The Basics for First-Time Investors
If you have never invested a single dollar and have no clue whatsoever how to go about it, then this article is for you. Investing creates positive long-term habits. Even if you are just putting a few dollars away, the habit of abstaining from unnecessary expenses and saving instead can make a huge difference. There are numerous factors to consider, but you can start immediately.
Tangerine and President’s Choice offer simplified banking without the fees imposed by major banks. It is easy to create a no-fee chequing account, and from there open a savings account. Funds can easily be transferred between the two, with the latter providing a small interest paid monthly. That small amount can add up to a substantial yield in the long-term, but more importantly, it encourages regular saving of your income.
The next step is to do more with your savings. You can set up an appointment with a financial advisor at your local bank to ask questions. The stock market is a popular but risky choice. It can be approached by selecting companies you already know and whose products you already use. Larger corporations are a safe way to get started without taking on any massive risk. However, this approach is not serious investing.
For serious and larger investments, you have to first determine how long you want to put the money away for. Perhaps you plan to use the funds to buy a car in five years, to purchase a house in a decade, or for retirement. Investments that offer higher interest are better for the long-term as the amount will likely fluctuate. If you are not prepared to set it aside long enough, you could end up losing money. This risk can be mitigated through mutual funds.
Allan Small, the senior investment advisor at DWM Securities, describes mutual funds as a “basket of investments.” A mutual fund manager determines where these numerous investments go. Their expertise makes them generally safe as an investment as long as you are able to set the money aside long enough. These investments are diversified by an advisor to ensure you will get the most out of your money.
Guaranteed Investment Certificates, or GICs, are provided by trust companies and banks. They offer a lower rate of return, but this rate is guaranteed. However, that return can only be attained by locking your money into the investment for a specific period of time. Withdrawing funds before the agreed upon time results in no interest whatsoever. Conversely, exchange-traded funds, or ETFs, are not actively managed. These are a basket of assets that trade much like stocks, meaning their values change throughout the day.
There are many experienced financial advisors. On the other hand, robo advisors are becoming an increasingly popular option. These automated investment services cost less, which results in more savings over time. If you are comfortable with your funds fluctuating but likely going up in the long term, robo advisors are a good choice for a better rate of return. If you have a larger amount to invest, a human advisor is the safer approach.
These investments can be done through Tax-Free Savings Accounts or Registered Retirement Savings Plans. The former gives you tax-free interest, while the latter lets you reduce your taxable income by storing some of it away in investments. TFSAs are ideal for young, low-income earners. RRSPs only require you to pay tax when you withdraw the funds, making them perfect for retirement or when you are not working.
There are many options for investing your money, and it can appear overwhelming. Start by getting the most of your bank with a high-interest savings account. From there, look into mutual funds and investments that will reward you in the long term. With so many options readily available with many professionals willing to help, the worst investing mistake you can make is not investing at all.
Leong, Melissa. “Five investment tips for beginners.” Financial Post. http://business.financialpost.com/personal-finance/tfsa/five-investment-tips-for-beginners?__lsa=18ab-2309
myMoneyCoach. “Learn the Basics of How to Invest Your Money.” http://www.mymoneycoach.ca/investments/budgeting-investment-basics