Steps to Start Investing
So far Invest Twenty One has been focused on educating the readers about investing and it will continue to do so. Sharing what I've learned through studying, research and my own experiences. But learning about something is only as useful to you as being able to apply it in the real world. For people who are not currently investing, it's like most things, the hardest part is taking that first step to get started. A lot of people I've talked to who are not investing agree that investing is a good idea and it's something they should do, but don't really have a reason as to why they are not. In this article we are going to take a look at some easy steps you can take to get the ball rolling and hopefully get you investing in a way that works for you.
How do I get started with investing? How do I take a more active role in my current investments?
Create A Budget
I think the most important step is the first one and it's something everyone should do to help them keep better track of their money and spending habits. Creating a budget. A budget will allow you to track your income, assess your spending and give you a really good idea of what you're doing with the money you make. You may find areas you can spend less and you'll see how much you can reasonably save. I've read a few times now, that isn't not about how much money you make it's about how much money you keep.
Whether you use that money for investing or for other things is completely your call, remember that having balance is key. I don't like the idea of saving every dollar you make and consequently forcing yourself to eat crappy food and not enjoying your ideal lifestyle. Yes I believe investing is important, but more important are health and happiness.
The purpose of a budget isn't to make you feel guilty about how you're spending your money, but to make you aware of how you're spending your money. Everyone buys things they don't really need and that's okay, there's no need to feel bad about it. But maybe before you do splurge on something you want, give it a second thought and make sure it's something you'll make use of and that you're okay with its price. If either of those aren't a strong yes maybe look for something second hand or sleep on the idea of purchasing it.
Manage Your Debt
Even if you're a good investor chances are you're going to be getting a single digit return for the year. I think most credit cards charge interest rates of around 20%. Because you're going to be paying more interest on your debts than what you're bringing in, it is best to eliminate your debt or at least get it manageable.
After creating your budget, you'll be able to see what you're making and how you're spending. This should make it clear if you can save money on somethings or reallocate money to something else. If you have high interest debts I'd recommend taking care of those prior to getting serious about investing.
Again, I believe investing is important, but there are circumstances where it shouldn't be a priority. If investing today means you're going to fall behind on your debt, then it isn't a good idea. If investing is going to cause you to be 'investing poor' (no money to spend on anything else), then it probably isn't a good idea. Ideally, investing would be done using money you wouldn't miss if it wasn't there. After all of your bills, commitments and some money is put aside to treat yourself, if you then have a surplus of money that would just sit idle in your bank account, tempting you to spend it, that's the money you should use for investing.
Create A Watch List
This is something I am a HUGE fan of. I've never owned an Android but I'm sure it's similar, but on every iPhone there is a default Stocks app. What I recommend doing is opening that app and adding some companies to it that you're familiar with.
Becoming familiar with how the stock market works I think is an important thing for investors to learn because it'll help you understand what's happening when you get your quarterly reports from your advisor. This doesn't have to take a ton of effort, even if you just look once at the end of the day or week and see how the stocks performed and see if there was any correlation with news.
Along with a handful of companies you're familiar with (five or less to get started), I'd also recommend putting some ETFs if there. Exchange Traded Funds (ETFs) are a single bundle of many companies. ETFs trade and perform like an individual stock, but because it is comprised of many individual companies it is diversified. Something you should notice with individual stocks is there can be a lot of volatility (how much it moves up and down in any given day) whereas an ETF should be less volatile. Sometimes people can get very uncomfortable if their portfolio drops quite a bit in any given period of time, if that is the case then investing in ETFs could be a less stressful alternative. To get familiar with ETFs I would recommend checking out Vanguard (https://www.vanguardcanada.ca/individual/indv/en/product.html), there are a lot of options so try looking at the symbol VCE and VFV to start.
Okay, so you have your budget, you've managed your debt, you're becoming familiar with how the stock market works and you're now ready to invest some of your savings. Before venturing out you should always check what opportunities are already available to you, like an employer RRSP contribution plan.
Some employers offer to match your contribution into an RRSP up to a certain percentage of your salary. If your employer offers this incentive you should make sure you're maxing it out. This is absolutely the easiest way to double your investments right off the hop. I believe once that money is matched in an account it should be able to be managed but to make sure you should check with your employer or the account manager. Hopefully you can apply what you've learned in those conversations and pass your education forward. If your employer offers some kind of incentive program ask your coworkers if they are taking advantage of it.
If you are already investing, let me ask you some questions. What has your average rate of return been since you started investing? How much are you paying in fees? What is your money actually invested in? Are you on track to meet your retirement goals? Could you answer every one of these questions? I'd bet that for most people the final answer was no.
It might seem like a pretty obvious thing, but you should check on and know how your existing investments are performing and understand if it's the right option for you. If you have money already invested and it's performing well, you're happy with your advisor and the way you're being treated then that seems like the way to continue investing your money. Getting better returns with an existing account should be as simple as asking the right questions and knowing what your money is doing. For more information on what you should know about your investments, click here.
Talk To A Professional
For the majority of people I would recommend talking to a financial advisor rather than opening a QTrade account and just going at it. Probably the easiest place to start is going to be the bank or credit union that you already bank with. But be careful, just because it's the easiest place to start doesn't mean that it's going to be the option for you. I would recommend shopping around and mostly you're going to be looking for two main things: the lowest fees and excellent customer service.
Even a one percent difference can take a huge chunk of your final retirement out of the picture (click here for on article on that) and when you have questions or need advice you need to be comfortable and confident that you're going to be treated like a priority and not just another client. Your advisor should be someone who takes the time and effort to get to know you and understand your story. I believe no two people have the exact same financial situation or needs and a generic questionnaire is not a sufficient way to determine how to invest someones money.
When you're choosing how to invest your money, be selfish. Look out for your best option and look out for your best interests. The primary goal of an advisor should be to help you make the most of your savings, not just collect the fees from your account.
As always, if you have any comments or questions I would love to hear them. If you have any tips you'd like to share to help someone get started with investing let me know and I'll make sure they get passed along. If you'd like to get in touch with a personally recommended financial advisor to talk about your situation with no commitments, I'd be happy to help set that up. Until the next one, happy investing and good luck!