Everyone talks about investing on their own for the long term. But what’s involved?

Save with SPP took a look at a few articles on getting started in investing, and while this is a huge topic that has spawned a library-filling collection of books and major education programs across the country’s universities and colleges, we hope these few tips will help newbies think about how to get started.

At the Savvy New Canadians blog, the first recommended step is to find yourself “an online brokerage account,” which the blog says makes it “much easier to trade stocks.” These days, the article notes, there are online brokerages with very low trading prices, and some with no fees at all.

The article explains that stocks, bonds, exchange-traded funds (ETFs) and mutual funds can all be easily traded through an online brokerage.

You’ll also have to decide what type of investment account you want. A registered account (such as a registered retirement savings plan) is “used to save for retirement and defers taxes on your earnings until you make withdrawals.” A Tax Free Savings Account (TFSA) “offers an opportunity to invest and earn tax-free returns forever.” A non-registered or cash account is the other option – you pay taxes on income and capital gains.

OK, we have an account, we have a basic knowledge of types of investment and savings vehicles. What’s next?

First, advises Investopedia, figure out what your “tolerance for risk” is.

“Stocks are categorized in various ways, such as large capitalization stocks, small cap stocks, aggressive growth stocks, and value stocks. They all have different levels of risk. Once you determine your risk tolerance, you can set your investment sights on the stocks that complement it,” the article explains.

In other words, are you going to be OK if the value of the security you buy goes up and down by 10 or 20 per cent in the short term? If you aren’t, you may be less interested in stock-related investments, and more interested in less volatile, fixed income-type investments.

Goal setting is important as well, the article notes.

“If you’re just beginning your career, an investment goal could be to increase the amount of money in your account. If you’re older, you may want to generate income as well as grow and protect your wealth,” the article notes.

Finally, the article talks about three investment styles.

If you are confident you know enough about the markets to go it alone, that’s an option, the article notes. “Traditional online brokers allow you to invest in stocks, bonds, ETFs, index funds and mutual funds,” the article tells us.

Alternatively, the article says, you can find yourself “an experienced broker or financial advisor” to help you make your decisions. “This is a good option for beginners who understand the importance of investing, but may want an expert to help them do it,” the article adds. A third, newer option is to use a robo-advisor, which is “an automated, hands-off option that typically costs less than working with a broker or financial advisor. Once a robo-advisor program has your goals, risk tolerance levels, and other details, it automatically invests for you.”

Investment guru Warren Buffett has a couple of memorable bits of advice on investing. His giant firm tends only to invest in businesses where they (Buffett and his team) feel they understand how the business works. He also likes the idea of investing half your money in index funds, and the other half in safe, government backed securities.

As mentioned, this is a very broad topic, so find out as much as you can before you enter the choppy waters of investing, and do consider getting professional advice to get started.

Alternatively, if you’re saving for retirement and want expert help, consider joining the Saskatchewan Pension Plan. All you need to do is contribute savings, the experts at SPP will handle the investment decisions at a very low cost in a professionally managed, pooled fund.

At the end of your worklife, your options for retirement income include getting a lifetime annuity (a monthly payment for life) or the flexibility of deciding how much income you want to receive through our Variable Benefit. Check out SPP today!

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While inflation rates may have peaked, we have seen it hit levels not seen in four decades, impacting the price of food, fuel, and other staples.

While higher interest rates are great news for savers, it’s not as clear what (if anything) investors should be doing about it. Save with SPP had a look around to see what people are saying about investment strategies in inflationary times.

According to Forbes magazine, there are “moves an investor can make right now that might alleviate their stress over inflation.”  The first idea, the magazine notes, is “to stay invested in equities.” Why? Because “a company facing rising costs, can simply offset them by raising prices, which raises revenue and earnings,” the article explains.

Any fixed income in your portfolio should be in the form of “high credit quality bonds,” but adding to this sector as rates climb is risky, Forbes warns. Consider investing in commodities via an exchange traded fund, the article suggests. Commodities include things like sugar, oil and gas, corn, pork bellies and other key goods.

Investopedia agrees that inflation “is generally a punch in the jaw for bonds,” and suggests increasing your exposure to equities by 10 per cent in inflationary times.  Other ideas from Investopedia include investing in international securities, from countries like Italy, Australia and South Korea. These are “major economies… that do not rise and fall in tandem with (North American) indices,” the article explains.

Real estate, the article continues, “often acts as a good inflation hedge since there will always be a demand for homes, regardless of the economic climate.” If actually buying real estate as an investment is beyond your means, you can still take part in the market via real estate investment trusts (REITs), the article explains.

“REITs are companies that own and operate portfolios of commercial, residential, and industrial properties. Providing income through rents and leases, they often pay higher yields than bonds,” the article notes.

Another idea from the Daily Mail is to consider being a bit of a saver within your portfolio to take advantage of high interest payouts.

“Britons are moving more of their cash into fixed-rate savings deals, with interest rates across the market rising on a daily basis,” the newspaper reports.

