Stock Trading – Entry 2

If you already have $360 and are tailoring this approach to your needs and consciously chosen to either consult a financial advisor or not, you could skip this article, but I do mention some sources of free money. After all, the job of a good coach is to shorten timetables.

I needed “seed money”. There are tons of articles on how to land a job or how to start a side hustle. I aimed for at least $25.

How did I get that? No lotteries, no gambling, no robbing, no stealing, no loans. I got a job. Legit. Legal. It had to be enough to cover my bills and have teensy bit leftover.

Now, no matter what you do or don’t get paid for work, you have to pay for stuff in life. I was and am no exception. My job allowed me to pay my bills (on time), so I got a credit card here with…nope, not one but two welcome bonuses! One was from the card issuer and the other was a $125 bonus from the referring website, creditcardgenius. (Note: a longer credit history can be valuable valuable and changing credit cards often or having too many of them is generally ill-advised, so do what works for you.)

I didn’t go nuts on personal spending and it was an ordinary credit card. That credit card also had ordinarily super-high interest rates that I avoided like the plague by paying it off on time every time. Choosing a credit card is very personal as it reflects your lifestyle and spending habits, so I will leave that to the creditcardgenius survey OR the financial gurus and psychologists that abound online.

When I said ‘I got a job’, did you notice how I did not say ‘…and then put that money in the bank’? If the bank wants my business, they can pay me for it. So that’s what I went out and did. I opened an account with a welcome bonus. There were caveats I had to watch like:

• limits on e-transfers and other transactions/payments (banks don’t like it when money leaves them);
• whether or not I needed to have pay cheques directly deposited;
• how long the account needed to be open and in good standing for; and
• whether or not I needed any other banking services.

Now when it comes to bank fees, they are there for a reason, but at such an early stage and with so little money to work with, those proved to be a handicap I wanted to avoid since I couldn’t benefit from them…or so I thought.

One of the ways I was able to build up to $360 was to open a very small investment account at the same bank because they (at the time of this article) waived bank fees if I had multiple products with them. So chequing, savings, and…an investment. I set up the investment with $25 deposited into it as soon as I received every pay cheque. That money went into an ETF that bank had – not much choice at the time, but I was able to pay myself fees instead of the bank! I did this at, not one, but two banks.

At this point, I got temporarily de-railed from my goal of stock trading to build wealth, so I will recap the quick steps of mine that you can also likely take to get $360 to get straight into stock trading:

1. Get paid for work (in real money).
2. Claim welcome cash bonuses on opening accounts.
3. Tuck away $25 from each pay cheque you get.
4. If your bank has such a promotion, open an investment with them to pay fees to yourself, not them.
5. Claim more than one welcome cash bonus when you use this link to get a credit card.
6. Keep personal spending in check and pay off your credit card on time.

Life happened. I needed some (but not all) of those welcome bonuses to cover other things. Since items 2 through 5 took me a few months to build up $360, I got into ETFs and GICs to at least keep my money moving.

An ETF is an electronically traded fund where you basically put your money into a huge pot of stocks (along with a whole bunch of other people you will never meet) that fluctuates in value, but generally upwards over time. You can always withdraw from that investment, but the idea is to let it build up a little first.

Then I got a fun and somewhat bright idea. I wasn’t relying on ETFs to make me millions, it was simply a way to temporarily stash a little cash, so it should not have been a surprise when I didn’t see the value of the ETF go up by much over a couple months. In fact, all I seemed to be doing was saving myself from paying monthly bank fees and not being able to spend $50 a pay cheque (two accounts with $25 deposited into each). So, I didn’t tell anybody what I did next and the results were surprising.

I opened two ETF investment accounts with the same risk tolerance but comprised of different companies…at two different banks. The race was on. Who could make me more money? One did only marginally better, but both made me some money after several months. This proved to me the maxim that the market’s value as a whole does go up over time. Ok, so large groups of stocks (an ETF) seemed to do so-so in the short-to-medium term, but at least I was in the black on those.

After a few months, I asked myself if there was a smaller group of stocks that could do better than those ETFs. I didn’t have tons of money and I didn’t want to lose what I had because there are only so many welcome bonuses out there and only so much I was able and willing to set aside every pay cheque. I needed a guarantee.

An online search instantly popped up GIC – guaranteed income certificate. Basically, with a GIC you put your money in for a set period of time and you are 100% guaranteed to get it back (assuming you are investing less than $100,000 – which I certainly was) plus a bit extra. Nice concept and who knows what the bank would use the money for, but GICs offer very low rates. That wasn’t going to make the money waves I wanted to fill my tiny stock trading fund.

Then, I found one bank that had (at the time of writing this article) something called a market-linked GIC. Think of a GIC where you put your money in for a fixed period and are guaranteed to get your money back. But there are three differences. First, the money stays put, no touchy until the endy. Second, you know where your money is going, a very small group of stocks (less than 100). Third, the amount you get back on top of what you put in has a minimum and maximum. If those stocks do terrible, you get the minimum percentage. If they do so-so, then you get somewhere in between the min and max. If they do very well, then you get the maximum rate and the bank gets the rest (anything above the max).

I chose Canadian utilities for two years where the minimum gain I would get was 5.5% and the max was 20%. Not a bad range for something guaranteed, eh?

This is where my wife took a moment of pause and pointed out something glaringly obvious, but was something I had overlooked. How does the bank make money? The bank isn’t stupid, they want to make money. With market-linked GICs, they pick the stocks and they can make some money if the stocks do very well, but they use none of their own money. So, they are obviously financially motivated for the stocks they pick to do very well – unlike many mutual fund managers (but that is a whole separate issue I am not getting into).

In short, I felt thrice the security. One, it was under $100k so if the bank collapsed, I would get my money back (thanks to the Canada Deposit Insurance Corporation). Two, it was a GIC with a minimum additional return (5.5% in this case). Third, the bank was motivated for those two stocks to do well over the period they offered (two years in this case).

That wasn’t the only thing I felt. I felt so proud, I threw more money into it than I had planned. The bank wanted to use my money to invest in stocks so that it could earn a little bit of money. I will say it again, the bank wanted to use my money to invest in stocks so that it could earn a little bit of money.

In other words, our roles were reversed. I was going to be the bank’s bank.

I did not have a chequing or savings account with this bank, so I was literally lending them money to invest. It wasn’t about the bank using money in my savings account I wouldn’t touch to give a mortgage to someone else. Nope. The bank wanted to buy stocks and absorb all the risk while I gave them some money with absolutely guaranteed returns. I was the bank’s bank.

I found that such a gleaming point of pride that I did what I could to throw an additional $100 into it (above the minimum of $500). How did this investment do? Check back with me in two years as I signed on very recently (at the time of publishing this article).

Read my next entry in this series on how, even with an amount like $360, I avoided paying taxes on any gains I would make with ETFs, GICs, and stock trading. It’s easy, it can work for you, too.