3 Simple Ways to Start an Investment Portfolio


Investing in capital markets is essential for long-term wealth building, regardless of age.  Below, I describe 3 simple ways to start an investment portfolio.  Follow one or all 3 routes and you are on your way.

  • Sign up for your company plan

    If you work for a company that offers a pension or share ownership plan, you may want to sign up sooner rather than later.  Many companies will match a percentage of your contributions.  That’s like getting a pay raise without having to do any extra work.  It’s that whole “don’t leave money on the table” thing.   Even if the company doesn’t match the contribution, they usually have a platform which will take the deduction from your paycheck before it hits your bank account. You remove the temptation to spend it.

Also, if you are able to, look to increase the amount contributed slightly every year. This is especially useful if you get a Cost of Living Adjustment, which is usually 1-3% a year.  You won’t miss the extra couple of dollars each pay, but your savings have the opportunity to compound. Many companies now offer a Defined Contribution (DC) plan as opposed to a Defined Benefits (DB) plan.  How do you know which one you have?  The only question to ask yourself is: Did I get to choose my investments?  If the answer is yes, you have a DC plan.  More on what investments to choose in another post.

If you work for a “public” company, meaning the company issues stock on the stock exchange, they may also offer an Employee Share Ownership Program (ESOP).  Definitely investigate this option, too.  Again, they take the deductions straight off your paycheck and invest it in stock.  Here you get commissions free trading, the purchase of fractional shares (which is very difficult to do on your own trading account) and you are automatically enrolled in the Dividend Re-Investment Program (DRIPs). Your dividends buy more fractional shares and you benefit from the compounded growth.  Again, all commissions free.

  • Pre-authorized contributions at your Financial Institution

This is the old-fashioned way and it’s been around forever; this was probably how our parents invested.  The Bank takes out a pre-arranged dollar amount every x amount of days and buys units in a mutual fund on your behalf.  It was during this time that Dollar Cost Averaging became the hip strategy. This was how I started my first investment portfolio.  I was at the Bank and a personal banking officer signed me up to contribute $100 every paycheck to a Balanced Mutual Fund.  Because the amount was transferred out of my account the same day my pay was deposited, it was seamless to me.  This is where “investing on auto-pilot” comes from.  Like the ESOP above, any dividends or income is usually rolled into buying additional units of the fund.

Nowadays, there are a lot of options besides a Balanced Mutual fund.  If I started again today, I would inquire about a low-cost Indexed Fund instead.  There are also Target Date mutual funds, but like my Balanced Mutual Fund, they usually have an embedded fee of about 2% a year.  If everything inside the fund returns 4% in a year, the offering institution skims 2% right off the top.  You don’t see this “fee” but it’s there and quite hefty, in my opinion.  An Index fund, on the other hand, just mirrors the overall market and usually has a fee of around 1%, which is easier to swallow.

  • Use your tax refund

If you can’t wait to get started, then using lump-sum amounts is an easy way to build your investment portfolio.

Sure, it’s fun and exciting to use the lump sum tax refund on vacation plans or something new and shiny.  After all, a girl has needs.  So this is what I do: I apply my own version of the 80/20 rule.  I put aside 80% for responsible investing and I am free to blow the other 20% on whatever I want completely guilt-free.  Spending that 20% will achieve at least 80%, if not all, of the emotional satisfaction as if you had spent the whole amount.  Trust me on this.

For the other 80%, buying an Index Fund at the Bank is one way, but I took the plunge and opened up an online discount brokerage account.  I first did this in 2009.  I deposited my tax refund in March and I bought my first security (an ETF) on the stock market.  That was exciting! Not to mention that by pure serendipity, I bought the day before the longest bull market started.  It was exciting to log in to my account every day to see a little green plus sign next to the amount.  The beauty of ETFs is that with one purchase, you can have an instant investment portfolio.

Putting it all together

There is only so much you can save, but investing gives you the opportunity to earn more than your regular income.  These 3 simple paths are easy to walk.  The first 2 are just a conversation away.  I’ve used all 3 to get started and I’ve contributed to my investment portfolio ever since. I’ve learned a lot about investing by actually doing it– more than any textbook or theory could teach. All lessons are valuable, some were pleasurable and some were a bit painful. Like a plunge into the pool, we may be a bit fearful as we approach the edge, but once we are in, we learn swimming in the water can be quite enjoyable.



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