Investing can be complicated and intimidating especially if you’ve never invested before! One of the first obstacles preventing you from investing is determining the BEST way to invest your money. In this article, I will help you decide where you should invest your money by breaking down the pros and cons of the 3 main methods of investing your money:
1. Banks
1. Banks
Pros:
This is one of the most CONVENIENT ways to invest is through your local bank. These are your CIBCs, TDs, BMO, and etc. The reason why most people invest through a bank is primarily because of convenience. I’m sure most of you have one or two accounts with different banks. Since you are already a loyal customer, it is easy for them to up-sell their financial investment products to you (mutual funds, GICs, etc). Convenience is great, but do you know if they are actually selling you the best investment products?
Cons:
One of the drawbacks from investing through your bank is that there might be a CONFLICT OF INTEREST between your bank and your financial goals. In reality, the bank is a profit-driven machine where its sole goal is to make the most amount of money. The bank does this by creating financial products such as mutual funds, which are a collection of diversified investments. Then they convince their loyal customers to invest in these funds, where they charge management and selling fees. So even though there may be other financial products that have lower fees and higher returns, the bank will only sell their own products.
Overall:
The banks are a convenient place to invest your money especially if you don’t want to take the time to self-educate in personal finance. However, remember that you may not receive the best advice and investment products to invest your money.
2. Independent Financial Advisor (IFA)
Pros:
Independent financial advisors are people who have started their own business by managing people’s money, but are not affiliated with any banks or insurance companies. This gives them the flexibility to sell any type of investment products from the whole market rather than from one company, which may allow you to obtain a better return on your investments. Financial advisors can provide excellent education and advice on investing strategies to achieve your financial goals.
Cons:
Although financial advisors MIGHT be able to beat the market, their services come at a cost. Depending on the experience and reputation of the financial advisor, their MANAGEMENT FEES can exceed the fees even at the bank.
Example: So lets say you invest $1000. Average market returns are approximately 7%. If your financial advisor is able to achieve a 9% return, but charges 3% fees, than you might have been better off investing yourself.
Overall:
Independent financial advisors are the best for people that either have a lot of money or for people who don’t know anything about investing.
3. Online Brokerage Platforms:
Pros:
An online brokerage is a digital company that buys and or sells investments on your behalf. So let’s say you have $10,000 that you want to invest and you want to buy/invest in stocks/etfs/mutual funds. You can give you $10,000 to the online brokerage, and the platform will then facilitate the transaction.
Some of the most famous online brokerage platforms are Questrade, and Wealthsimple. These platforms give you full autonomy over your investment strategy by allowing you to choose which investments you would like to invest in. The fees for these online brokerages are usually the lowest in the industry, because you are managing your own money.
Cons:
The biggest weakness to online brokerage platforms is that you really need to self-educate yourself to create the best investment strategy for you! However, since you are reading this article and on my website, you have access to me and my articles to help you answer any questions that you have!
Overall:
Online platforms have the lowest fees but require a lot of Time and Effort on your end. As a recent graduate myself, I don’t have much savings that I can invest in. Personally I don’t want to invest at the bank because I’m not sure if I trust them, and no independent financial advisor would be willing to invest the sad amount of savings that I have. That’s why for recent grads, I believe the best way to invest your money is through online brokerage platforms.
Conclusion
Of course there is not one solve all solution to choosing the best way to invest your money for everyone! However, if you are a recent graduate who is just starting to work + save money, and is willing to take the time to self-educate yourself, then I believe Online Brokerage Platforms are the best way to invest your money. If you want to read more articles on how to invest using Online Brokerage Platforms than subscribe to my blog below!
