Over the years, a number of people have asked for advice on investing. While investing as a topic is large enough in itself, I find myself repeating some “pre-investing” advice before going into any actual investing advice. Here’s what I usually recommend:

Pay off expensive debt.

Credit card debt usually costs people double-digit interest. This is far higher than what most investors earn on their portfolios so a good “investment” would be to pay down this debt right away so that the funds can be divered to savings and investing after it’s gone. If you’re carrying a balance from month-to-month on any credit card, pay this down before saving or investing.

Lower Your Expenses

Saving and investing is often difficult because you don’t have funds available to put into your accounts. One of the ways to free up some cash flow is to cut down on your expenses. Where can you look for lower expenses? Take a look at your monthly recurring bills, they’re a good spot to shave some costs. Looking at my own just my Rogers bill, I can lower it by $50 a month just by getting rid of extra services like Visual Voicemail, speciality HD and movie channels, and moving to a slower internet plan. That’s $600 a year (more if you include taxes) that can be put into a savings account from adjusting just one monthly bill!

Other places where you can cut is when you pay other poeple to do things that you can do yourself – housecleaning, dry cleaning, eating out, etc.

Start Saving

Saving is probably the hardest part to investing. The free cash flow from lowered expenses and extra money in your accounts is awfully hard to save instead of spend. This will require a lot of personal discipline, however there are some tricks you can use to force yourself to save. If you have an investing account or savings account, consider an automatic withdrawal that puts the funds into the account every month. Other options include payroll deductions from your employer – but these usually go into specific investments like your company’s stock plan or a limited set of mutual funds.

Open an Investing Account

Open an investing account. Many do not know this, but investment accounts are almost always free of charge to open. This is because the brokerages make money off trading fees, not account fees. Most even pay a very limited amount of interest if you just leave the savings there as cash. I often recommend getting a brokerage account where you bank, as the ability to move money in-and-out of the account is simplified and expedient.

Stay tuned for part 2 – how to invest

The tax-free savings account is an account available to Canadians for the last two years. Most people have them, or should have them. If you do not have one, stop reading and get one now.

If you do have them, now that it’s nearing the end of the year, it’s a good time to consider using the money from the TFSA if you need it. The TFSA allows withdrawals from the account but still allow you to pay it back without penalty. The only caveat? You cannot pay it back in the same year.

If you have maxed out your TFSA, you probably have $10,000 in it this year plus any gain from the investments. You can withdraw money from it this December and put it back in next year. Do not, however, try to pay it back within the same year as it will be treated as a contribution instead of a payback. And if you have already contributed your maximum that year, you will incur a penalty.

This strategy is good for a short term loan to yourself, to make some purchases, pay down debts, etc. The TFSA is not just a retirement investment vehicle.

Five years ago, when friends asked me about how to start investing, I usually suggested getting a discount brokerage account and buying a good mutual fund. However, over the past few years, exchange-traded funds (ETF’s) have exploded and now give people a much better option to start investing. The Toronto Star highlights some advantages to investing in ETF’s.

I’ve always wondered about this. The Globe and Mail just reported on the cost for foreign exchange transactions at the discount brokers. Turns out TD Waterhouse is the cheapest.

They based their findings on buying 100 shares of a $25 stock, which would cost:

• TD Waterhouse 2,541
• CIBC Investor’s Edge 2,575
• Questrade 2,584
• Virtual Brokers 2,589
• Qtrade 2,599
• BMO InvestorLine 2,610
• HSBC InvestDirect 2,610
• RBC Direct Investing 2,610
• National Bank Direct Brokerage 2,620
• Credential Direct 2,623
• Scotia iTrade 2,625
• ScotiaMcleod Direct Investing 2,625
• Disnat 2,629

The Globe and Mail released a ranking of Canada’s online brokers. Qtrade ended up on top, with Royal Bank the top-rated large back with 2nd place.

1. Qtrade
2. RBC Direct Investing
3. BMO Investorline
4. TD Waterhouse
5. Credential Direct
6. Scotia iTrade
7. Questrade
8. CIBC Investor’s Edge
9. Disnat
10. National Bank Direct Brokerage
11. ScotiaMcLeod Direct Investing
12. HSBC Investdirect
13. Virtual Brokers

Microsoft is one of the largest companies in the world, however it’s amazing how it makes most of it’s money on just a few products. The Office and Windows products far outweigh any contribution by all their other services, including all of their online ventures, mobile ventures, hardware and gaming.

Last month I mentioned that everyone should be saving $5000 to take advantage of the new Tax Free Savings Account. Now I’ve noticed that my broker, TD Waterhouse, has allowed people to pre-register so they have the accounts to be used first thing on January 2nd. I think this is a great idea and should allow people to avoid the lineups in January and avoid the crush of the beginning of RRSP season (although this years RRSP rush will probably be very slow).

Check your local broker to see if they allow pre-registering too. Links are below:

• RBC Direct Investing (no pre-registration)
• CIBC (pre-registration only for daily savings account, not investing account)
• BMO InvestorLine (pre-registration online)
• Scotiabank (pre-registration online)
• TD Waterhouse (pre-registration via mail or branch)