Financial Planning 1: Investing Your Current Savings

First of the video series on financial planning for young professionals. This session shows how young professionals can invest their current savings. Uses MoneyGeek (www.moneygeek.ca)'s regular membership.

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Closed Caption:

hey guys this is Jin Choi hear from
money geek
and welcome to our first session on how
to create a financial plan
but before I begin I want to explain
what and I mean by a financial plan
a financial plan answer such questions
as what are my financial goals
what should I invest in and how much
should I save
ina BT tutorials will go through more or
less the same financial planning process
that good financial advisors provide the
only difference is
we don't do budgets that means we're not
going to tell you
lurk you're spending way too much alike
days better cut that out to save some
dough
the reason why we leave budgeting out
it's because there's so many good
or reservations an absolute there for
budgeting you see but the thing is
pretty straightforward
you see the cap late how much money
earned and how much you spend
but is much harder to nail down
investing in fact a site that we
recommend for budgeting
provide not so great advice on investing
but if you're interested in learning
more about budgeting
you can check out our resources section
so with that in mind let's go back to
creating our financial plan
the first step is to determine your
financial goals
know if you're a young professional like
myself
and by a professional I mean someone
who's under 40
the answer to this is pretty simple
retirement is years away
which means we can afford to take a
better risk our goal then is to increase
your same effect fast
as we can without taking so much risk
that it keeps us
awake at night and one for you agree
that this is our goal
the next step is to figure out what to
invest in to answer death
I'm going to assume that you have a
regular money keep membership having a
regular membership gives you access to
the page
that you see in this tutorial to get to
this page
simply sign in and click on the for four
years menu item
the profile page gives you
a set amount before yours and you can
follow let me first explain what the
symbols and numbers are
the symbols
represent stocks or ETFs an ETF is
basically like a
mutual fund accepted generally Tardiff
far lower annual fees
and you can buy them on the stock market
each
ETF will call hundreds or even thousands
of stocks so you're well diversified by
pretty thing you would just wanted them
if you want information about
each stock we TF you can click on why I
like this
the numbers on the right represent the
allocation for each stock or ETF
underneath you also find
historical returns and what is called
historical standard deviation
for each per for you as a whole you can
think up
standard deviation as a measure risk to
hire defender deviation
the higher the risk there's also the
Sharpe ratio
which basically measures to historical
returns in relation to risk
so the higher number the better but I
suggest you nor does number for now
you can't grow 30 available per for you
that we have
they go from these risky
which is performed you want to the most
risky
and stuff in between the trailer
Papoulias are constructed with two
principles in mind
and they are lower-cost and maximum
diversification
whereas the average Canadian new to find
charges over 2 percent per year
in management fees the average fees
contained in our portfolio
are about a $10 for that yet they
basically invest
in the same stuff and that means your
savings
on your feast will flow directly to your
investment performance
for a new chief high returns have also
made you so my PhD to cap played
the of the Opera for your mixes with
each of our Prof all yours from our
safest
to our riskiest are other than looks at
the price history for each other stocks
and ETFs
that make up our portfolios and then
pick state allocation that would have
you that
the same returns but at low west risk
this afternoon is not unique
2s its well-known an advisor to serve
the rich use it all the time
and we just applied them to our
portfolios and that's why we call these
proposals
optimized for four years please note
that
before you change over time it change us
let the everyday
as the upward and digest new information
every single day
but it will also change more
significantly every now and then
as I changed your stocks and ETFs and
somebody under underlying assumptions
so how do you choose among these
proposals
like we said in the beginning you should
choose a performer to give you the
highest
returns without making you do three
people overnight
for taking too much risk in fine after
grant this is called
measuring your risk tolerance to measure
your own risk tolerance
you can use our risk tool which you can
get by
click on how to choose a performing a
tad
you'll see that it takes in three prime
leaders to perform your value
