Investing in Canada for Beginners – Easier Than You Think!

We’ve all heard the words mutual fund, index fund, stock market, and all that other investing jargon. If you’re new to the investing game, you may be wondering what this all means. You might even be curious about what investing money for beginners is like. Before learning how to invest, let’s define some terms!

We’re going to use Investopedia, a great resource to learn about anything related to investing, to define some terms.

Definitions

Investing:

 “Investing is the act of allocating funds to an asset or committing capital to an endeavor (a business, project, real estate, etc.), with the expectation of generating an income or profit. In colloquial terms, investing can also mean putting in time or effort – not just money – into something with a long-term benefit, such as an education.”

Investing means putting some of your money into something that will, hopefully, give you more money in return. You can invest in a wide range of assets which we’ll get to later.

Portfolio:

“A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly tradable securities, like real estate, art, and private investments. Money market accounts make full use of this concept to function properly.”

Your portfolio is your group of assets that you own. You can have various portfolios for different financial reasons.

Stock:

“A stock (also known as “shares” or “equity”) is a type of security that signifies proportionate ownership in the issuing corporation. This entitles the stockholder to that proportion of the corporation’s assets and earnings.”

If you own stock, you own a small part of a company. Each company’s stock has a different price.

Mutual Fund:

“A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.”

In plain terms, if you buy a mutual fund, you give your money to someone or some entity to use your money, along with others, to purchase a wide range of assets. You’re buying a part of a portfolio that is hand-selected by someone or some entity. If that portfolio does well, increases its worth, your mutual fund becomes more valuable. 

Index Fund:

“An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor’s 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover. These funds follow their benchmark index no matter the state of the markets.”

As stated in the quote, and index fund is a type of mutual fund. Instead of someone selectively choosing assets, an index fund just follows the stock market. When you purchase an index fund, you own a piece of whatever that fund follows.

Bond:

“A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer. Bond details include the end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments made by the borrower.”

When you purchase a bond, your money goes to whoever the borrower is in the form of a loan. At a certain specified date, the borrower will pay you back completely. Although there are many types of bonds, many have an interest rate that the borrower must pay at specified dates.

Exchange-Traded Funds:

“An exchange-traded fund (ETF) is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies. ETFs are in many ways similar to mutual funds; however, they are listed on exchanges and ETF shares trade throughout the day just like ordinary stock.”

An ETF is very similar to a mutual fund, as it is a way to keep a diversified portfolio and tracks some sort of index. However, you purchase ETF’s the same way you buy stocks, on an exchange. This means that the day-to-day price of an ETF can change.

Commodity:

“A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers.”

A commodity is a good like wheat, gold, or oil. It is something tangible that has a price. Many people look to buy commodities in times of inflation because as inflation occurs, the price of the commodity will also increase. It’s a good asset to have to diversify your portfolio.

Real Estate:

“Real estate is property made up of land and the buildings on it, as well as the natural resources of the land including uncultivated flora and fauna, farmed crops and livestock, water, and any additional mineral deposits.”

If you own a house or an apartment, you own real estate!

Investing Tips for Beginners

For someone learning how to invest for the first time it’s important to ask yourself some questions.

Do you want to invest for your retirement?

How comfortable are you with losing money?

Do you want to be more hands-on or let someone else control your investments?

Before you begin investing your money, there a few things you need to do. You should make sure you have some savings stored for emergencies. Your investments are for the long-term. Once you put your money in you want to leave it for as long as possible.

Rather than pull money from your assets, keep an emergency fund to cover anything that may arise. Try to keep at least 3 months’ worth of expenses.

Secondly, you should not be investing a lot of money if you have many debts or loans. Pay off your debts and loans before seriously investing. This is not saying you cannot start investing while still paying off student loans. If you’re making enough money to pay off your debts, live comfortably and you still have money left, then you can invest.

Assuming you do have some money you can invest with do it as soon as possible. Rather than putting money in a savings account, invest it. The inflation that will increase the value of your investments is very likely to earn more over time than interest from a savings account.

The last thing you need to keep in mind is the risk associated with investing. Whenever you invest, you’re gambling on companies or assets to increase in value. Some assets are riskier than others. If you have a portfolio consisting primarily of stocks, you have a high-risk portfolio. However, if you mainly hold bonds, your portfolio has low risk associated.

Investing for Beginners

As a first-time investor, there is a lot to learn, so we’re here to help break things down for you.

It’s important to know what you’re investing in when you choose to begin. The definitions provided above should have given you a good basis for understanding common investments.  

When beginning to invest, you can choose to do so on your own, with the help of a financial advisor, or even with the use of computer algorithms. What we all want to know is how to invest money to make money. All we need to do is invest carefully to let our money work for us.

