Know what you’re doing before you invest, experts advise – Toronto Star

My first investment did not go well.

It wasn’t a stock that tanked, or a badly timed bitcoin buy. It was a simple mutual fund, recommended by an advisor at my bank. But for a student with high-interest debt and limited income, the advice I got — to put a small inheritance of a few thousand dollars into a mutual fund — was bad. Months later, I took it out to pay my bills.

For many millennials or gen-Zers, it’s experiences like this that push us to self-directed investing, even using third-party apps instead of banks’ digital offerings.

For others, it’s the convenience factor. Plus, there’s so much information online, making the world of self-directed investing much more accessible than it was for our parents.

But not all of that information is good. I’ve fallen prey to some of it, trying savings apps and cashback programs, buying stocks in hopes of boosting my savings. (Yes, I’ve bought cryptocurrency and, no, I don’t want to talk about it.)

Richard Coffin, investment analyst and host of finance YouTube channel The Plain Bagel, said he’s seeing increasing interest among younger generations in self-directed investing, perhaps in part due to the financial industry’s “pretty bad reputation” among younger generations.

Over the years, various stories about banks selling commissioned products or the confusion over the titles of advisers and advisors have led many to seek advice elsewhere — often online — for better or worse, Coffin says. (“Adviser” is a regulated term, while “advisor” is not in most of Canada.)

“There’s kind of this trend of young investors going out for the first time trying alternatives to the traditional methods, forgoing a financial advisor to open a self-directed broker account through a trading app,” he said.

Looking past the hype

Coffin founded his own YouTube channel in 2017 because he saw a dearth of online resources talking frankly about investing. (Coffin doesn’t give advice, but explains investing concepts and the latest financial frenzies to his 325,000 followers.)

While others might hype a certain stock or product, or talk glowingly about their own returns, Coffin talks about risk and long-term goals.

Coffin said newcomers to personal finance often miss the difference between investing — a long-term strategy for growth — and trading, the act of trading stocks. Many apps promote high-frequency trading, he said, which isn’t always a good starting point.

“I think oversimplifying the investment process does a disservice to a lot of investors,” he said.

Coffin says it’s best to get the rest of your finances in order before investing: pay down high-interest debt, build up an emergency fund, then turn to the stock market to try and grow your nest egg.

That’s what Danica Nelson is doing.

Nelson started seriously thinking about her financial future as she approached 30. After doing some research online, she booked a consultation with the New School of Finance, a woman-owned financial planning firm. She wanted to get advice from someone who didn’t earn commission.

Now, she has her investments split multiple ways: some through her bank; some through apps like WealthSimple; some using robo-advisors, and some self-directed; some in balanced exchange-traded funds (ETFs); and some in individual stocks.

Nelson said she goes to multiple sources for information, from Yahoo Finance, to Reddit and Facebook, to “finfluencers” on Instagram. She’s always careful to do extra research before acting on advice.

She said people her age are looking for more control and transparency when it comes to their finances, and despite the risks, she has a positive view of the array of apps out there.

“I think in general they’re democratizing investing,” she said.

‘You can’t just explain investing in a sentence’

There are a lot of options for millennial and gen-Z investing newbies, from the apps offered by banks themselves, to investing apps like WealthSimple and Questrade, to apps like Mylo and Acorn that round up your digital spare change, to other apps that allow you to put a small amount of money in real estate or even fund private companies.

Jessica Moorhouse, financial educator and host of the More Money podcast, said many of the apps currently available have effective marketing, but often oversimplify personal finance and don’t offer enough education.

“You can’t just explain investing in a sentence or a catchy tag line,” she said, and without the right information, people can lose real money — something several people told me about. Some took advice from TikTok, or got sucked into the GameStop hype, and learned valuable lessons about the risks of investing.

But Moorhouse also thinks younger generations are less trustful of advice from the banks. She had an experience like mine, of asking for financial advice at a bank and being recommended a specific product instead.

Several of the people I spoke to, mainly millennials, had similar stories.

For Daniel Birnberg, the banks’ advice wasn’t bad — it’s just that he didn’t understand it.

Birnberg signed up for a tax-free savings account (TFSA) at 18 without knowing what it was, or how to use it: “I didn’t know what I was getting myself into.”

Years later, he signed up for WealthSimple.

“I was watching people in commercials around my age speaking honestly about finances,” said Birnberg. “It’s something that I hadn’t really seen before.”

At first he used a robo-advisor, and found that after time, it was helping him learn how to invest, like “training wheels,” giving him the confidence to try on his own.

In addition to the apps available, there’s advice to be found online from YouTubers, TikTokers, bloggers, investment websites, podcasts and Reddit. How do you parse through the noise?

Oliver Sachgau, editor-in-chief at European fintech company Vivid Money (and a former Toronto Star journalist) started investing in the later months of 2020, trying multiple apps. He felt many of them lacked approachable, educational content, something Vivid Money is trying to incorporate into its own offering.

“If you’re trying to be an app for younger investors, then you also have to talk their language,” he said.

But not all of the people I spoke to were wary of all analog advice. Some, like Nelson, trusted a third-party financial planner or advisor when they began investing. One found an advisor at her bank whom she trusts. However, many still went ahead with some self-directed investments, turning to the internet for additional advice and information.

Moorhouse recommends a middle ground: if you can afford it, a fee-based financial planner to help you build up your knowledge base. If that’s not in your budget, do your research before making any decision, says Moorhouse: “Never invest in anything you don’t understand.” (Not even if a TikToker tells you to.)

And if you just can’t resist the GameStops and Bitcoins of the investing world, set aside a small “fun” fund so that you’re not risking your life savings, she said.

Despite the big banks’ relative slowness when it comes to catching up, Coffin said there are benefits to banking with them, and he thinks the big institutions have an opportunity to rebuild the trust of younger generations.

“I think it’s great to have competition … challenging the traditional approach,” he said. “I just think we need to be careful and not to get too consumed in the hype of it all.”

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