When it comes to investing in Canada, there’s no magic formula or shortcut to success. Yet, there’s a growing trend of people thinking that investing can be done with minimal effort and still yield great returns. The truth is, the world doesn’t work that way. If you really want to grow your wealth, you need to commit fully to a strategy, not fall for the latest gimmicks pushed by financial institutions.
In this post, we’ll explore why schemes like buying partial shares may seem appealing but are ultimately ineffective. More importantly, we’ll outline the true path to building wealth and how you can make the most of the opportunities available in Canada.
The Problem with Partial Shares
There’s a lot of hype around buying partial shares of companies these days. Banks and financial institutions make it easy to buy small pieces of expensive stocks that might otherwise be out of reach for the average investor. On the surface, this seems like a smart way to get started with investing, especially if you don’t have a lot of money. But there’s a catch—a big one.
If you’ve ever taken the time to learn about investing, you’ll quickly spot the flaw. The truth is, investing in partial shares won’t add up to much in the long run. The compound growth—the key to building wealth over time—is going to be minimal. When you’re only buying fractions of shares, the impact on your portfolio is tiny.
What makes it worse is that financial institutions don’t push these partial shares out of goodwill. They’re driven by the fees and commissions they charge, regardless of whether you’re buying a tiny fraction or thousands of shares. Essentially, these banks are pacifying you into thinking you’re building a retirement fund when, in reality, you’re making very little headway.
Keep in mind, that in this article we are talking about investing small sums—think $1 to a few hundred dollars—not a thousand dollars or more in a very expensive stock.
A Big Investment Requires a Big Commitment
Let’s break down the problem with partial shares even further. The key to growing wealth is saving and investing consistently over the long term. Experts often recommend setting aside around 10% of your lifetime income for investments. This may sound daunting, but the long-term benefits are immense. Compare that to someone buying partial shares, who may only be putting away a fraction of a fraction of their income.
Imagine trying to build a house with just a few bricks at a time, while also paying a fee for every brick you lay down. It’s going to take forever, and those fees add up. Similarly, buying partial shares is like contributing only a sliver of what you need to really secure your future.
Why Do Financial Institutions Push Partial Shares?
The answer is simple: fees. Every time you buy a share, even a partial one, there’s often a commission or transaction fee attached. These fees are how financial institutions make their profits. Whether you’re buying a small fraction or a large amount, the institution still collects its cut.
Read more about fees in this article Invest Smarter by Saving on Fees for Long-Term Success.
From a business standpoint, it’s brilliant. But from a personal finance standpoint? It’s a strategy that can slow down your wealth-building journey. If you’re going to pay transaction fees, you should be doing it for significant contributions to maximize your investments, not for fractions of a penny.
The Psychology of “Saving Something Is Better Than Nothing”
It’s easy to fall into the mindset of thinking, “Well, at least I’m saving something.” There’s comfort in knowing you’re doing something to save for the future. But the truth is, small efforts usually lead to small results.
Think of it like working out. If you do one push-up a day, sure, you’re doing something, but will it lead to noticeable results? Probably not. Investing works the same way. Minimal contributions, like those made through partial shares, aren’t going to make a big dent in your long-term wealth.
Yes, saving a little is better than saving nothing. But if you really want to see growth, you need to commit fully to the process. Half-hearted attempts won’t get you where you want to go.
The Complete Wealth-Building Package
So, what does a complete, committed wealth-building strategy look like? Here’s what you should focus on if you want to invest wisely in Canada:
- Save 10% of Your Lifetime Income
This is a classic wealth-building rule for a reason. By saving and investing 10% of your lifetime earnings, you’re setting yourself up for future success. It may be a challenge, but the long-term payoff is worth the effort.
- Invest in a Well-Balanced, Low-Fee Diversified Fund
Instead of putting your money into gimmicky partial shares, invest in low-fee, diversified funds. Exchange-traded funds (ETFs) and index funds are great options. They offer diversification, meaning your risk is spread out across a wide range of assets, and they come with lower fees compared to many other investment products.
- Reinvest Dividends for Compound Growth
One of the best ways to grow your investment is by reinvesting your dividends. This means that the money you make from your investments is automatically used to buy more shares, leading to even more growth over time. This snowball effect is the power of compound interest, and it’s one of the most important factors in building wealth.
- Use Government Tax-Deferred Plans (RRSP and TFSA)
Take advantage of Canada’s tax-deferred plans, like >Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). These accounts let your investments grow tax-free, meaning you can save more in the long run. With RRSPs, your contributions are tax-deductible, and with TFSAs, your withdrawals are tax-free.
- Maximize Employer Contributions to Pension Plans
If your employer offers a pension plan with matching contributions, take full advantage of it. Employer matching is essentially free money, and turning it down would be like saying no to a raise. Maximize this opportunity to boost your retirement savings.
- Keep Household Debt to a Minimum
Debt can be a major obstacle to building wealth. Interest payments on debt are essentially money going down the drain. The less debt you carry, the more money you can invest toward your future. If you want to achieve financial security, getting out of debt should be a priority.
The Bottom Line: No Shortcuts
At the end of the day, there’s no magic trick or shortcut to building wealth. It takes time, effort, and a serious commitment to saving and investing wisely. Schemes like partial shares may seem convenient, but they won’t get you to your financial goals.
Instead, focus on building a well-rounded strategy that includes saving a significant portion of your income, investing in low-fee diversified funds, and taking full advantage of the opportunities provided by the Canadian government and your employer. Make a real commitment to your financial future, and you’ll be far more likely to achieve the wealth and security you’re aiming for.
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.
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, we are not a qualified financial advisors. We just relate financial management to our own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of ours came from expensive experiences.
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