The first thing you need to keep in mind when investing is to keep a diverse portfolio. This means do not only keep stock in US technology companies. Rather, have your assets spread out over industries, types of assets, and even geographical location. This will reduce your risk of losing your investments.

Beginning this journey, you need to choose your preferred investment strategy carefully. Here is a list of options to get you started!

 

  1.     Registered Retirement Savings Plan

This is one of the best ways to start investing for many reasons. One of the best things about an RRSP is that you don’t have to do anything. Your company will take a percentage you choose out of your paycheck and place it in the RRSP. That money goes in tax-free.

Depending on your company’s policies, they will contribute some amount to your RRSP after some amount of time. This means you’re getting an investment from your money and your company’s money.

Your companies chosen RRSP can be composed of many things. There can be mutual funds, ETF’s, bonds, and much more.

 

  1.     Index Funds

As defined earlier, an index fund tracks an “index”. For example, you can buy a share of the S&P 500. Rather than select individual stocks and trying to “beat the stock market”, this is a safe investing strategy.

The theory behind purchasing index funds is the market as a whole will do better than individual stocks. Therefore, it is more worthwhile to purchase index funds because it’s safer and you should be making money in the long run.

Index funds are a great way to keep a diversified portfolio and to save for retirement!

 

  1.     Target-Date Fund

A target-date fund is a subset of a mutual fund. When you purchase one of these, you typically have an investment company handle it all for you. They will build your portfolio with different assets depending on the time. For example, if you have a 30-year long fund, in the earlier stages your fund might have more stocks than bonds. When it gets closer to the target-date, your portfolio will contain more bonds than stocks as they are less risky.

The investment company will determine the risk they’re willing to take based on the target-date. However, you will be paying fees to this company to manage your assets.

 

  1.     ETF

By investing in exchange-traded funds, you’re buying into a fund composed of assets whose price varies day-to-day. These funds can be composed of various stocks and other securities. The benefit of buying ETF’s is the lower fees associated with them. Compared to funds that are actively managed (mutual funds) these are passively managed and therefore don’t have the same high fees.

ETFs help keep your portfolio diversified just like other types of funds. Since they’re traded like stocks, they’re easy to check on as well.

 

  1.     Stocks

The stock markets are what every beginner thinks of when they think about investing. If you’re looking to buy into stocks, you’re in luck because it couldn’t be easier than it is today. There are countless platforms where you can make an account and begin purchasing right away.

Buying stocks is basically what it seems. You can log onto a platform, find a stock you want, and purchase. However, the stock market is risky and this is not where you should be putting all your marbles, especially as a beginner. Unless you’re just playing around with penny stocks or you understand the stock market, this is not the way to make money.

Sure, you can own stocks, but make sure to keep your portfolio of stocks diversified!

Stocks are risky and there’s a slim chance you’re going to pick all the right stocks that blow up and make you millions.

Rather, buy into stocks by the route of an index fund or mutual fund. That way to automatically have a wide range of stocks.

 

Other Investment Options

Besides purchasing individual stocks, mutual funds, index funds, etc. we have some other options for investing. These places might not be the go-to place for where to invest money to get good returns, but they’re good options to begin saving for retirement!

Robo-Advisors

Robo-advisors are basically what they sound, robots. These are computer algorithms that take all the work out of your hands. These have recently gained in popularity as people have begun to see the benefits. By using a Robo-advisor, you’ll have much lower costs than a traditional fund manager. You can start a fund with a robot-advisor with very little money.

Robo-advisors typically create personalized funds that contain a mix of ETFs and mutual funds. Therefore your investment is diversified and suitable for long-term growth.

Round-Up Apps

Also gaining popularity are apps that round up purchases made on debit and credit cards to the next dollar. They take this amount and place it in an investment fund for you.

One such app is Acorns. It will take the difference between your purchase and the rounded-up amount and give it to the company’s created Robo-advisor. Now, with very little money upfront you’re investing in a diversified portfolio without any thought.

Online Brokers

You can choose to use an online broker to handle your investments. There are many discount brokers available now that offer very low minimums to start. As well, there a variety of brokers you can work with. You can find some who will take your money to invest it and communicate with you only every so often, as your investment is for the long term. Alternatively, you can find online brokers who you communicate with daily if you’re looking for assistance and education.

No matter what you choose, do some research on your own first! This article is not meant to give you everything you need to know for investing. Investing takes years of education to understand. That’s why there are professionals to help! However, this article intends to give beginners an idea on how to begin investing and a general basis upon which they can build.

We have all dreamed of getting rich. We see programs on television where someone made it big and sigh because we have not the money to invest and do likewise. Or, do we?

Investing money is not a get rich quick scheme, it is about building a portfolio of smart investments that help you plan for your future.

The principal is simple you have got to invest money to make money.

