If you already have a working plan for your budgeting, debt reduction and savings, it could be time for you to look for a good investment option. According to Allan Small, DWM Securities senior investment and counselor, many individuals get overwhelmed on their first investment venture although he believes it is not really overwhelming.
Coming from an investor, that may be an expected comment; however, Small offers five tips for novice investors can benefit from:
1. Do it now! It is never too early for anyone to start investing, advises Small. With your first job’s salary, you can begin to save a certain amount you can spare, say $20 each month, into an investment. A long-term investment will bring more returns for an individual, in spite of the market dips along the way. Nevertheless, if you begin investing at age 23 up to 33, a ten-year period, you gain more than if you start at 33 up to 53, a twenty-year period, since the compounding interest rates will favor the former over the latter.
2. Consult with an expert. Know the alternatives open to you. Seek a trusted investment counselor at your bank or investment house to find out if it is advisable to open a tax-free savings account (TFSA) or to invest in a registered retirement savings plan (RRSP). With the well-informed knowledge about all kinds of accounts and the advantages and disadvantages of each, your decisions will have greater weight and chances of helping you attain success.
3. Begin with what you understand. The simplest way to buy stocks is to choose a business that is familiar to you and one that you understand. If you are a tea or coffee drinker, buy Starbucks shares. Small adds, “To train yourself to swim in shallow waters, you may also want to buy Apple shares if you own and use an iPhone or iPad, which is a good strategy.” However, Small advises a novice investor to also consider more serious investing. If you are in your early 30s and you want to purchase a home, invest in long-term assets with that specific goal as your focus.
4. Invest in various stocks. For young investors, mutual funds and exchange-traded funds can bring the needed practice and confidence into building up a diversified portfolio of their own. Mutual funds, as Small describes it, is cornucopia of investments. Anyone can assign a certain amount of money into it. On the average, a mutual fund basket may contain $500-million or $1-billion. A mutual fund manager has the responsibility to invest that bunch of money he or she deems profitable.
On the other hand, Small describes an ETF as a similar instrument with a slight difference. Much of it is not under the complete control of a manager. For instance, if you buy an ETF which follows the Toronto Stock Exchange, you actually own all of the various stocks on the Toronto Stock Exchange through that ETF.
5. Be a free agent for yourself. If your bank houses a discount broker’s division, set up your own account and do that trading yourself. Doing so, you have no access to professional advice as to what to invest in. Hence, you have to do your own analysis and make your own decisions.