Five investment tips for beginners
You’ve got money. Maybe not a lot but some. And you want to see it multiply like Gremlins in a swimming pool.
Once you’ve got budgeting, savings and debt under control, you might consider investing your bucks. “A lot of people when they first get started, they feel it’s overwhelming,” says Allan Small, senior investment adviser with DWM Securities. “But it’s not as overwhelming as it may seem.”
He’s obviously biased; but he provided some investment tips for beginner investors.
Start now. “You’re never too young to start putting away a small amount monthly after you get your first job and once you do your budget and figure out, ‘Hey, I can afford $25 a month to put away into an investment,’” Mr. Small says. “The longer you invest for, the more money you’re going to make. You’re going to have your ups and downs; but if you invest from [the ages] 23 to 33 versus someone who starts at 33 and invests until they’re 53, the person who starts at an earlier age because of compounding rates of return will end up with more money.”
Speak to someone who has the knowledge. Find out your options. Speak to an investment advisor at your bank for example, about whether you should open up a tax-free savings account (TFSA) or invest in your registered retirement savings plan (RRSP). “Once you understand all the different types of accounts, the pros and cons, then you’re more educated to make those appropriate decisions.”
Start with the familiar. An easy way to get into the stock market is by buying things that you’re familiar with and know. If you drink a beloved green tea latte everyday, buy Starbucks shares. “If you want to get your feet wet and try it out, buying Apple shares because you own the iPhone, the iPad, the iThis and iThat is a great strategy,” Mr. Small says. “But you have to separate that from more serious investing. If you are someone who is in their early 30s, you’re looking to perhaps buy a house…You want to invest more for the long-term where you’re investing with a certain goal in mind.”
Diversify. Mutual funds and exchange-traded funds tend to be good products for young individuals who don’t have enough assets to create their own diversified portfolio. “The best way to describe mutual funds is it’s a basket of investments. Everybody puts any amount of money they want into this basket. The average mutual fund basket might have in it $500-million or $1-billion. There’s this mutual fund manager whose job is to decide where to invest this basket of money,” he says.
“An ETF is something similar except … a lot are not actively managed by a manager. Let’s say you buy an ETF that follows the Toronto Stock Exchange. You’re owning through the ETF all of the different stocks that are on the Toronto Stock Exchange.”
DIY. Your bank may have a discount broker’s arm. Open up your own account and trade yourself. However, if you go through a discount broker, no one will tell you what to buy, when to buy or when to sell. You’ll have to do your own research.