Investing 101

This may seem like common sense, but many new investors go into the market blind.

A strategic plan usually starts with answering questions about your current financial picture including:

• What are your current debts, including monthly expenses and budget?

• What can you comfortably put aside to invest?

• Are you investing for certain goals? If so, what are they?

• What is your risk tolerance? (Low, Medium, High)

• Would you invest in long term stocks, short term stocks, or both?

What is risk tolerance?

Every investment opportunity comes with the chance of a negative outcome and potential loss. Your risk tolerance is essentially the level of risk you’re willing to take – and how comfortable you are with the uncertainty that the market presents.

Okay – though this one isn’t exactly a tip, it is something worthwhile exploring.

Building a healthy savings account is a crucial first step in the world of investing, as any money spent to invest should come from funds not needed elsewhere. This means that money earmarked for bills, daily/monthly expenses, or your emergency fund should not be used when investing as there will never be a guarantee of funds returned.

Although navigating through misinformation and double talk can be frustrating, investing in stocks for the first time isn’t as complicated as it can be made out to be.

Keep it simple, you don’t need to know absolutely everything about a company, industry, or other investment – but you will want to invest in something you can personally understand.

If you’re interested in a company, do the research and know some history - as this can help to manage your expectations when considering where you’re putting your money.

Avoid filling your portfolio with ‘trendy’ stocks, these are great to get started but in the long run ‘trends’ will always fall by the wayside (it’s pretty much the definition of the word.)

There will never be a ‘perfect time’ to get into investing, predictions can only go so far.

Cutting through the complicated predictions and jargon, we know the market will dip and spike without explanation (Market Volatility) – so coming to terms with this is useful when investing your well-earned funds long term.

If you’ve done the research, watched the stocks, and feel confident in a bond – not pulling the trigger could cost you in the long run.

This is where your investment strategy comes to play!

Basically, this comes from the rise and fall of the market overall.

Market volatility in Canada refers to the level of fluctuation or uncertainty in the value of stocks, bonds and other securities traded on the stock market.

High volatility means the value of the securities can change rapidly and unpredictably, whereas low volatility means the value of these stocks change more gradually and can be predictable.

Whether you’re investing in short-term, long-term, low-risk, or high-risk options, patience can be an asset, especially at the beginning of the investment process.

This includes when you’re choosing which stocks to invest in – using caution is never a bad thing.

Don't get discouraged if you don't see immediate returns and remember to stay the course, many of great investors throughout history have been patient by sticking to a buy-and-hold mentality when investing.

The Bank of Canada's website provides historical data on various investments, which can help you understand how long it takes for investments to grow.

Although getting into the investment game may seem overwhelming, being in the know about your investing needs, wants, and abilities as well as having confidence in your educated decisions will be vital to keeping your head afloat in a turbulent market.

By following the tips outlined in this article, you'll be well on your way to becoming a successful investor in Canada.