The number one question I get from readers is where to start when it comes to investing. If you’re a beginner and are curious what the first step you can take to take control of your financial future, the first thing you need to know is that it’s never too early (or too late) to start.  

What is investing?

Investing is the process of putting your money into a resource in the hopes of seeing it grow in value. You can generate a profit or income by investing in businesses, assets, or real estate. Typically, we invest a small amount of money in the hopes that it will become of value to our future selves. 

Unlike saving money, investing money is a long-term commitment to help you achieve specific financial goals. Everyone who plans to retire or build wealth should invest their money as early and as often as possible.

When you save your money in a bank account or hidden somewhere in your household, your return on that money will be nothing or a tiny percentage of interest. If you keep your savings in a high-interest savings account, you can earn around 1% on the money you hold on your account. Investing, on the other hand, will return you about 10% each year. 

What types of investments exist?

One thing that you’ll learn as a beginner to investing is that there are many different types of investments that exist. Here are four common types of investments and what each of them means.

Stocks

A stock is a security (or a negotiable financial instrument) representing a small percentage of ownership in a corporation. If you own a stock, you have fractional ownership in that companies assets and profits — depending on how much stock you own. 

Each stock unit is called a share. Stocks are listed on exchanges, such as the S&P 500. If you’re already feeling lost, don’t worry. The S&P is like that place you see in the movies with tons of traders standing in the middle of a room shouting at their phones and looking at signs with big numbers. You can trade stocks throughout the day, with regular trading hours for the New York Stock Exchange (NYSE) and the Nasdaq as 9:30 am to 4:00 pm EST, Monday through Friday.

Exchange-Traded Funds (ETFs)

An ETF is a security that includes a collection of other securities, like stocks. ETFs are cheaper to buy than individual stocks because they hold fewer management fees. Because an ETF has multiple assets, unlike one stock, they are a popular choice for investors looking to diversify their portfolio. 

Bonds

A bond is a fixed income instrument. It is a tradable asset in which companies issue units of corporate debt. Bonds are also correlated with interest rates, which means that if interest rates go up, bonds go down, and when interest rates go down, bonds go up. You can sell most bonds to other investors after purchasing them and before their maturity date. 

Mutual funds

A mutual fund is a collection of securities managed by a financial professional, and typically, you buy mutual funds through a financial institution. Mutual funds are made up of a pool of money from investors, and they consist of stocks, money market funds, bonds, and other types of assets. Although diverse, mutual funds can come with high fees, which will ultimately affect your earning potential.

What type of investment account should you open?

Now that we know what investing is and some common types of investments, it’s useful for a beginner investor to know what types of investment accounts exist. Typically, what we think is our only option for investing is to call our bank and speak with a financial advisor. However, that’s not the only option, and it can be risky to open an account without understanding all that comes with that investment.

If you open an investment account with a financial institution, it’s essential to know that most of the time, the people who will advise you where to invest your money are salespeople. Because of this, they may only be licensed to sell you certain types of mutual funds that belong to their bank, and these mutual funds will come with high management expense ratio (MER) fees.

To learn more about Canada’s investing fees, visit our post about how investment fees affect our money and precisely what most popular investment accounts charge.

Another option for investors is roboadvisors. Roboadvisors are online investment brokerages that offer low-cost portfolios that do not require any self-directed investments. They have low-cost management fees and also rebalance your investments depends on the market and as you add new contributions to your portfolio.

Lastly, if you are a more experienced investor or are confident in your abilities as an investor, you can open a self-directed portfolio using a financial institution or roboadvisor. This eliminates management fees and allows you to choose exactly where you invest your money. Self-directed portfolios are not recommended for beginner investors.

If you are new, it is never a bad idea to speak to a financial professional or fee-based financial planner to see what account option is best for you and to better understand your options as an educated consumer.

How much money do you need to start investing?

If you already feel like you’ve faced information overload at this point, it might be a good idea to start to learn how you can begin to invest. Sometimes, seeing how simple it can be will make the process feel a lot less overwhelming. 

Depending on where you invest your money, you don’t need necessarily need very much to start. Many people assume that investing isn’t accessible for regular people or low-income earners. Thanks to some newer platforms that have made investing more approachable and affordable, that’s no longer the case. 

If you choose to invest by using a roboadvisor, such as Wealthsimple, you can start with as little as $20. For Questrade, as soon as you’ve deposited $1,000, you can begin to invest your money. If you’d prefer to invest through a financial institution or with a financial advisor, your cost to start around $500. Ultimately, whichever platform or company makes the most sense for you is best. Just be sure to do your research, ask about management fees and annual fees, and seek a transparent option.

What is a good investment strategy?

Once you know what type of investment account you’d like to open, it’s a good idea to educate yourself on which account you can park your investments within. Your Registered Retirement Savings Plan (RRSP) and your Tax Free Savings Account (TFSA) are two common options. Both options are great, but there are differences between the two accounts – which you can read about here. 

The RRSP and TFSA are both tools you can use to purchase long-term investments like ETFs, individual stocks and mutual funds. If you set up an automatic and passive plan through Wealthsimple or Questrade (like myself), the only requirement is to set up weekly, bi-weekly or monthly contributions that are then invested on your behalf. Merely opening an RRSP or TFSA and putting money inside them does not mean that it is invested. You need to open an account through a brokerage or actively invest money inside of these accounts through your financial institution. Otherwise, the money will just sit there interest-free. 

As for investment strategies, an excellent place to start is by learning what your risk tolerance is. If you’ve done any investing through your workplace, you may remember taking a quiz to help you understand how comfortable you are with losing or gaining money for your future. If you are a more aggressive person and are okay with the idea of losing money, you may be comfortable with an aggressive portfolio. This means that when the market dips, your investments will also drop at a similar rate. If you are a more conservative investor, you may not want to take as much risk with your investments and portfolio. 

There is no right or wrong way to invest, but the important thing to remember is that you need to feel comfortable with whatever happens with your money and remember that it is invested for the long run. The money will dip, but it will also grow. Do your best not to touch your investments until retirement. The longer your money is invested, the more earning power you will have, and the more time your money has to grow. 

Whether you are nearing the end of this post feeling anxious or confused, if there are a few takeaways you should remember, let them be this:

1. You do not need to know everything to start investing. Find a roboadvisor you love, and put as much as you feel comfortable with into your account for your future. 

2. It’s never too late to start investing. If you think it’s too late, so why bother? You will miss out on a ton of earning potential and growth for your future self. Don’t wait any longer.

3. A little is better than nothing. Even if you can only afford to put $20/month towards your investments, continue to do it! It still counts. It still earns. 

4. What are you waiting for?! Time outside of the market is a missed opportunity. Many people think that they can not invest their money while they pay off their debt. If that’s your mindset and you are comfortable with that, it’s okay. But it’s also okay to do both. Regardless of your debt load, you will always need to retire. 

5. You cannot time the market. Trying to ‘keep up’ or ‘speculate’ is not a good idea. It is gambling. Investing is not meant to be for big wins, but instead, consistent returns. It should be boring. Please sit back, and let compound interest do its job.

If you are just starting with investing, remember that it’s okay to feel confused. Often, financial institutions prefer that we don’t know it all because then we are more comfortable consumers. Don’t be afraid to ask tough questions, do more research, and be suspicious. 

You work hard for your money, and it’s normal to want to protect your cash. One of the best things you can do for yourself and your financial future is to have that money that you work hard for go to work for you!