Advice to help you invest with confidence
Get thinking about your options for growing your money
This article was originally published June 19, 2017.
Far too few of us would answer "very confident!" when asked to describe their comfort level when it comes to financial investing. Some of us do it rather blindly, some of us defer investing when we all know long-term gains are a key goal, and some put if off entirely. With goal of making the markets and your options more familiar and, therefore, less daunting, here is my advice on how to invest like a professional.
The best way to grow your money is to invest in companies that offer a dividend and have a potential for growth. Look for stocks that yield a dividend of close to 4 per cent. These are regular payments made to stockholders. The idea is to invest in a company that's projected to grow on average 4 per cent a year. So with the combination of growth and dividends, your money should grow close to 8 percent a year, doubling every 9 years.
As a personal finance journalist I get many tips from pros, but one tip that has stayed with me is that most traders are invested in index funds. These are safe Exchange Traded Funds (ETFs) that follow the performance of any index. So for example there are ETF's that follow the performance of the Toronto Stock Exchange or the NASDAQ. ETFs are much like mutual funds, as they have a basket of stocks and bonds in them, but unlike mutual funds they are not actively managed and have much lower fees, generally.
Keep fees lows
Fees are one of the major obstacles in growing your wealth. When choosing investments, like ETFs, keep fees lower than 1 per cent, to ensure the return you are getting is going into your pocket and not being eaten up in management costs. Traditional mutual funds usually carry higher fees. Therefore even if growth in the fund is good, investors may not experience the same return for their own money.
Many people use an advisor to help make their financial decisions, and I don't necessarily disagree -- it is prudent to speak to a financial advisor before making any investment decision. But also, it has never been as easy (and cheap) to invest on your own. Open an account at one of the online discount brokerages in Canada, make sure your account is self-directed. Read the analyst reports and recommendation on the investments you are interested in and buy the securities that you are impressed with. It's really that easy.
Good vs Bad media
Once you start investing it is good to keep a close on eye on how the markets are doing, but reacting to market activity day to day is not a good idea. Business news, when you watch it with a microscope, can make even the most seasoned traders nervous. Read the business section of the newspapers to get the headlines, visit financial news websites, but once you make your investment decisions stick to it. My favourite way to invest is by the Canadian Couch Potato.
Keep emotions in check
Most traders have a buy and hold attitude. They keep their own investments in the safest index funds for the long term. By following this one simple tip many Canadians can grow their wealth, slow and steady. Don't day trade, don't make emotional decisions about your money. Watch your money but don't become obsessed with how it's doing. That is the best advice anyone can give you for investments.