Investing is something that many people want to get into, but they often hold back because they’re intimidated by the process. The good news is that investing in stocks and other products is easy since there are great resources and different tools available. To get started, all you need is some basic knowledge.
Determine your goals
Before you start investing in anything, you need to figure out what your goals are. That’s because someone that’s looking to save for their retirement will likely have a different investment strategy compared to someone that wants consistent income. As a general rule, you can categorize your goals into the following:
· Short-term goals. If you need your money in the next three to five years, it would be considered a short-term goal. This could include things such as buying a home, building an emergency fund, or going back to school.
· Long-term goals. Anything that’s more than five years away is typically considered a long-term goal. Retirement savings or paying for your children’s future education are just a few examples.
As a general rule, if you’re saving for the short-term, you want to stick to less risky investments such as bonds, guaranteed investment certificates, and money market funds. Since you’ll need the money soon, you’ll want to avoid any potential losses.
However, if your timeline is longer, investment products with a higher potential return such as stocks, mutual funds, and exchange traded funds are often recommended. The idea is that by investing in these products, you’ll capitalize on compound interest and gains over the years.
Choose the right account
When you’re ready to start investing, you’ll have access to various accounts. Which account you use will come with different benefits. Here’s a quick breakdown of the most popular accounts:
· Registered Retirement Savings Plan (RRSP). You get a tax break on contributions and there are no taxes to be paid on any growth within the account. When you eventually withdraw funds, you’ll be taxed.
· Tax-Free Savings Account (TFSA). Although you get no tax break when contributing, all interest and capital gains earned within the account are completely tax free.
· Taxable account. There are no tax benefits to this account. Generally, you’ll want to max out your RRSP and TFSA before using a taxable account.
It’s worth mentioning that these are just types of accounts. You don’t buy an RRSP or TFSA. You would purchase investment products that get stored in these accounts. Since each accounts have its own pros and cons, you’ll want to do some extra research so you understand how they work.
Determine how you want to invest
The great thing about investing is that you don’t need a lot of money to get started. There are also various ways to get your investment journey started:
· Use a financial advisor. By enlisting the services of a financial advisor, they can make investment decisions on your behalf. They’ll go over your goals and make recommendations. Generally, this is the most expensive option.
· Use a robo-advisor. With robo-advisors, you can still get a diversified portfolio. The difference is that the decision making is often based on an algorithm. This can be a good thing since it’ll help lower your investment fees.
· Go the do-it-yourself option. For those who want complete control of their portfolio and want to minimize their costs, do-it-yourself investing can be a good strategy.
Consider your options with a stock investor
Many people who decide to invest will naturally gravitate to individual stocks. This allows people to invest directly with companies that they believe in. While this style of investing can be rewarding, it also requires some work:
· Choose a brokerage. To start investing in stocks, you’ll need an online brokerage account. Each account will have similar features, but you may see some differences in the account options, fees, research tools, and more.
· Determine your stock strategy. There are many types of stocks available. For example, there are growth, dividend, and penny stocks. There are also stocks in different sectors such as energy and financial services. Generally, you want to determine your stock investing style before you begin.
· Get to know the process. Once you’re ready to start buying actual stocks, you’ll want to know how to do so. Choosing the stock, limit order, and quantity is straightforward, but it can be intimidating the first time. Many brokerage accounts have practice accounts you can use before you start playing with real money.
Monitor your progress
Regardless of how you decide to invest, it’s a good idea to monitor your progress. This doesn’t mean checking your performance every day, but rather having a good understanding of how markets are doing. The reality is that markets fluctuate daily, and you’ll see your portfolio go up and down regularly. How you react to these changes will determine what kind of investor you truly are.
If the thought of your investments dropping in price are keeping you up at night, then you might be more conservative than you realized. However, if you know your investment strategy is correct and things will balance themselves out, then there’s no reason to panic. Adjustments will need to be made over time, so when that time comes, having all the relevant information is essential.
Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. As a completely self-taught, do-it-yourself investor with no formal training, he makes money easy to understand for all Canadians. His specialties include personal finance, budget travel, millennial money, credit cards, and trending destinations.
Barry Choi is a paid spokesperson of Sonnet Insurance.