Today we are going to explore together ways that anyone, even someone on a shoestring budget, can invest their money wisely and see a huge return.

People Are not Saving or Investing Today

No matter what their income level, people are choosing not to save or invest money. The statistics show that 20% say they are not saving anything and 47% stated they were saving a mere 1-10% of their income. That is far too small of a percentage to plan for emergencies or the inevitable economic downturns, let alone beginning to build an investment portfolio.

The most significant reason people give for not saving or investing more is that they feel they have far too many expenses to do so. Another 16% stated they merely haven’t gotten around to it yet.

Let us make this one important point clear before we begin exploring investing.

Before you can even consider investing, you must first put back at least three months in wages as an emergency fund. Without an emergency fund, no amount of investing will be safe. If possible, put back a year’s worth of wages in a secure account such as basic savings account at your bank. This will offer protection should the unthinkable happen.

The Reasons People Give for Why They Are Not Saving or Investing

While saving and investing money is not difficult, it appears that most people living in the U.S. are not taking advantage of the high returns that are available. Today’s market is booming, but few are investing to earn the dividends they could use to finance themselves in the future.

The reasons are complicated and many, but we shall tackle a few of them here.

In a survey done by GoBankingRates.com conducted in 2016, 34% of American adults have zero percent of their money saved back for a later time with about the same percentage having only a few hundred dollars in savings.

One reason is that people do not see the need. Since unemployment in the U.S. is low right now, folks are feeling reassured and spend all they make on luxury goods. However, the economic upturn we are now experiencing will come to a crashing halt sometime in the future.

This future financial failure will leave many people without jobs and scrambling to save what they can. According to an article on the Bankrate website, half of Americans will not be able to maintain their current standard of living and will have inadequate or non-existing retirement funds.

An Important Tip for Beginner Investors—The Value of a Financial Planner

There are several ways to get yourself started with investing. Each different type of investment strategy involves different risks going from zero to high. Choosing the investment vehicle that is right for you can be tricky, so it are highly recommended that you seek out a financial planner for help.

These professionals suggest and render financial services to clients based on their needs. In the United States, financial trainers are highly trained and must hold a license to practice. They supply financial advice on your investments and where it is best to put your hard-earned dollars.

Financial planners are not cheap however their advice can help you receive the highest returns. The first thing a good financial planner will do is sit down with you and help you set some goals for your investments. He/she will ask what you are shooting for with your investments.

Are you looking for retirement savings, to pay for your children’s education or any other goals such as becoming a millionaire? Don’t laugh. If you begin investing early enough, you can achieve a substantial amount of wealth.

With the aid of a financial planner, you will keep abreast of the changing climate of the markets and the tax consequences of any actions you might take.

What is an Investment Portfolio?

An investment portfolio is a group of financial assets such as stocks, bonds, commodities and available assets that can be sold quickly for cash. Investment portfolios are held by investors,

like you, and if you wish, can be managed by a financial professional.

By diversifying what types of investments models you use, you keep from putting all your financial eggs in one basket. This investment strategy can help protect you from failures in one investment vehicle from breaking the bank and making you broke.

There is a simple formula for figuring out how much of your portfolio you should invest in stocks as compared to safer models. Subtract your age from one hundred, and you will have the percentage of your portfolio that you can have in stocks.

However, before making any investments, it is essential to do your homework. Make sure you do not just know you want to invest, but that you thoroughly understand where and why you want to invest. Making blind decisions or following a fad can cost you dearly.

Get and work closely with a financial advisor because once you have established a well-balanced portfolio, you are pretty much finished investing. Keeping your portfolio simple is a vital part of staying efficient on where your money you spend and how much return you will receive.

Yes, there will be monitoring and some rebalancing but don’t buy new investments without consulting someone who thoroughly understands the markets well.

Where to Invest Money to Get Good Returns

One such way of investing is tailor made for beginners; it is called the cookie jar approach.

This approach involves placing $10 into a cookie jar or other safe place each time you get paid. This method will get you into the habit of stashing away money for a rainy day. If you use this method, you will discover that you indeed can save money.

After you have saved a set amount that you have determined to be your goal, turn around and place that money in a savings account. Keep saving, and before you realize it, you will have a large enough amount to invest in an account such as an IRA that will pay you dividends.

Another great way to begin investing is to enroll in an employer’s retirement plan at work. You can start very small, perhaps 1% of your wages and increase it slowly over time. That small of a percentage of your earnings will not be missed from your paychecks.

Even if you are on a tight budget, enrolling in a 401(k) but remember, many employers will

match your investment, so that small amount you invest will double. Before long you will find

you have set aside a nice nest-egg for retirement or other needs.

