Investing can seem a little scary for beginners, especially given the current financial climate in Canada and the world.
If you’ve been thinking about investing but don’t know where to start, we feel you. It’s intimidating, and the risks and pathways can be confusing.
Daily Hive connected with Natasha Macmillan, Ratehub.ca‘s director of everyday banking, for some tips and tricks for those new to the investing world.
“A few common misconceptions I see about investing are that people believe you need a lot of money to start,” she said.
“That is not true. You can begin investing by setting aside just $100 a month—the key is to start early.”
Read on for more of her helpful tips.
I want to start investing but don’t know how
Kovalova Olena/Shutterstock
When starting your investing journey, Macmillan said you first need to determine your financial goals and what you hope to achieve through investing.
“Consider how long you can keep your money invested, your risk tolerance, and how much you can contribute regularly,” she said. Analyzing these factors will help you choose the right investment account.
For a more “hands-off” approach, Macmillan advises passive investing.
“Robo-advisors like Wealthsimple can be a great starting point. They create and manage a diversified portfolio for you, usually using index funds or Exchange-Traded Funds (ETFs),” she said.
“This approach is ideal for those who want to grow their investments over time without getting involved in the day-to-day decisions.”
Macmillan said active investing allows you to select and trade individual stocks by yourself if you want to be more hands-on with your investing approach. However, this will take more time and effort because you will need to monitor and adjust your portfolio regularly. This type of investing may be more suitable for non-registered accounts that allow you to take advantage of short-term opportunities.
“However, for long-term accounts like RRSPs or TFSAs, a passive strategy might be more beneficial, allowing your investments to grow steadily with the market,” added Macmillan.
If you’re looking for apps and websites to help you get started, she recommends knowing your investing style before downloading.
For passive or active investors, Macmillan suggests trying Wealthsimple or Questrade. These two user-friendly platforms also provide tools for trading stocks and ETFs independently.
Make an investment plan
Jacob Lund/Shutterstock
Before hopping on the apps, Macmillan stresses the importance of creating an overall plan for how you want your money to grow.
For example, you should first determine whether you’re investing in a long-term goal like retirement or if you want to make a big purchase in the near future.
“Knowing your goals will help you choose the right investment strategy,” continued Macmillan.
“Next, determine your risk tolerance and decide how much you want to invest regularly. Based on your goals and risk tolerance, select an appropriate mix of stocks, bonds, ETFs, or mutual funds.”
She recommends reviewing your investment plan at least one to two times per year. This will ensure that your portfolio still reflects your goals and allow you to reassess your plan if adjustments are needed.
Confusing investment lingo
For first-time investors, the terminology and jargon can be confusing, and Macmillan said familiarizing yourself with these terms can make the process much easier. Here are some key terms to know:
- Stocks represent ownership in a company, offering potential profits through dividends or price increases.
- Mutual Funds and ETFs are pooled investments that provide a diversified portfolio of stocks, bonds, or other securities, with ETFs trading like individual stocks on exchanges.
- Diversification means spreading investments across various assets to reduce risk and improve potential returns.
- Understanding your risk tolerance and your ability to handle investment losses can help guide your allocation of assets between different types of investments.
- Your portfolio collects all your investments (stocks, bonds, etc.). A well-balanced portfolio aligns with your financial goals and risk tolerance.
- Capital gains are profits made when you sell an investment for more than you paid.
- Compound interest is the interest you earn on the original amount invested and the interest you’ve already earned.
Three tried-and-true tips
Macmillan summed up her advice for new investors with three tried-and-true investing tips. First, start early and stay consistent with your savings, no matter the amount.
“I always emphasized that even setting aside as little as $5 a month can make a significant difference over time,” she said.
Next, be patient and don’t make hasty decisions based on market fluctuations.
“Focus on the long-term growth of your money. While recommendations from others can be valuable, always do your research to ensure you’re making informed decisions,” added Macmillan.
Lastly, diversify your portfolio by investing in various asset types. It can help minimize potential losses and create a more stable financial future for you and your money.