Recession or not, stay fundamental to investing – Investment Executive IG News

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Illustration by Melanie Lambrick

One of the truths of personal finance is that time is an asset when it comes to investing: The sooner you start, the more time it takes for your money to grow. This is true even if you don’t have a lot of money. For one thing, it’s good to get into the habit of setting something aside for the future. For another, even small amounts of savings will reap rewards in the long run.

Of course, when you’re starting out small, you’re not going to sign up for an expensive financial planner or wealth advisor who only takes on high-net-worth clients. So how do you start? This guide will walk you through the basics.

Investing is about risk and reward. Investment gains are rarely guaranteed, and this is the tradeoff you make: recognizing that you may lose money.Kate Monakhova / iStock Photo / Getty Images

Invest for long term gains; save for short term goals

Keep in mind that there is a difference between saving and investing. Saving simply means putting money aside, whereas investing means you are using your money (or any other asset) to earn financial returns. Also remember that investing is all about risk and reward. Investment gains are rarely guaranteed, and this is the tradeoff you make: recognizing that you may lose money.

“As a rule, investing is for long-term goals, saving is for short-term goals,” says independent investment advisor Darryl Brown, who defines short-term as within the next five years. The volatility of the stock markets means they are not the best place for you to put money in the near future. Rob Carrick of The Globe and Mail says the ideal investment time frame for stocks is 10 years or more.

Mr. Brown recommends that people make sure they have an emergency fund: at least six months’ worth of living expenses set aside in a safe and easy-to-access location, such as a high-interest savings account. Once your emergency fund is established, you can begin to direct money into an investment account to begin building a long-term investment portfolio.

Look for ‘free money’: Does your employer have a top-up program?

If you have investment top-ups available, they are a good place to focus your initial investment efforts.

For example, many employers offer matching contributions to workplace retirement savings plans. This means that if you sign up for a company pension plan, group registered retirement savings plan or other similar initiative, your employer will put in the money along with your own contributions. Mr. Carrick calls this “free money” and gives an example of a company that pitches in 50 cents for every dollar an employee invests and, remarkably, still struggles to get people to sign up. does.

The Registered Education Savings Scheme (RESP) is another example. They are a government savings tool to help families save for their children’s education. Opening and contributing to a RESP gives you access to government grants and top-ups, and the sooner you open these accounts, the more your money will grow. Low-income families are eligible for the grant, even if they aren’t able to make their own cash contribution – but they must create an account. If you have children, make sure you are maximizing your benefits from this program.

Create a budget and set up automatic withdrawals

Even if your income is low, it’s a good idea to get into the habit of creating a budget that includes money to invest. The trick is to pay yourself first, which investor Jack Harding defined as saving and investing like your rent or mortgage—an absolute necessity. “I view savings as a non-negotiable one and set up automatic withdrawals to avoid temptation,” he says.

Mr. Carrick also sees automatic contributions as a key to a successful investment plan. If you only save when you have the money, you run the risk of never saving or not saving enough, he says.

Mr. Carrick recommends setting up an automatic transfer from your bank account to your savings or investment account that happens immediately after your paycheck is deposited. He suggests starting with a small amount that’s comfortable — perhaps 10 percent of your net pay — and increasing the contribution as much as you can, such as when you get a salary increase or a higher-paying job. “One of the great benefits of automatic savings is that you never have to think about saving,” he says. “Saving becomes so routine that you may stop noticing you’re doing it at all.”

If you’re into apps and fun math tricks, you can also sign up for a tool like Wealthsimple Roundup, which links your bank account, tracks purchases made with your debit or credit card, places them on the nearest Rounds up to the dollar and proceeds to the difference in your investment.

As far as the actual dollar amount is concerned, it depends on your situation and where you want to invest. Some robo-advisors, for example, have no minimum account balance, and will start investing your money with $100 or $1,000. You can also find high-interest savings accounts with no fees to start your nest egg.

It’s important to be clear about your intentions to invest: what are you trying to achieve and why?iStockPhoto/Getty Images

how to make investment plan

If the first step in investing is finding money, the second is figuring out what to do with it.

