Shrewd Spender

Spend smart. Save smart. Invest Smart.

Beginning Investing: First Investment

It’s really interesting to look back to my initial investments I made when I first started to save seriously. I probably made one of the most expensive mistakes novice investors make. I put my money in a wrap mutual fund. Typically these wrap funds are marketed to investors as “managed portfolios” – a one stop shop mutual fund for investors that handles rebalancing and performance monitoring by a professional fund manager.

I made an appointment with my bank after a few weeks of starting my first real job to discuss investing in mutual funds. I made sure I did my homework before talking to the investment advisor. After all, this is my money and I wanted to know what I was getting into.

Going into the appointment I knew I was comfortable a 60% equity and 40% bond allocation. I also knew a mutual fund charged a management expense ratio (MER) - a percentage paid to financial company to manage the mutual fund.

As the meeting went on, it was obvious I didn’t know about investing as much as I had thought. I didn’t know enough about how to build a diversified portfolio from the hundreds of mutual funds available. I wasn’t sure about how or when to rebalancing the portfolio. I also had no idea what is considered a cheap MER versus an expensive MER.

When I was told a managed portfolio would provide automatic rebalancing, detailed quarterly performance reports, and all I had to do was decide on my asset allocation and pay a littler higher MER (around 2.45%) for the convenience, the neophyte investor in me was sold.

Looking back, I really didn’t know enough to make the best investment decisions. My investment strategy has changed considerably since then, but we all have to start somewhere, right?