the expected return and the expected
standard deviation
and for your convenience we feel that
these last two numbers and for you
you'll see that these numbers correspond
to
before use reasonable and if you change
said
to another performer you know you'll see
that these numbers
also change so to get started
really all you to put in is to perform
your value
now unless you have a strong feel bad
DM future I think using historical
values are
a good idea if you do feel strongly
about the future
say your a bit more pessimistic about it
then you can choose to do stuff like
lower your expect to return
and you can play around with that the
risk measures as well
but for now let's assume that the yeah
future will look like
the past so less repurchase back to our
historical
value and let's say we have a
hypothetical ten thousand dollars
in savings time you want to invest and
thats click on our lives
so let me explain these numbers to you
so the case means that if you're lucky
you next year your investments will
increase by
1700 bucks in over the next three years
if you're just lucky your investment for
grow by
over four thousand dollars and the graph
if you scrawny you'll see this green
line which represents the
good case on average 20
how your favorite to increase by around
seven hundred bucks next month
for next year and this is the yellow
line on the graph
and this is all good but the number
thought you should really pay attention
to you
are too bad and worse case scenarios
because
these are the cases they represent when
the crappiest a fan and you start losing
sleep over your investments
so in the back case you might lose 300
bucks
with per for you for and in the
worst-case
you might lose I thousand dollars
and for suffered a bad case I just might
happen maybe
wife in 10 years in a worst-case my
happened couple times in your life
so what you should do when you look at
these numbers
is you should imagine yourself losing
these amounts
and you should ask yourself what I feel
OK
or without panic and sell everything
you see in 2008 and the world
experienced one such
worst-case scenario the US stock market
lost
over 30 percent value and that was the
worst year since 1931
many people panic disorder all the stuff
that they held
and had they held on their stuff about
gained
26 percent in 2009 and 15 percent
and 2010 and by 2013 them every game
everything they lost
but many people who panic missed at
completely on the rebound
my point s panicking can cost you a lot
of money
so make sure you choose a performer yo
we feel that you can handle
even the worst case scenario
well FAA in your case you think you can
tolerate
a bit more risk then losing say a
thousand dollars next year
in that case lest you let changer for
you
now left clicking allies again with this
high-risk before you
and you'll see that numbers have changed
you'll see that the
potential losses from bad and worse case
scenarios are
bigger and so you ask yourself again
whether he can tolerate these
kind the losses and if we can't then you
can always go back to the lower risk for
four years
so this is how you choose a propos yo
remember
choose the one that gives you the
highest returned where s profile then
you can
tolerate after you told in your
portfolio
it's time to put into action for that
you go
22 how to put the proponent action tab
and once you're there simply put the
value ever before you're going to defeat
build
so here you see that in or the Pratt for
four you 5 into action
you by 39 shares a XSP .to
and based on yesterday's price of twenty
eight dollars
an 85 cents a share the value of your
SSB that he always a thousand $125
dollars
and of course you should buy every stock
and ETF listed on this page
you can buy shares using something
called a brokerage account
all the banks offer brokerage accounts
if you have one of these
you can just phone your program say I
want to buy some basic shares of CW I
foreign so however bank broker just do
cost a lot of money
offer more than twenty dollars a trade
so if you want to save money
I highly recommend going with a discount
brokerage
Mike quest raid and we have a video
tutorial on how to open
and use a question account on our site
and terms have using tax vehicles like
the tax free savings account
or RS peace I personally recommend
the following for young professionals
first
max out your dirty FSA's than if you're
thinking about buying a house in next
few years
pretty beat up to twenty thousand
dollars into Rs peace
if not or if you hit twenty thousand
dollars in our espy's already
put the rest into a margin account which
is a nor might have to count
question of resolve these types of
accounts
simply so that if a vice only applies to
your professional
if you're closer to retirement the
tactical situation gets a bit more
complicated
so to recap in this section we've looked
at how to investors Savings you already
have
in the next session we'll look at
planning for your retirement
until then happy investing