It’s important to be clear about your investment intentions, says Mr. Brown: What are you trying to achieve, and why? This comes with understanding the risks that come with investing and how comfortable you are with them.

Mr. Brown suggests creating an Investment Policy Statement, or IPS. You can do this on your own or with the help of a professional. IPS is your investment road map. This would include things like your objectives, your risk appetite, your liquidity requirements and any other personal factors. The idea is to create a plan that will help you reach your goals without getting distracted.

Look for investment options with low fees (including apps)

“All investors need to be mindful of fees,” writes Mr. Carrick. “The less you pay, the more you protect against the returns generated from your investments.”

When choosing an investment vehicle, it is important to be clear about the fees involved in buying and selling and maintaining an account. This is especially relevant for investors with small account balances, for whom a flat fee of $10 for trading or a flat fee of $25 for account maintenance can actually dent the total amount invested.

Mr. Carrick suggests a few options for low-fee investing:

  1. Use an App: Free investing apps like Wealthsimple Trade and TD Goal Assist offer no-cost options.
  2. Go Robo: Robo-advisors, who have low overall fees and are friendly to investors with small balances.
  3. Try Online: Online brokers such as Questrade and Scotia iTrade have no fees when purchasing exchange-traded funds.

Paying very high investment fees, Mr. Carrick notes, can eat away at your returns to the extent that you may have to work for years to make up the difference, which is why it’s important to stay on top of the issue from day one.

DIY is divided into two categories: robo-advisors and self-directed investing. Robo-advisors offer a “set it and forget it” approach, whereas self-directed investing involves a lot of effort.iStockPhoto/Getty Images

Robo-advisor vs. Self-Directed Investing: Choose the Investment Tool That Works for You

As online investment tools have become more common, do-it-yourself investing has become an extremely popular option, especially among young people who don’t have a lot of money to invest. Since DIY investing is low-cost, it is ideal for those just starting out.

DIY is basically divided into two categories: Robo-advisor and self-directed investing.

Robo-advisors offer a “set it and forget it” approach, whereby you create a personal investment profile and start depositing cash and the system chooses what to buy and when.

Self-directed investing, on the other hand, involves a lot more practical effort: You create an account, choose what to buy and when, and make the purchase yourself. While some people do all the research on their own, others may hire a financial advisor for a fee to set up a plan for themselves, or follow a recommended portfolio online.

Another consideration is whether to use something like a tax-free savings account or RRSP, and if so, which one to choose. In general, low-income investors are better off focusing on their TFSAs, while those in higher-income groups will benefit more from RRSP contributions.

This is because of the difference in income tax treatment. With an RRSP, you get a tax break when you contribute, but pay income tax when you withdraw the money later, usually during retirement. With a TFSA, you’re contributing with after-tax income, which means there’s no bonus tax refund right now — but no taxes to pay later. The idea is that you want to pay taxes at a time when your income (and tax rate) is lower, which usually happens during retirement for people with larger salaries, and now for those who are now. are beginning.

Remember that TFSAs and RRSPs are buckets of investments, not investments – you use them as a container to hold the investments you buy.

So what should you buy? It’s tempting to look for the next hot stock or up-and-coming industry. But for most investors, Mr. Carrick says, keeping things simple is the best approach. This means using a diversified portfolio with a mix of stocks and bonds or guaranteed investment certificates that reflects your age, your investment needs, and your level of comfort with the potentially sharp ups and downs of the stock market.

It may still sound complicated, but Mr. Carrick has broken it down into two options which he defined as “easy and easy”.

The first is self-directed investing, as mentioned above. In this case, he suggests using your investment account to purchase an asset allocation ETF, which is a fully diversified portfolio of stocks, bonds, and sometimes, a dash of cryptocurrency. It’s a low-cost, all-in-one option – you only need to buy one and all the diversification is built in. “Successful lifetime investments can easily be based on putting money in balanced ETFs for several decades,” says Mr. Carrick.

He says an even easier option is to sign up with a robo-advisor. They tend to cost a bit more than self-directed investments, but that’s because they provide you with added value in terms of support and guidance. Robo-advisors will put your money into a diversified portfolio of ETFs (and sometimes other types of investments), which are selected based on your individual investment profile.

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