How I'd Invest My First $10,000

The third-most common question I get is what I’d suggest for an investor just starting out.

(The two most common are “who are you?” and “what are you doing in my inbox?”)

What books should they read?

Who should they follow?

How should they invest?

How can I get them interested in investing, anyway?

I’ve always done my best to punt that question. I’ve long moved past the basics — in fact, it’s been so long that I barely remember what struggling was like. There weren’t as many books back then, and there sure weren’t blogs or newsletters or YouTube. That void has been filled with a lot of stuff I’ve mostly ignored because it just didn’t apply to me.

In short, I didn’t bother trying to answer the question because I didn’t think I could add any value. I also have to realize that I have a bunch of people who come here every Sunday looking for dividend stock ideas, and I probably shouldn’t stray too far away from that.

But, after thinking about it over the years, I think I’ve come up with something that’ll add value to the kids reading this (both of them!), and to the many, many more parents/grandparents who want to help the next generation get started.

And so, here it is. Here’s what I’d do if I were starting out again and was investing my first $10,000.

The first step is to build the foundation. Folks shouldn’t get into the world of investing unless they actually have a reasonable understanding of finance.

That consists of a few different steps, including:

Look, investing should be easy. Take the cash off your paycheque, put it to work in a nice ETF or low-cost mutual fund, and Bob’s your uncle. The last 20 years has proven these simple approaches can work pretty well, and pretty well over a long period of time is all you need to get fabulously wealthy.

But here’s the thing — you can distill most anything into a small number of steps, yet millions of people still struggle with these things. Want to lose weight? Eat less and move around more. Want to do well in school? Pay attention, do your homework, and you’ll ace the test. And so on. The theory is easy. The execution is anything but.

It’s the equivalent of the guy who thinks his idea is worth a million bucks. No! It’s the execution that matters.

The problem with finance is someone will never get ahead just knowing the how. They need to know the why, because without it there’s no consequence of not doing it.

Well-wishing elders want to push the younger generation into investing, but without knowing the why the next generation can’t be bothered. It doesn’t matter how much you might try to influence, or cajole, or persuade, it won’t matter. If the motivation isn’t there, spending all your money will win every time.

This is precisely why personal finance education doesn’t work in high school. The concepts don’t stick because kids who live in their parents’ basement have no concept of trying to balance a budget or saving up for a down payment. They can’t imagine what it would be like, or why it’s important, because they haven’t experienced it.

A small percentage of the population immediately grasps these concepts. They understand the power of a big savings rate and deferring gratification. Ironically, these folks don’t need much help at all. They’ll naturally seek out stuff that furthers their knowledge, and before long they’ll be rocketing ahead on their own. That’s exactly what I did, and I bet a lot of y’all did too.

Until somebody has a good grasp on the key concepts of personal finance, they shouldn’t even be thinking about investing. Only then can we take the training wheels off.

Once someone gets their personal finances in order and realizes the power of compound interest, then it’s time to decide how to invest.

As the much-repeated axiom goes, time in the market beats timing the market. It’s imperative that a new investor figures out a method that will allow them to stay invested over the long-run. It’s the investing version of an ounce of prevention being worth a pound of cure.

The late-90s tech bubble is a perfect example of this. I know people who invested during this time, had a bad result, and gave up on the stock market forever. “I was invested for years and I didn’t make a profit! The system must be rigged!”

25 years later they’re still in GICs, praying that OAS, CPP, and their workplace pension will help them out — all because of one experience back in the day.

I’m not suggesting something small here, either. You can’t figure out how to invest after an afternoon watching YouTube or a few days of scrolling through the Tweeter app. I recommend a multi-month process here.

What I’d do is:

Back in the day I was interested in further real estate investments, value investing, and dividend investing. I picked up one book on value investing — authored by a Market Call guest — and loved it. I embraced the process, and started to do it… poorly. It took years before I tried something different.

This process isn’t just designed to teach the youth. I believe putting in the work here is especially important because it separates the folks who are serious about the craft of investing and those who are in it because they have to do it, dammit.

I love being an active investor because there’s always something to learn, another new company to analyze. It’s fun to learn about businesses, new concepts, and to kick investment ideas around with y’all. I’m not sure if I could stop even if I wanted to. I just can’t help myself.

I suspect a lot of you feel similarly. That’s why you seek out publications like this one.

Compare us to the rest of the world. They’re not particularly interested in finance. They yearn for other things, and only tolerate this world because they know they won’t work forever. These folks should be in simple ETF portfolios, maybe even assisted by a financial advisor. They just don’t have the passion to figure out things on their own.

Here’s what usually happens. Somebody decides it’s time to invest, but doesn’t want to put in the work. Rather than take the simple ETF route, they look for something with more upside — but without all the work. So they follow a selection of the many finfluencers out there, copy their picks, and hope for the best.

There’s nothing wrong with taking the lazy way out. Just do it smartly. A simple ETF portfolio can be set up in just a few hours, including all the work of opening the account and automating the investment process. From there rebalancing takes about 15 minutes a year — or maybe you might not even bother. And that’s okay.

We’re all playing slightly different games. The key is to figure out what game you want to play and then play it well. If someone can’t get enough of investing, chances are they’ll get pretty good at it over time. But someone who can barely make it through a page without their eyes dropping should stick to passive approaches.

Okay, let’s get to the nitty gritty here. After I’ve done all the work of figuring out personal finance and then decided on a dividend growth approach, how would I invest my first $10,000?

I’d keep it simple. I’d buy shares of 10 different Canadian dividend growth stocks.

My top 10 buy and hold forever stocks would feature prominently in such an exercise.

I’ve been talking a lot about valuation here lately, and how I don’t think there’s a lot to buy. That’s Nelson with 25 years of investment experience talking. Nelson with zero experience isn’t worrying about valuation, or doing any sort of market timing. I’m getting my cash to work, dammit.

I’d start with a list of Canadian stocks with a history of dividend growth and research them all. I’d narrow the list down to companies that:

From there I’d narrow the list down to the top-10, and put $1,000 into each position.

Since I have my personal finances set up at this point, new cash would be flowing in steadily. I’d continue researching and continue putting that money to work, growing the portfolio in both dollars and the number of stocks I own. I’d get that snowball rolling, with the goal of eventually owning anywhere from 25 to 40 high quality companies with dividend growth.

I write this newsletter to try and help the thousands of Canadian investors who have entrusted me with your emails (or attention if you’re just reading online).

The world of investing has been very good to me, and so I want to try and give back a little bit.

Which is why I’m so tolerant of other investing philosophies. Like growth? Cool, do that. Want to chase big “dividends”? Sure, just make sure you know what you’re getting into. The important thing is we’re investing.

If I were starting all over again and I wasn’t particularly interested in this stuff, I’d create a portfolio of 80% VEQT and 20% VAB, rebalance occasionally, and head to the golf course. I’d let my messed up brain obsess about something else. Therefore, I think something similar is the ticket for most everybody. And it’s especially the ticket for those who couldn’t care less.

Only once someone proves they’re obsessed with this stuff can they move into the world of individual stocks.

The important thing is folks figure out the method that will work for them long-term. That’s much more important than the dirty details of identifying yourself among other investors. Believe me, nobody in real life cares how you invest. No matter how many times you announce it at the party, they just won’t give a hoot.