“A net £2.8 billion flowed into fixed-term cash deposits in July 2022, according to the latest figures from the Bank of England – the strongest flow seen since November 2010,” the magazine adds.

A second Forbes article talks about avoiding volatility in your portfolio.

“You want to buy stocks in companies that are likely—and I use that word ‘likely’ very carefully—to perform better than other companies in a rising rate environment,” BMO Nesbitt Burns’ John Sacke tells Forbes.

The article reminds us to keep an eye on our household budget and living costs in periods of inflation. In addition to thinking about your investments, the article suggests you “track your spending closely” and look for bargains.

Pay off any debt quickly in an environment when rates are going up, the article advises.

“StatsCan estimates the average consumer owes $1.73 in consumer credit and mortgage liabilities for every dollar of their income. This high debt-to-income ratio isn’t new, but the Bank of Canada’s current overnight rate of 2.5 per cent (which is 10 times higher than it was at the end of 2021) is making interest rates on loans higher, meaning those debts are even more expensive to pay off,” the article warns.

Other inflation-fighting tips include the use of cash-back credit cards and coupon clipping, as well as shopping apps.

Summing up what we found, there seems to be a belief that stocks are more likely to grow in value than bonds in a high-interest rate environment, and that real estate and international investments may be alternatives worth considering.

Now may be a good time to pick up a fixed-income investment with a guaranteed payout, like a guaranteed investment certificate. And at the same time, you have to watch your spending, and budget, to get through the choppy inflationary waters.

Save with SPP does not specifically endorse any of these strategies, and we recommend that you consider getting professional advice before making changes to your portfolio.

If all this is a little daunting, consider letting the Saskatchewan Pension Plan navigate the choppy investment seas for you. SPP’s Balanced Fund has exposure to Canadian and global equities and fixed income, as well as real estate, infrastructure, mortgages and other quality investments. Be sure to check out SPP today.

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We’re forever hearing about “rules of thumb” when it comes to retirement, so today, Save with SPP will attempt to bring a bunch of these thumbs of wisdom together in one place.

A great starting point is the Retire Happy blog, where Ed Rempel rhymes off some of the most popular rules.

He speaks of the “70 per cent replacement rule,” where it is said that the “right” level of retirement income (this rule is widely disputed) is 70 per cent of what you were making before you retired. As Rempel notes, under this rule, a couple making $100,000 would thus need $70,000 in retirement.

(Another possible origin of this rule is the defined benefit pension world, where pensions normally provide two per cent of what you made at work per year you are a plan member. In the old days, membership was capped at 35 years – the math adds up to 70 per cent.)

Next, Rempel speaks of the four per cent rule of thumb. This rule suggests that the right amount to withdraw each year from retirement savings is four per cent of the total; a safe withdrawal rate to help you avoid running out of money later.

The “Age Rule,” writes Rempel, is the idea that 100 minus your current age is the percentage of your overall portfolio that you should invest in stocks. The thinking here is that the older you are, the less exposure you should have to risky investments – you should be gradually shifting over to fixed income.

Rempel also talks about the “cash buffer” rule – keeping enough cash to tide you over for two years, so you can “draw on it when investments are down,” and the idea of delaying Canada Pension Plan payments until 65 (some say 70) to get more than you would at 60.

A final rule from Rempel is the “sequence of returns” rule, the idea of investing conservatively to avoid losses during the drawdown stage.

A great list from a great blog!

We found a few others.

At Forbes magazine there is talk of the “25 times” rule. Basically, if you know what level of income you want to have in retirement – let’s say $50,000 – this rule tells you you need to save 25 times that amount before you retire. That’s a daunting $1.25 million.

We remember hearing this one decades ago as the “20 times” rule. Perhaps inflation has made the thumb bigger?

Over at Investopedia, “a good rule of thumb for the percentage of your income you should save is 15 per cent,” we are told. Other thumb guidelines include choosing “low-cost investments,” where management expense fees are as low as possible, and a Warren Buffett rule, “don’t put money in something you don’t understand.”

The article talks about exchange-traded funds as being examples of low-cost investments. Save with SPP likes to note that while ETFs have lower fees than most mutual funds, buying stocks and bonds directly is a way to not have any management fees.

Putting it all together, there are an awful lot of thumbs here, more than the two we usually depend on. That’s because there are a lot of moving parts to saving for retirement and then living off the savings. From figuring out how much you’ll put aside, on to growing that amount via investing, and on to finally “decumulating” your savings and enjoying the income, it can be quite an effort.

If you’re not a retirement geek who happily plots and schemes over spreadsheets on a daily basis (guilty glance in mirror), there is another way to manage all this in a one-stop, set it and forget it way. Why not consider joining the Saskatchewan Pension Plan? They’ll take your retirement savings and grow them under the watchful eyes of investment professionals (for a very low fee). When it’s time to retire, they can turn those saved, invested dollars into a lifetime income stream. And they’ve been doing it for an impressive 35 years. Check them out today!

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