I’ve learned a lot during my time at MoneySense, but I’ve decided it’s time to turn to the investing experts for some advice to assuage my fears and give me a little confidence going forward. They gave me five key things to consider when starting out. I hope these help you—I definitely feel encouraged.
1. Just do it!
I know from experience and from chatting with my peers about this topic; investing is intimidating. Taking your finances into your own hands is a huge step into adulthood and it all sounds a lot more complicated than it has to be.
The very first step you should take as someone trying to get into investing is set aside your fears and just do it, says Bridget Casey, of moneyaftergraduation.com. “You’re not going to make a life-ruining mistake with $500.”
That sentiment is echoed by Mark Yamada of PUR Investing. You can get bogged down with financials, metrics and pure indecision. But in the end, if you wait to get the answer 100% correct you’ll never make a decision, he says. After this, make sure you stay consistent by setting up an automatic contribution plan so you always know you’re building your wealth, without the stress or effort of doing it manually.
2. There’s no harm in investing in what you know
It’s always interesting investing in companies you recognize and when you’re just getting acquainted with the markets, that’s okay, says Yamada. “It’s the comfort level you have in making an investment that’s important.” So that could mean a tech stock you’re interested in or the bank you’re with.
Of course, you should only do this when you’re just getting your feet wet. Once you’ve gotten used to the markets another important consideration are the dangers of home bias. And be sure not to have just a stock or two in your portfolio. “You should learn about different investment options, products, etc., ranging from GICs to mutual funds to ETFs to stocks. Some people jump right to the third step and just buy shares of a single stock,” says Jason Heath, a certified financial planner at Objective Financial Partners in Toronto.
3. Time frame is important
How long do you plan to hold an investment? Do you need the money in a year or is this for your retirement? “If it’s a short-term goal, the way you invest that money is going to be very different,” says Yamada. It’s a lot easier in my opinion, as well, to have a specific goal in mind before you jump head-first into really learning about investing anyway. (In all honesty, I have some vague goals right now—have enough for a down-payment, maybe? Move to the other side of the world? Both will take money, right?).
4. Consider the level of risk you’re okay with
“Slow and steady at the start line can set you up for long-run investing success,” says Heath. Justin Bender, an advisor at PWL Capital in Toronto agrees. “If you’re new to investing and your portfolio is relatively small, big returns won’t add much to your bottom line.”
But Yamada has a slightly different take. He suggests that facing losses is a rite of passage. “Losing money is the wakeup call,” he says. How you deal with the loss is important in learning what kind of investor you are and how you’ll react to a downturn. If you lose a bunch of your money, it’ll hurt, but if you panic and sell everything off (not the greatest idea), you should probably stick to more conservative investments.
Just don’t let the fear of making the wrong decision or losing all your money hold you back from dipping your toes into the water. As Casey likes to point out to millennial investors, when you’re young and don’t have a whole lot of money swimming in the markets, it’s unlikely you’ll make some sort of calamitous decision anyway.
5. There is only one thing you can control
Costs. “It’s the one element in the investing process that the investor can control,” says Yamada. I found this particularly empowering.
You can’t control the market and you won’t always pick winning stocks or mutual funds. But the one thing you can do is make sure that the mutual funds and ETFs you purchase aren’t dinging you with super-high MER (Management Expense Ratio) fees. I’d always known that low fees were important but thinking about it in this way really drove the point home.
Even if you are interested in letting someone else manage your investments via mutual funds, go for some low-fee Tangerine funds, says Casey. Opening a Tangerine account is free and easy and the MERs are low so you can feel good about your purchase and not like you’re being screwed over by THE MAN (as in, the Big Five Banks).
So, now that you have some encouraging thoughts guiding you through taking the plunge, stay tuned for my next column, where I discuss what you should pay attention to when picking a stock, mutual fund or ETF.
Be sure to check back for regular updates as Prajakta leads us on a journey as she learns what it takes to invest her own money.