Teri Courchene

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How Teri Inspired Me to Put Skin in the Game: Learning Investment by Doing (and Saving!)

This week I had the pleasure of sitting down with Teri Courchene, former economist and director of research at one of Canada’s biggest banks, to discuss investing 101 – as a complete investing newbie. Following her achievements in the bank world, Teri gained extensive experience in the field of education, as she founded a Montessori school and continues to tutor children in math. Combining both her passions, Teri now teaches investing at the University of Toronto School of Continuing Studies. In addition to teaching millennials and beginners how to invest, Teri has a few side projects in the works to bring financial literacy to the masses.

It turns out that Teri is a true ally to millennials, and we are lucky to have her! We discussed the importance of reaching young people, as many children struggle with math education and become intimidated by personal finances (let alone wade into the world of investing) as they get older. She is truly committed to this goal, and is focusing on expanding to the most accessible forums for education, such as public library talk series as well as through her writing. Teri has clearly thought hard about how she can help guide the next generation. Her question for others in her generation is, “What can we do?” – she’s tired of the criticisms towards millennials and thinks that they should be shown more respect (us too, Teri!).

The following interview has been lightly edited for length and clarity.  

You have had an extremely impressive career thus far. When you were starting off, what was the banking sector like as a young woman working your way up to Director of Research?

The gender parity in the economics field was actually quite even! Not every field in the banking sector is the same, and economics has been more even than other fields for a long time. There were already women in the field when I entered (my boss was a woman). As I was responsible for press coverage and media reports, sometimes the media viewed it as positive to have a young woman present research, as it was a more interesting perspective than the stereotypical bank economist. Since then, the number of women in leadership roles has only grown. Banks have also gone through initiatives to provide more accommodating work for family life, such as a gradual return to work policies. But keep in mind that the larger corporate world in banking is a lot more complicated.

Investing can seem like something that only wealthy people have the luxury of doing, or people who have the guidance of family members with experience. For young people who don’t have a lot of disposable income, or students who have no income, do you still recommend investing?

Investing with small amounts is absolutely still worth it, so you can learn what investing is all about. Until you have some skin in the game, you don’t really get it. If someone says, “the markets are crazy,” what does that actually mean? It is hard to understand until you at least have a small bit of money in there. And as a young person you want to be part of that world, because it’s a whole other world that exists.

Even if you can put in 10 dollars a paycheck, sign up for a robo-advisor as an automated investing solution. Robo-advisors allow you to invest without paying commissions to get your money in, and they charge low fees- but you’ll get to see your money at work. The robo-advisor will give you a diversified investment plan, and you can easily follow what’s going on with your money: you’ll see your investments going up and down, and end up with a better understanding of how markets operate.

If you increase your contribution over time, you will also learn the value of compounding.

Tax Free Savings Accounts (TFSAs) started about 10 years ago, and they are fantastic for young people. You can put in your money up to the maximum yearly contribution (which carries over any extra accumulated space since you turned 18), and take out money without being taxed at any time. The main point is, you can learn about investing with a robo-advisor and a TFSA without a lot of money to play with.

But I thought the TFSA was a savings account for your money, provided by banks. How do you use it for investing?

The name TFSA is misleading, because people think it’s just a savings account. It’s actually the best investing account you can set up! TFSAs are simply a vehicle introduced by the government to encourage people to save more, but you can have a bunch of different products inside it. TFSAs can hold stocks, bonds, mutual funds, exchange traded funds (ETFs)- everything you would be able to hold in an RRSP. You can also just use it as a savings account, but then the return is very minimal (around 1%).

To use it as an investing account, you can move the TFSA you currently have at a bank to a robo-advisor or another investment institution, or open a new one (but combined, you can’t go over your cumulative TFSA contribution limit).

What are robo-advisors and why are they the way to go for investment newbies?

With an investing TFSA and a robo-advisor, you can start small, and see how you like the investing experience. Instead of going to an advisor at a bank and buying mutual funds like in the past, there are many more investing options thanks to FinTech- including robo-advisors. You hand over the investing, and it becomes automated. Money is put into a set, standard portfolio depending on how you answer risk-related questions. The work of investing is done for you, and your money is put into a diversified portfolio of exchange traded funds (which are the new and improved mutual funds, and include stocks and bonds).

Robo-advisors will invest your money in an index portfolio, which means it will match market growth. It’s not doing the more speculative, fast paced trading, like people who are trying to find the next bitcoin (or investors with a lot of experience who like to be more hands on with their investments). Robo-advisors will also provide you with a diversified portfolio, which limits your risk to any one vulnerability. Index portfolios are diversified across the globe (like the Toronto Stock Exchange and the American S&P 500) and asset classes (stocks, bonds, cash, etc.).

Main takeaways:

  •      Robo-advisors allow you to get into investing with a very small amount of money, as many of them don’t have minimum balance requirements. They also have very low fees, which range across companies but normally fall around 0.8% of your assets per year. Therefore it’s still worth investing a small amount, which is not always the case: for example, mutual fund fees are typically about 2.5% of assets per year, which really add up over time and eat into your investment returns.
  •       Robo-advisors will give you clean graphs where you can see how each ETF is doing, as well as your overall portfolio- much less complicated than investing in the past!
  •      Watch your money fluctuate and become comfortable with how the market works. Investing is highly personal and emotional, and requires you to get used to the roller coaster ride. Students can learn these lessons with a small amount of money in the game, before earning a salary and investing real money.
  •      When choosing an investing account, get started with TFSAs since they’re tax sheltered. This means you won’t get taxed on the gains you make (as opposed to other accounts with less freedom or more fees, such as RRSPs and non-registered accounts).
  •      When choosing an investment product, stay within the broad markets with index investing. You can do really well over time, and there’s no reason to think that you have to do better than the market. You want to grow your money over time, and not lose sleep over it.

 

Don’t:

  •      Feel like you need to triple your money in a year or be the next Warren Buffett. The danger is in being unrealistic, like looking for one stock that’s going to be the next Google or investing in things that are impossible to understand. Instead, invest in the long term.
  •      Expect your bank to do good investing for you. Bank employees are sales people. They are very helpful in guiding you towards appropriate banking products such as the right chequing and savings account, tailored to your transaction frequencies and other personal needs. But banks are NOT experts in investing: they provide a small range of investing products at a higher cost, in comparison with what the world of FinTech has made possible.

 

Bonus tips:

  •      Although they’re called robo-advisors and they automate investing, you can still speak to real staff to ask ‘stupid questions’ and clear up doubts. FinTech companies provide customer service and help with overall financial planning.
  •      Ask your parents and family members to contribute to your investing account instead of giving you gifts.
  •      If you are already earning an income, pay yourself first. This is known as “forced savings”. If you want to have a certain amount saved by the end of the year, take a set amount off your paycheck before you even see it by automating transfers into your investing account. You can set this up through your robo-advisor (with no transfer fee). The automatic contribution will be invested and rebalanced for you.

Now, all this is great, but as Teri says: “There’s a whole world out there to learn about, and the easiest way is to jump in. You can take nine courses but you will not learn until your money is on the line.”

Stay tuned for Part 2 next week, when Emma dives into the world of Robo-Advising