You could probably ask 5 different financial advisors, or five different friends for that matter what you should do with your money. Unfortunately, there is a probability that you may get 5 completely different answers. Not all investors think alike, and if you are just starting out it can seem nearly impossible to dissect the information given and come up with your own strategy. The best solution for this type of dilemma is to simply educate yourself. We reached out to Mark in late 2016 with some common beginner investing and personal finance questions to guide our audience down the right path.
Mark Seed runs what we would consider to be one of the best personal finance/investing blogs on the internet at MyOwnAdvisor.ca so when he agreed to do the interview, we were thrilled. The 12 questions range from the Alberta oil sands to leasing a car. This is a two page interview, you can carry on to the second page at the bottom, or find it here. We hope you enjoy it, and don’t forget to like,share and follow Mark and Stocktrades on Twitter.
Let’s learn a little about Mark first
Mark started investing when he was in his early 20’s. Intially, Mark blindly invested most of his money into big-bank mutual funds and was paying exorbitant fees in the process. He really didn’t know how much these fees would kill his investment returns. Over the years he has read many books and paid close attention to where and how he invests his hard earned dollars. Nobody cares more about his money than he does.
Mark started MyOwnAdvisor to bring his journey to financial independence to life. Personal finance and investing has always been a growing passion for Mark and the quality of Myownadvisor shows he truly has a passion for all things investing.
To a young adult interested in investing, what do you believe is the best way to start?
I would question whether you should be investing in the first place. Sounds odd right? Let me explain.
Say you’re a 20-something student who just secured your first full time job. You have $30,000 in student loan debt. I think you should focus on killing that debt before investing. Why? Although investing early and often is usually important, I don’t think it’s as important as digging yourself out of most debt at a young age. Paying off debt, faster, reduces the amount of interest you will pay. Paying down debt is a guaranteed rate of return. Paying down debt gets you in the (good) habit of not carrying debt. Once your student debt is gone, you’ll have more cash flow – and more cash flow is always good.
Now, let’s suppose you’re an early 30’s established professional with a growing family. You’re paying your mortgage or renting. Although you’ve got other bills to pay I think you should be investing by now. Why? Few jobs are for life. At some point, you’ll want to retire or at least slow down a bit. You’ll need money to live from when you do. Where will that money come from if you don’t invest?
There is no one-size-fits-all financial plan for everyone. The biggest question you need to ask yourself, as a young adult interested in investing, is if you should be doing it at all over other money priorities? I answered a reader question on exactly this subject on my site here.
The debate of TFSA vs RRSP contributions is never ending. What would you suggest a Canadian do with an income of 30k? 60k? 100k?
Here’s another answer to add to the debate!
It depends. But your income is a good indicator on what to do.
With $30k income per year I think the TFSA is the hands down winner. Why? I believe RRSPs work best when you contribute to this account in your highest income-earning years and withdraw the tax-deferred money from this account in your lowest income-earning years. Ultimately managing any RRSP-generated refund is the linchpin in this debate. You can read why on my site here.
I think investing in your TFSA (in a low to modest-income bracket like $30k per year) makes it a winner over the RRSP.
With $60k income per year, whether you contribute to the TFSA or RRSP, I think it’s pretty much a dead heat. Personally, I always try and maximize the TFSA first. This way, this money can grow tax-free for as long as I keep the money in the account. Who knows how long this tax-free gift will be available to all Canadians – might as well maximize the opportunity right?
With $100k income per year (or more) I’ll start changing my tune – I think contributing to your RRSP starts to have advantages over the TFSA. This is because, although I don’t know any individual’s detailed financial situation for sure, it’s unlikely you’ll be making this amount of money in retirement. This means maximizing the tax-deferred benefits of the RRSP, over time, should outweigh the tax-free benefits of the TFSA. With that income, maybe you should strive to max out both accounts and end the debate!
Although a market crash is almost impossible to predict yet often talked about, what is your outlook on stocks for 2017? Should buyers be bullish or bearish?
My outlook for 2017 is the same as last year. I suspect next year, my outlook will be similar to today. I’m bullish – on the future in general. This means over time the stock market will rise (and fall, and rise again). But short-term I have no idea how the stock market will perform this year. I have no idea exactly what our dollar will do in 2017. I have no idea if interest rates will rise or by how much. And I don’t really care. Those big decisions are out of my control and always will be. My parents always told me don’t worry about things you can’t control – focus on things you can.
This means I try and control my investing behavior. I save money for investment purposes. I invest with a long-term focus. I keep my investing costs low. I diversify my investments. I avoid trading. I watch my taxes. That’s pretty much it. So, yeah, I’m bullish – on what I can control. Everything else I really try not to worry about.
What do you think about the future of the Alberta oil sands and investments in the energy sector?
Generally speaking I think the oil sands will be around for many decades. The future is always very cloudy though, including the energy sector. What I do have confidence in is the need for energy in general. As long as I live in Ottawa, I know I’ll want to heat my home in the winter and cool it the summer. That will require some form of energy. So, investments in general in the energy sector are a good thing long-term.
What is your current opinion on “The Great Rotation”? Are bonds still a suitable investment in 2017?
My understanding of “The Great Rotation” is this – there has been a huge shift out of bonds into stocks over recent years. Maybe rightly so. Bond prices can only fall with interest rates expected to rise, over time. When that will happen – again – no idea. Personally, I’m a big believer in history repeating. That means long-term stocks will return more than bonds and bonds will return more than idle cash under a mattress.
I think any investor that struggles with the ebbs and flows of the stock market should hold some bonds. It has been said by a friend of mine: bonds are like parachutes for your portfolio when equities tank – they cushion the fall. If you want to keep more of your capital intact, as a hedge against a stock market correction or crash, bonds have merit.
With Trump being elected president, how do you feel this will effect the Canadian economy going forward?
Well, I thought about this recently, so I wrote a post about how I will invest with Trump in power. You can check out the article here. All I have to say is…interesting times ahead!