Thanks so much for the feedback and questions to date. We have jumped right into investing because the number one question has been: should I be investing today and how do I do it? The more questions we get the better we can tailor the subject of the articles so please keep them coming.
As we focus on investing, one of the follow up questions we received has been for us to discuss the data points we use to interpret the market. What determines when the market will go back to normal? What can we follow to make our own judgement of risk moving forward? At what moment will we feel comfortable to invest more of the cash we are holding?
To offer some insight into the data we use to approach this crisis we are starting The Weekly Pulse. This is a new segment aimed to introduce high level data points that we can all watch together.
The Weekly Pulse
Every day the first thing I open is https://www.worldometers.info/coronavirus/ to look at new Covid-19 cases in the world. The number of new daily cases often dictates when economies can reopen. Economies that are starting to reopen include New Zealand, Hong Kong, and Italy. As you can see from the graphs that follow, each country that is reopening has significantly reduced their number of daily cases. In Canada, our daily case number is staying relatively constant.
This data point is the first one we look at because the reopening of our economy is dependent on producing a curve that resembles the other countries on this list. The longer it takes to see a decline similar to the countries above, the longer we will be in shutdown. The longer we are in shutdown the longer it will take us to recover which can impact the safety of our jobs for months and even years to come. As long as there is uncertainty on re-opening we must remain cautious, hold an emergency fund and invest in tranches.
How to buy the S&P
Last week we determined the best way to invest is to use 20% of our reserved funds and buy an ETF that represents the S&P 500 Index. Below is a step by step guide on how to do this.
Step 1: Open an online brokerage account
There are a number of ways to invest in stocks. Taking control of this ourselves means we are going to transfer money from our savings accounts into our own investment account. An online broker is a company that allows you to do this. There are a number of online brokers like Quest Trade or Interactive Brokers, but I recommend the online broker that is affiliated with your bank. For RBC it is RBC Direct Investing, for TD, TD Direct Investing. Each bank has its own online brokerage that offers you the ability to buy and sell stocks, bonds, ETF’s, and mutual funds.
While the trading fees are higher at the bank than at a place like Quest Trade, we are not concerned because we will not, now or in the future, be rapidly buying and selling. The ease and convenience of sending money between your bank account and investment account as well as the ease of the account opening far outweighs the $5/trade difference.
Step 2: Transfer $ into your investment account
Now that we have an account open, we need to fund it. The money we have set aside to invest (which is of course not needed for at least 2 years and not part of our emergency fund) will not all be invested today. We are only investing 20%. I still suggest transferring the entire amount into your new investment account. It can be sent back and forth without any fees but this can clearly differentiate for you going forward the money in your investment account vs your savings.
Step 3: Buy the S&P 500 ETF
Now its time to use your online brokerage account to invest:
Go to your homepage and just get familiar. You will see a summary of your accounts: cash and investments.
Find the “place an order” tab and select stocks/ETFs.
Once you are on the place order screen you will have a number of boxes to fill. First, select the investment account you are using to purchase the ETF. It is likely you will get the option for a CAD or USD investment account (even though you have only funded the CAD version). Select the CAD option. Once you’ve selected this account you should see a pop up of some sort that shows you how much money you have to invest.
In the box asking for the symbol, or ticker, input VFV. Now select the Canadian market (rather than the US market) and then click “show quote” or “refresh quote”. You should now see that you are looking to buy the Vanguard S&P 500 Index ETF. The ticker, the three-letter identifier for this stock, is VFV. This is an ETF that owns a piece of each of the 500 stocks on the S&P 500 Index. The company that runs this ETF is called Vanguard.
There are a number of different ETF options that may be better or worse for different account types and different currency needs. The assumption here is that we are using a margin account and not a TFSA or RRSP. If you are looking to invest with either of the latter two options please reach out so we can discuss a potentially different option. I will be writing about the differences of each ETF option as well as the tax implications in a future article.
Now that you know which account you are using and what you are buying, we need to select a price. There are two options for the price of this ETF: limit and market. A limit price means you are dictating that only at the specific price you input will you execute the order to buy the ETF. The market price means that at whatever price the market is asking, your brokerage will buy the ETF. The kind of order we are looking to do is a market order.
Select the “buy” action and input the number of shares you want. Often there will be a “calculate share” button where you can back calculate the amount you want to invest into the number of shares. Alternatively, take the 20% you have ready to invest and divide it by the price you see on the screen for VFV.
Now that you have the number of shares filled, the action type (buy), the account you want to buy with and a market price/type of order selected – go ahead and click buy. Don’t worry there is a confirmation page.
The confirmation page will show all the details of the trade including the estimated amount of dollars it will cost, the estimated price based on that time (which may have changed slightly from the previous page), the account used and the commission. Click accept. Now you own 500 stocks.
This community will build because of your questions. Tell us what you’re interested in most. Are you looking to invest? Wondering the risk of your industry or company? Want to learn about the property market? Leave us a comment or send us a note and we will answer that question for you.
Disclaimer: The New Norm is written to provide actionable advice and stimulate financial questions in an effort to increase the financial health of the community. Your decisions are yours alone and we do not take responsibility for your actions. Please think long and hard before making financial transactions and know that past results are not indicative of future returns. There is always a risk when you are investing.