When Should I Start Investing?


Synopsis:  One question that we often see, particularly from young people, is “When should I start investing?”  This article will review factors such as debt, emergency funds, and a couple of scenarios showing Steve who is risk-averse and invests in cash-only instruments, vs Susan who believes in the benefits of long-term investing in equities.

Maybe after reading our bios or one of our comprehensive posts – Build Long-Term Wealth using Diversified ETF Model Portfolios, you might have realized by now we’re fans of low-cost investing using Exchange Traded Funds (ETFs).

But we’re biased!

That’s because investing this way has in part, helped us realize financial independence.

We believe this approach can work for you as well – in fact – we know it can.

The path to financial independence is both simple but not always easy as we will explain:


  1. Spend less than you earn (“live below your means”).
  2. Pay yourself first – set up an automated savings plan for investment purposes.
  3. Invest this percentage of money earned as part of a long-term plan.
  4. Consider diversifying your investments.
  5. Rinse and repeat steps #1-4.

Not Easy:

  1. Staying the savings and investing course not just for months, but years on end.
  2. Increasing your savings rate for investment purposes where you can, over time. 
  3. Mitigate financial emergencies by keeping cash on hand.
  4. Avoid disrupting your investing plan at all costs.
  5. See points #1-4 above. 

As the saying goes, watch your pennies and your dollars will look after themselves. But in some cases, we believe that “when should I start investing?” is not the question to ask… yet.

Gasp! I know. But read on. Here are a few instances where we believe, based on our own experiences, you should avoid investing and do these other things instead to start getting ahead.

Do you have credit card debt?

If so, make that your first financial priority. With those credit card debt obligations at typically 20% interest (or more), we believe paying down the highest interest rate debt first is the best approach.

Do you have student loan debt?

Most typically, after credit cards are paid off every month then we would tell our younger selves to tackle any remaining student loan debt before investing. That’s is likely the next highest form of debt for most younger workers.

From a personal perspective, after Mark’s first degree, he finished a year of college which included a co-op placement at what would become his first employer in Toronto. Mark needed student loans to get him through college, about $7,000 at that time. Although it was a small amount, that loan was a liability to Mark until he paid it off. He promptly did.

Although it took Mark just over two years, that loan was repaid in full and he became debt-free at age 25. This then allowed him to consider funnelling money into investing – which he did.

Do you have car loan debt?

Although borrowing money to buy and maintain a depreciating asset is not the best financial move you can make, we understand people like their cars. 

So, before investing, we suggest your car payments are gone or at least very manageable. If you don’t have any money left over to pad your emergency fund or start investing with, make sure you subscribe to our site which will enable you to download our free cashflow spreadsheet to look at any expenses for opportunities to improve. 

Do you have an emergency fund?

With credit card debt, student loan debt and hopefully your car loans out of the way or at least very manageable, we believe the last major obstacle to overcome before investing is having a small emergency fund in place.

Emergency funds are important to us (and they should be very important to you) for these key reasons:

  1. Cash savings provides financial flexibility. 
  2. Savings keeps you out of debt – we believe leveraging a line of credit is not always wise when dealing with a financial emergency.

We believe a financial emergency is the last stressor you need, by taking on more debt.

While we will never be immune to any “what ifs” in life, we believe having some money in cash, ready to use as needed, is a good financial security blanket to use if something short-term needs to be paid. Although investing while paying down your mortgage may be just fine (we’ll discuss that in various posts on our site), we believe until you have at least $5,000 saved up in cash and preferably no debt, don’t rush into investing just yet.

What is investing?

In our books, while saving and investing often are used interchangeably we believe there is a big difference. 

  • Saving – setting aside the money you don’t need to spend now, to cover any unknown future like an emergency or to cover a known future like a future short-term purchase. It’s money you can access quickly if you really need to with little to no risk and minimal taxation. This is money typically used in the next few months or the next few years. Given that, you don’t want to see any savings drop in value because it is money you’re depending on to be there.  
  • Investing – to us that means buying assets such as stocks or bonds, or real estate, with the expectation that your investment will make money for you. Investments usually are selected to achieve long-term goals, as in multiple years or decades. This is money not needed in the short-term, such as one, two or even five years. It’s money that does not have to be liquid nor readily accessible, probably better than it is not to avoid any speculation. Generally speaking, investments can be categorized as income investments or growth investments. We believe depending upon where you are at in your investing lifecycle you might want a bit of both. 

Why Should You Start Investing? Because Money Can Make More Money!

Assuming you have those debts above well-managed or better still, have no debts at all, we believe you should start investing as early as possible and invest as much as you can reasonably sustain.

Here are two key examples to explain why.

Example 1: Steve, 30, works in IT and lives in Ottawa, where Mark lives. 

