This cheatsheet summarizes advice from licensed financial advisors, helping you get started on the right foot quickly. The content is primarily geared towards people looking to buy and hold long-term.
It’s important to note that there are common misconceptions in the investing that seem intuitive. You might need to clear your head of any pre-conceived ideas before grasping the best way to invest according to academic theory and studies.
To get more comprehensive information, I’ve included resources to check out at the end of this post.
My YouTube channel can be seen as a case study of someone putting academic theory and studies into practice.
- Why should I invest and is investing risky?
- What do I need to get started?
- Which type of account should I open first?
- Should I invest in stocks or ETFs?
- Which ETF should I start with?
- What about VFV, HYLD, XEG, HMAX and TEC?
- Should I invest in dividend or growth stocks?
Frequently Asked Questions
- Should I avoid withholding tax completely? I keep hearing about VFV and VOO.
- Everyone is saying how the market is going to go down. Should I wait or keep investing regularly?
1. Why should I invest and is investing risky?
With the products that are out there now, there is a very easy way to get your money to work for you so that you can take advantage of the positive expected return of the market.
Look at the graph below. The global economy has consistently gotten richer over time.
While you might assume that investing must be complex and demand extensive time and research, this cheatsheet presents a remarkably straightforward method backed by academic theory.
As for whether investing is risky, Ben Felix puts it best:
“It is common to think about risk in terms of total loss. You invest your money in a stock, things turn sour, and your money is gone. This can happen when you invest in a single stock, but when you properly diversify your investments it is much less likely.”
Watch Ben Felix’s video: Is Investing Risky?
2. What do I need to get started?
One key component is a brokerage account. Each of them has their own pros and cons (in fact I use 3!), but here are the most popular ones:
Questrade (create an account with this link to get $50):
Wealthsimple (create an account with this link to get $5 to $3000):
3. Which type of account should I open first?
This question is going to require way more nuance than a short answer as the answer is going to differ depending on the individual.
However, for most people starting out, the answer is the TFSA because it is the most flexible (you can withdraw your money at anytime without triggering any tax events).
The main advantage of an RRSP is the deferral of taxes. You pay more taxes when you have a higher income, so if you assume you will make more money in the future, deferring taxes is more valuable to you later on.
Check out Ben Felix’s video How the Tax Free Savings Account Really Works to learn why you should lean towards being safer in a TFSA.
4. Should I invest in stocks or ETFs?
In the 2023 paper Long-Term Shareholder Returns: Evidence from 64,000 Global Stocks (Bessembinder, Chen, Choi, Wei), the authors found that the wealth created by stock market investing is largely attributable to large positive outcomes for a relatively small number of stocks.
For the time period between January 1990 and December 2020, the best performing 0.25% of companies accounted for half of global net wealth creation, while the best performing 2.39% of companies accounted for all net global wealth creation.
It’s been shown that it is even hard for experts to identify these companies ahead of time which is why global diversification (having exposure to a lot of the market) is recommended for most people (non-beginners too!).
The worst scenario is when a lot of beginners copy individual stocks recommended by social media influencers. TTCF is one of those stocks.
Start with a solid ETF and expand further if you wish. Too many beginners make the mistake of doing it the other way. They often mimic 15-20 stocks they’ve heard about from various sources, leading to a situation where they hold assets they lack a comprehensive understanding of.
5. Which ETF should I start with?
Asset Allocation ETFs otherwise known as All-in-Ones are one-stop solutions recommended by licensed financial advisors. They are globally diversified and can be the only thing that you hold for most of your investing life.
Justin Bender has an excellent resource for you to figure out which specific ETF is right for you: How to Choose Your Asset Allocation ETF.
I’ll summarize his suggestions here, but the general idea is that you can take more risk if you have more years to stay invested because it allows you more time to ride out the bad years.
As a rule of thumb, you shouldn’t invest in any asset allocation ETF if you require the cash in less than 5 years.
If you need the cash in 5 to 9 years, VCIP and VCNS should be the only asset allocation ETFs on your radar.
If you won’t need the cash for 10 to 11 years, VBAL could be an appropriate choice.
If you don’t need the cash for 12 to 14 years, you could look at a more aggressive ETF, like VGRO.
And if you’re investing for 15 years or more (and you’re comfortable dialing up your portfolio risk to eleven out of ten), VEQT might be right up your alley.
I have a video that can serve as a starting point: The Best Start for Beginning Investors in 2023.
More seasoned beginners might want a more customized portfolio or just want to add a little spice. That’s beyond the scope of this cheatsheet, but understanding the construction of All-in-One ETFs can educate you on how you’d modify your portfolio to your taste.
6. What about VFV, HYLD, XEG, HMAX and TEC?
If you are starting out and asking others for ETF suggestions, you will often be given a lot to choose from. Many of them will be recommended because of strong recent performance but market conditions change all the time, how an ETF performed in the last 2-3 years might not be relevant to its performance in the future.
That’s why starting out with an All-in-One ETF that covers all the bases is such a great idea. They’re globally diversified and have exposure to many sectors. XEQT for example holds close to 9,700 stocks around the world. VFV only holds 500 US companies.
I’ve seen beginners have over 20 ETFs including an All-in-One because they are scared they are missing a key piece to their portfolio. An All-in-One by itself can be your main solution until the very end.
7. Should I invest in dividend or growth stocks?
The division of dividend and growth stocks is an exercise that people commonly like to do, but for a long-term investor, it is recommended to be a total return investor.
Investors shouldn’t restrict themselves to one type of stock. I see no reason to classify yourself as a dividend or growth investor.
I did some research in this video: ChatGPT & Me On Dividends Vs. Growth.
Frequently Asked Questions
8. Should I avoid withholding tax completely? I keep hearing about VFV and VOO.
Most beginners hear about 15% withholding tax and greatly overestimate its impact especially when they are starting out.
The 15% only applies to dividends, so if you have a Canadian-listed ETF that gives out 2% in dividends, you are paying 15% * 2 = 0.30% in tax.
To try to eliminate this cost, you would have to hold a US-listed ETF in your RRSP instead. The common example is holding VOO instead of VFV in your RRSP.
However, there are currency costs and delay costs that do not make it clear if it is even worth the retail investor to do. You might also end up with a poorly allocated portfolio because you are basing your stock/ETF selection on one metric.
That’s why in his video on Asset Location, Ben Felix thinks just having the same asset mix across all accounts is going to be more than fine.
This explains why I have 100% XEQT in my TFSA, RRSP, RESP and FHSA.
9. Everyone is saying how the market is going to go down. Should I wait or keep investing regularly?
“Time in the market beats timing the market” is an often cited phrase because research indicates that over time, maintaining a consistent investment strategy has, on average, yielded better results than holding cash on the sidelines.
This is because of how unpredictable it is to figure out the next big crash. By sitting on the sidelines, you might miss out on the best days of the market.
It is important to stress that the phrase applies to the market as a whole and not individual stocks.
The reason that you can confidently invest in a globally diversified ETF on a regular basis is because there is reason to believe that the global market has a positive expected return.
Put simply, odds are strong that the $25 you invest today will be worth more in the future regardless of any scary news from the media.
The common mistake is applying this logic to individual stocks. You cannot be as confident that investing $25 in a company will yield long-term results. Many companies go bankrupt.
10. What are resources that you recommend?
Licensed professionals on YouTube:
Content creators on YouTube with an evidence-based approach: