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Investing For Yourself

Updated: Mar 30, 2022

Keeping it simple

The stock market is complicated. I’m not going to deny it.

But here’s the thing to keep in mind: while the stock market might be complicated, investing in the stock market isn’t. The reason investing looks so complicated is that people make it complicated.

The financial industry is intensely competitive. Investment managers and mutual fund companies compete for client money based on the performance of their products and the uniqueness of their offering. This means that banks and mutual fund companies develop new strategies for managing money and they create more and more new products. Does it have to be complicated? Absolutely not.

Here's a simple approach to investing: open a self-directed investment account at your bank or another online broker, and invest in a few exchange-traded funds (ETFs). You'll need to review your investments a few times a year and make some tweaks, but other than that you can just buy and hold your ETFs. There are even easier ways to invest: using a robo-advisor or by buying an "all-in-one" asset allocation ETF.

You don't need to know which stocks to buy or even follow the financial news. Buying ETFs gives your instant diversification with little decision-making.

Let’s bring stock market investing back to basics. Every stock market has at least one index – this is a list of companies that is representative of the market and is used to report how that market performed on a given day. Canada has the S&P/TSX Composite Index. The U.S. has the S&P 500. These indexes are often used to measure the performance of an actively-managed mutual fund: did the fund perform better or worse than “the market”?

This cartoon has been tacked up at my workstation since my first job in 1997. It's a constant reminder to keep it simple.

It’s really hard for mutual fund managers to consistently outperform these indices. There are so many un-knowable factors, such as the direction of the economy, the performance of a company’s business, and what other investors are planning to do. Instead of buying a mutual fund or trying to pick stocks yourself, why not just buy and hold the entire market using an ETF? That way, no one is making guesses as to which stocks will perform better and which will perform worse. Less work, lower fees, good results.

The long-term returns of the U.S. and Canadian stock market indices are good – generally about 8%-10% per year (on average) over the long-term. This is more than enough to outpace inflation and grow your savings. So do you need to agonize over finding a mutual fund that might outperform the market? I don’t think so.

Instead, keep it simple. Buy the whole market. Invest in an ETF that mirrors the S&P 500 and you’ll have exposure to diversified group of 500 companies in the U.S. Buy an ETF that mirrors the MSCI EAFE Index and own more than 800 companies in 21 countries. The best part:? You can do it for a small annual percentage fee.

It’s not complicated and you can do it. You will need a self-directed trading account and do the work yourself. As a financial coach, I can teach you what you need to know to manage your own portfolio using mainly ETFs. I have 15 years of experience working in investment management and I’ve been managing my own portfolio for 25 years. I can walk you through the entire process, from learning about ETFs right through to placing your trades and rebalancing your portfolio. I’ve taught others who started with no experience and I can teach you too. Believe me – you can do it and you’ll probably enjoy it!

Read more about mutual funds and ETFs here and here.

Read more about active and passive management here.


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