The key to success for young investors

Get started early, says Michael Katchen, CEO, WealthSimple.

Ashley Redmond 12 December, 2014 | 6:00PM

 

 

Ashley Redmond: I'm Ashley Redmond for Morningstar.ca. And I'm here with Michael Katchen, Founder and CEO of WealthSimple. Michael, thanks so much for joining me.

Michael Katchen: Thanks so much for having me.

Redmond: So, you are a robo-advisor. But before we continue should we use that term or do you prefer something different?

Katchen: I prefer a different term. I think it's no secret that I am not a huge fan of robo-advisors. I prefer technology driven investment management, that’s what we do.

Redmond: Excellent. How much does it cost to start investing with WealthSimple?

Katchen: We are really proud of this. It's super low cost. We charge at the high end 50 basis points and that’s just a half percent of assets as a management fee. Most Canadians are actually paying 2.5% for mutual funds. So, this is a really low cost offering for a sophisticated smart portfolio.

Redmond: And with such a low cost to start with you must have a lot of millennial and Gen Y investors -- for those of you that don’t know those [are persons] born between 1980 and 2000. [Tell me some of] the advantages of getting started early.

Katchen: I think you've nailed it. Our clients range from 19 to 88. So we really do cover the spectrum in terms of servicing client needs, but certainly we do skew younger. I think about 70% of our clients are [under the age of 45]. And this is a great service for the first-time investor, especially that demographic of young professionals who are focused on building their careers. They don’t have much time to do the research and invest on their own, and rebalancing takes time. We're able to offer a fantastic portfolio, a really smart solution, at a low fee that's convenient for those people. So, it's a really great solution to get started.

Redmond: And as a Gen Y'er looking to invest what's the first step?

Katchen: The first step is that you've got to get started. It is so important to start early when it comes to investing and to have discipline about regularly putting away contributions to your plan. That can make a material difference to the lifestyle that you want to live down the road as you get closer to retirement. And even having kids and building the type of lifestyle that you want to have for yourself. So, step one is start early, and step two is figure out what your plan is going to be. And if you have any specific investment goals, then understanding what it's going to take to get you there. Step three is stick to your plan. As markets go up and down over time, as your lifestyle changes, you got to make sure that you are putting away [contributions] regularly and being disciplined about what your investment plan is going to look like.

Redmond: What are some mistakes that you see with Gen Y'ers and investing?

Katchen: The number one mistake by far is not getting started early enough. Most folks [understand] intuitively how important it is to start investing, but they get lazy or get caught up in all the other things that we have prioritizing our lives and they don’t start. They keep money sitting in cash or they spend it. You really have to start early, and it's so important to get started on a plan. We do lunch and learns quite regularly. We go around to different companies and talk about the basics of smart investing. Our first rule is starting early. We give the example that if you were to invest $5,000 a year for the next 30 years or if you were to invest $5,000 a year for the next 20 years -- so imagine a 10 year difference in terms of when you start investing -- that would add up to a half a million dollar difference by the time you retire based on historical market returns. That’s a meaningful difference.

If you are someone that wants to have a second home someday or wants to send your kids to college or build the type of lifestyle that you want to have -- start putting away. It might not be $5,000, it might be $1,000,  or it might be $100 a month, whatever it could be, it's so important because it compounds over time.

Redmond: There are so many resources and options available now that there is really no reason for Gen Y'ers not to get started.

Katchen: That’s right.

Redmond: Great, thanks so much Michael.

Katchen: Thanks so much for having me.

About Author

Ashley Redmond

Ashley Redmond  Ashley Redmond is a Vancouver-based freelance writer.