. I use the Toronto Stock Exchange (TSE), the main Canadian stock market. I have no idea how to pick winning stocks so I don’t bother.
My Investment Choice
I’ve chosen exchange traded funds (ETF’s) since they are designed to be all in one solutions to long term investing. The ETF’s I use are broken down into two broad categories termed “growth” and “balanced”.
The growth style funds have an 80% stock component and 20% bonds, while the balanced style funds, being slightly more conservative, have a 60% stock component and 40% bonds. The higher stock component points to higher long term growth, but these funds will have larger short term fluctuations which makes twitchy investors nervous.
Rate Your Emotional Discipline
Now, you have to rate your emotional discipline and tendency to react to market downturns. If you’re prone to panic when the market goes down and don’t have the discipline to hold for the long term then I’d suggest sticking to the higher bond percentage. Otherwise opt for the higher stock percentage, accept the inevitable fluctuations, and go for growth.
Currently three companies offer these ETF funds, and they’ve been nice enough to even share the symbol names to make it easier for us. Balanced funds have the symbol BAL, and growth funds have the symbol GRO. The letter ahead of the symbol signifies the company and the fund names include these symbols. Vanguard, Blackrock, and most recently Bank of Montreal BMO funds have performed extremely well.
Note: This in no way should be considered an endorsement of any particular fund. I am not a qualified investment advisor. I have merely stated the market situation as of the writing of this article.
These are all excellent products, and in my opinion, they’re likely to perform very similarly over time, with any variance being the result of randomness and not any structural feature.
The one glaring factor all have in common is industry leading low management fees (approximately 0.2%). That’s your ultimate advantage. Forget about diversification and rebalancing since they are done automatically.
Hold for the Long Term
Lastly comes the hardest part. Buy the funds and hold them for the long term. Why is this so hard? The last two market meltdowns (October 2008 and March 2020) saw investments drop by over one third, only to recover within a year. In the middle of those panics you must have the discipline to hang on and hold for the long term.
Panicking and selling during a downturn is the ultimate lose-lose scenario. Too many people over-estimate their risk tolerance only to learn this lesson the hard way.
Step one – Toronto Stock Exchange.
Step two – decide on your risk tolerance; balanced or growth.
Step three – select your fund and buy and hold for the long term.
If you’ve never bought an investment online let me just say it has never been easier to open an investment account and take charge of your financial future.
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.