In his teens, he saw how the financial crisis impacted his parents and has been weary over the stock market ever since. In other words, he is risk-averse and believes in keeping his money in either high-interest savings accounts or Guaranteed Investment Certificates (GICs). 

Steve is focused on building his retirement savings and contributes to his TFSA every year, increasing his annual contribution as much as the government allows. Being risk-averse, he puts his money in the highest interest-earning GIC possible, which today is around 2.25%.  

Here is a summary of the details:

  • Age: 30
  • Return: 2.25% from age 30-100
  • Starting TFSA Balance: $30,000
  • TFSA Contributions:  Maximum allowed plus inflation-adjusted contribution limit.
  • Retirement age: 65

Using our financial planning projection tool (the same one we use in case studies), here are the results:

  • How much will Steve’s TFSA be worth at 65? Approximately $470,000.
  • More importantly, how much income will his TFSA produce annually from age 65 to 100 (in today’s dollars)?:  Approximately $7,000.

Example 2: Susan, is a 30-year-old marketing manager also from Ottawa.

Similar to Steve, she lived through the financial crisis in her teens, but noticed how the market recovers after significant downturns, and realizes that market dips may even be an opportunity. Unlike Steve, Susan has embraced The Four Keys to Investing Success. 

Susan is well aware that stocks are very likely to go up (and down) in the short-term. Yet over time, she is equally aware that keeping a bias to more stocks than bonds in her investment portfolio will help her build wealth. Quite a bit of wealth in fact. As a follower of Cashflows & Portfolios and a strong believer in index investing, she has built a 100% indexed equities portfolio using ETFs (see model ETF portfolios here).

Like Steve, Susan is focused on building her retirement savings and contributes to her TFSA every year, increasing her annual contribution as much as the government allows. Her 100% indexed equities portfolio is assumed to return around 6.5% compounded annually.

Here is a summary of the details:

  • Age: 30
  • Return: 6.5% from age 30-65, then 4.9% from age 65-100 (moved from 100% equities to 60% equities/40% bonds)
  • Starting TFSA Balance: $30,000
  • TFSA Contributions:  Maximum allowed plus inflation-adjusted contribution limit.
  • Retirement age: 65

Using our financial planning projection tool (the same one we use in case studies), here are the results:

  • How much will Susan’s TFSA be worth at 65? Approximately $1.1M (vs. $470k for Steve).
  • More importantly, how much income will her TFSA produce annually from age 65 to 100 (in today’s dollars)?:  Approximately $24,980 (about 3.5 times as much as Steve).

susan invested tfsa

What can you take away from these examples?

For one, we hope you see that trading is really not investing, and investing can have very different (and positive) results beyond just cash savings.

Two, we hope you also see that money invested ideally:

  1. Needs to grow uninterrupted (as we have shared above, your savings for investment purposes and your investing strategy must be maintained through good times and bad); 
  2. Needs time (your eyes need to be on the horizon and focused on the long-term, ideally measured in years or decades. The secret sauce to growing your investment portfolio to tremendous heights will be the compounding effects of investing which are most significant in the later years – because money that makes money, can make more money); and,
  3. Needs the proper conditions (your portfolio needs to be low-cost, diversified and appropriate for your risk tolerance. Your investment selections need to be something that you’ll be confident in adding to whether markets are high or low. In fact, you’ll ideally buy more ETF units during times of market corrections! The key is to invest using a strategy that requires little effort, little monitoring and significantly less stress. You want to avoid being your own worst enemy).

When Should I Start Investing?

If you feel comfortable with your finances, you should begin putting money aside towards your investment accounts as soon as possible. The sooner your money can get working for you, with the proper conditions, with time on your side, the more wealth you can potentially build. 

For the most part, we’re going to assume you’re investing in your financial future primarily using the Tax-Free Savings Account (TFSA) like our examples above, or, maybe the Registered Retirement Savings Plan (RRSP) as well.

A big reminder we’ve actually written two very comprehensive posts about each account we encourage you to read below!

Of course, beyond selecting one or a couple of low-cost ETFs for these accounts you’ll probably need to start formulating a complete investment strategy because all financial plans should have financial products to match.

You’ll want a step-by-step plan about how to get started. We’ll cover those subjects soon – for any beginner (and more experienced).

If you’ve already been investing for some time, and want to know if you’re on track to meet any long-term goals including semi-retirement or retirement, we’re here to help.

If you are interested in participating in a case study or obtaining private projections for your financial scenario to answer questions like “how much will I have in retirement?”, please contact us here to get started.

Disclaimer: Any information shared on our site (“Cashflows & Portfolios” https://cashflowsandportfolios.com/) or related to our site, is for awareness and illustrative purposes only.

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