Investing Using Certificates of Deposit

A certificate of deposit, or CD, is a kind of savings account. These investment vehicles have a fixed interest rate and a fixed date when you can get a withdrawal from them known as their maturity date. Certificates of Deposit issued by banks usually do not have monthly fees and don’t afford much risk because of being insured by the FDIC.

CD’s aren’t like traditional savings accounts in several ways. For one, you cannot withdrawal your money freely or easily. Investing in a CD means you have agreed to leave your money in the bank for a set amount of time. If you choose to withdrawal your investment, you will be penalized.

The terms on CD’s can be anywhere from a few days to a decade, but the standard range is between three months to five years.

Purchasing a CD will cost more than many beginner investors can afford. However, if you can do so, you will find your money can grow quickly and safely. Should you invest in a five-year CD that pays 3.25% APY, you will earn over $880 from a $5,000 deposit. If you deposit the same amount in a bank paying 1.90%, you will find that your investment has earned you $500 in five years.

Although the original outlay is high, you will make double what you might earn in a high-yield savings account.

Investing Through A Broker

If you are a little more daring, you can invest using a broker. A stock broker takes the money you give them and invests your money for you. Despite popular belief, you do not have to have thousands of dollars to invest in the stock market.

You can begin investing through a broker such as Betterment; you only need $10 to open an account. Beware of investment brokers who charge high fees. Do your research and find a reputable broker who will help you grow your portfolio.

You can also invest your money in a mutual fund. These funds are investment securities where you can invest your money with a one-time transaction. You can set up automatic investing through your payroll department to make investing more convenient.

However, be aware that mutual fund companies often require a minimum about to open an investment account. These expenses range from between $500-$5,000. However, most mutual fund companies will not charge the beginning account amounts if you sign up for automatic investments through your payroll department for at least $50 per month.

It is vital to remember that any income made through investing in the stock market is taxable. So, be sure to work with a financial counselor to make sure you are taken by surprise by Uncle Sam.

Invest in Savings Bonds

If investing money on the stock market makes you nervous, then there is still an investment vehicle that may be right for you. You can invest in treasury securities such as US savings bonds.

Although one cannot obtain riches through these investments, they are an excellent place to put your money and earn interest until you are ready to invest in riskier endeavors.

Savings bonds can be purchased online through the US Treasury’s bond portal. On the site, you can buy fixed-income US government securities that mature from 30 days to 30 days in the future. They come in different denominations as well and as cost as little as $100.

Building Your Portfolio Through Diversification

You build and diversify your portfolio by investing your money in different sorts of accounts and by buying assets such as real estate.  

Real estate is an asset that, when done correctly, can bring huge returns and provide a tax shelter for some of your money.

The first thing to consider when buying real estate is the way you are going to finance your purchase. If you have already shown returns on other investments, rolling them over into real estate will save you because you will not be paying high interest on your investment.

Once you have made your purchase, you will need to consider the management of your property. It may be necessary to hire a property management firm to be the landlord and oversee who rents the property and to make sure the property receives proper maintenance. If you are borrowing part or all the money to make your real estate purchase, the lender will require knowledge of who is managing your investment.

Real estate is considered a liquid investment, meaning it can be sold for quick money relatively

quickly when compared to other investment choices.

The Benefits of Investing in Real Estate

Besides real estate is a highly liquid investment, there are other benefits as well.

One of the most significant benefits is what it can do for your investment portfolio regarding taxation. Rental home expenses are tax deductible, and you can discount many charges related to receipts or other documents about your other transactions.

These other transactions may include but are not limited to:

  •         Advertising Costs
  •         Cleaning and Maintenance Costs
  •         Homeowner Association and Condo Dues
  •         Insurance Premiums
  •         Legal Fees
  •         Mortgage Interest
  •         Local and State Taxes
  •         Utility Costs

You can claim the deductions each year on your federal taxes in the year they are incurred.  

It is essential to keep your property occupied, and the management of it is running smoothly. Using a rental property management service will help you keep good tenants and ensure they pay reasonable rates. A management service can also make sure that if a tenant stops paying that the proper steps are taken to evict them and retain new renters.

You will need to keep a reserve of money set aside to handle repairs and proper maintenance.

Investing as a Beginner is Doable

Whether you make a huge salary or strapped for money, investing doesn’t need to be difficult and is doable. Beginning your investing journey by placing ten bucks a week or month into that cookie jar on your kitchen counter can be the start of a lucrative financial portfolio.

If you are a young person just starting, the sky’s the limit on how much you can save and invest. Start by saving 10% or more of your pre-tax income by operating on a budget and before you know it you will be able to begin investing in real estate and other investment vehicles.

It is very accurate that the younger you begin to invest the higher your chances of having a substantial amount when you reach retirement age to enjoy your later years in luxury.

Investing is a very doable way to make money that will pay dividends far into your future.

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