The 5 best pieces of money advice from this 29-year-old who manages hundreds of millions of dollars for millennials

Michael Katchen, co-founder and CEO of Wealthsimple
Photo courtesy Wealthsimple

When he was 12 years old, Michael Katchen entered a stock picking investment contest.

Everyone pretended to invest $100,000 and whomever's portfolio was worth the most money at the end of eight weeks would be the winner.

Katchen invested all of his faux funds into tech company, MGI Software. In the two months of the contest, the stock price shot up almost 300 percent and Katchen won.

"I thought I was the king of the world," Katchen tells CNBC. "That's where I fell in love with investing." He started dabbling in investing as a teenager and had a portfolio of about $1000 that he would watch, he says.

After graduating from University of Western Ontario, Katchen worked at McKinsey & Company as a consultant for two years, where he met Brett Huneycutt, and through Huneycutt, Rudy Adler. In 2011, Katchen joined Huneycutt and Adler to run the Y Combinator-backed start-up they had started, 1000memories, which turned smart phones into photo scanners. Three years later, they sold the company to Ancestry.com.

Huneycutt and Adler knew their co-founder Katchen was an investment geek, so they asked for his help investing their new wealth. Katchen summarized his thoughts on how to invest in an Excel document for his buddies. But, like most people, his friends were not actually interested in building their own portfolios. They wanted Katchen to do it for them.

That's when the idea for Wealthsimple was born. The investment service for young professionals, which officially launched in September 2014, aims to make investing simple and straightforward.

It appeals to millennials in several ways: It's a fintech company, so most of the process is automated. That also allows Wealthsimple to charge customers about half what most financial services do. Wealthsimple charges 0.4 to 0.5 percent of money invested per year, where most financial services companies charge 1 to 1.25 percent. Also, Wealthsimple charges nothing for portfolios with balances under $5,000.

And while big banks have images of grandparents blowing out the candles on their grandkids' birthday cakes on billboards, Wealthsimple has Anthony Bourdain opening up about his terrible money decisions on its blog. For example, Bourdain didn't pay taxes for a decade and didn't have a savings account until he was 44.

Wealthsimple now has 30,000 customers and over $770 million ($1 billion Canadian) assets under management, according to the company. The start-up has raised $100 million in funding from financial services giant Power Financial and has 110 employees. Katchen wants his company to be Vanguard for millennials, with $1 trillion in assets under management in 15 years.

Here are Katchen's top five pieces of money advice for young people:

1. Start investing early

The power of compound interest can not be underestimated, says Katchen. That's because when interest accrues on both the initial principal and also on the already accumulated interest, money multiplies. The earlier you start investing, the bigger the principal plus interest grows.

For example, if you were to just put aside $1,000 a year for 20 years, you'd have $20,000. But if you invest that money to take advantage of compound interest, assuming an average 7 percent annual return, in 20 years you'll have $47,734.86 — more than doubling your money.

There's a caveat to this rule, though. Before investing, pay off high-interest credit card and student loan debt first, says Katchen.

2. Don't pick stocks

You may think you can be the next Warren Buffett, but chances are pretty good you won't be. Buy index funds, which invest in a entire index — for example, the Standard & Poor 500 — thereby giving you about the same returns as that part of market, without you ever having to chose a stock yourself.

3. Diversify your investments

Diversify your investment portfolio both by asset class and geographically. Don't have all your money tied up in U.S. stocks. For example, invest in emerging markets, too, says Katchen.

4. Keep your investing costs low

Investing for yourself is the most cost effective way to invest, but if you are going to pay to have your money invested for you, then don't pay more than 1 percent of what you are investing in a fee.

5. Don't listen to the noise

Once you have an investment plan, you have to stick to it, says Katchen. That means not pulling your money out when the market is bad and not rushing in when the market is good. To help yourself, don't pay attention to the daily stock price movements. Otherwise, you will want to act on them.

"The thing that differentiates good investors from bad investors is just the discipline to stick it out," says Katchen.

This story has been edited and updated.

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