Reducing expenses and saving money are two things you need to do in order to regain control over your personal finances. You cannot always earn more income, but you can take control of your expenses and start saving money. The money can then go towards repaying your debts or earning residual income that further elevates your personal financial wellbeing.
Of course, saving is only the beginning. The real challenge is investing the money that you have saved wisely. You want to build a portfolio that balances long-term growth and residual revenue. The latter is handy for speeding up your debt repayment too. If stocks are the instrument you are interested in, here are 5 things you need to know before you start investing your savings.
Start with the Basics
Before you begin investing your money in stocks, you want to understand stocks as an instrument first. This is a step that cannot be skipped; you have to know what you are getting into so that you can manage your portfolio meticulously. Fortunately, there is no shortage of resources to help you get to know stock trading and investment better.
You can begin by reading about stock trading and the different ways you can enter the financial market. Resource centres like Investopedia are filled with basic information to help you get started. You can also find websites that focus more on Canadian investors and the stock market in Canada. That said, the fundamentals are usually the same.
Next, you need to learn about how to choose a suitable stock to invest in. There are multiple approaches that can be taken in this case, including choosing stocks based on company performance, market trends, or long-term growth. Once again, your knowledge of the fundamentals will help with the selection.
Lastly, learn about how you can make your investments. There are a lot of platforms that grant you access to stocks and commodities. You can also turn to investment agencies or even Robo-advisors to help you get started with investing. The platform you choose greatly affects your journey as an investor. That actually brings us to the next thing to know.
Choose a Platform
Choosing the right investment and trading platform is crucial. As mentioned before, your entire journey as an investor depends highly on the platform you use. Similar to resource centres with basic knowledge about stock trading and investments, you also have plenty of options to choose from when it comes to trading platforms.
The goal here is to find the best among the top Canadian trading platforms. Wealthsimple, a provider of financial tools for growing your wealth and managing your investments, is a perfect example. The platform isn’t just designed to make stock trading easy, but also to make managing your investments, growing your wealth, and even sending cash a breeze. You can even automate the process.
There are factors to consider when choosing a trading platform too. Aside from the features offered by the platform, you also have to think about fees, speed of execution, and commission per equity trade. On top of that, you want to make sure that the account minimum isn’t too high for the investment amount you have in mind.
Choosing a platform is also about ease of use. Most trading platforms let you sample the user experience that they offer before you start investing your money. Use the opportunity to get to know how you can trade stocks, review shares of different companies, and manage your portfolio as a whole. The more comfortable you are, the better the platform is. Places like MT5 are a good place to start if you’re looking for an all-purpose solution.
Know Yourself
Speaking about sampling, you also need to take the time to better understand yourself. If you have reached this point, chances are you already know three important things: how much you can afford to invest, how you want to invest, and the kind of return that you expect from the investment. These three things are more important than you realize.
The amount you are willing to (or can) invest will determine the kind of investments you will make along the way. That same amount also dictates how much you can diversify and whether you have access to certain risk management strategies. If you are on a limited margin, for instance, averaging your stock purchases isn’t always possible.
Your risk profile is another important detail to understand. How much are you willing to risk from your investment? Are you willing to go for high-risk, high-return stocks or other instruments to gain more? Figuring out the risk level you are comfortable with also helps you define a better investment strategy since you will not end up risking more than you can afford to lose.
Lastly, understand your goals and the timeframe that you’re working with. If you want to invest long-term, finding set-it-and-forget-it investments is definitely worth doing. For short-term gains, however, the same stocks will not bear fruit. You have to balance your portfolio so that you have the right stocks for the kind of objectives you want to achieve.
Start Small
More importantly, start! There is no such thing as an amount too small to invest. Many platforms let you start with as little as $1. Yes, you may not be able to buy a full lot of shares when you first invest your money, but that doesn’t mean you cannot buy shares at all. Stock trading platforms now use pools to allow users with smaller investments to take part.
It is one thing to plan everything, and another to actually execute that plan. The challenge is real especially if you are managing your own portfolio. This why a lot of platforms offer assistance and plenty of resources, especially to new users who are just getting started. Don’t worry about making mistakes or making bad investment decisions; trust me, you will.
Even the best investors make mistakes. No one gets it right all the time. What’s important is that you make those mistakes early so that you can learn from them early. Since you are getting started with a relatively small investment, you also limit your risk and can start building a healthy portfolio. It will not be long before you begin investing in good stocks and earning healthy returns.
It is also important to stay consistent when getting started with investing your money. If you are allocating a portion of your investment to be managed by professionals, let that portion be managed by professionals. Changing your mind after one or two months isn’t good for your portfolio. Plan ahead, make firm decisions, and stick with them.
Switch to Management Mode
One last thing to note as you get started with investing your money is the fact that it is a marathon, not a sprint. Yes, some instruments pay instant returns, but they also carry extremely high risks; I’m looking at you, cryptocurrencies. Investing in stocks is about taking it one step at a time and managing your investment portfolio over time.
Stop fretting about changes happening daily or hourly. They will happen, and they will be reflected in your portfolio. When you do your calculations on a longer timeframe, these small changes are nothing to worry about. Your goal should be to profit at the end of the month rather than to scalp the minute changes happening by the hour.
You also want to have a clear budget in mind. It is very tempting to invest more when you are chasing losses – or worse, chasing profits – but that is not something you want to do. If you allocate $500 to start the account and you plan to add $100 every month to invest, stick to the plan so you don’t end up ruining your cash flow.
Lastly, manage your risk profile. Depending on where you are in life, a certain risk profile suits you better. If you have repaid your debts, transitioning to a higher-risk profile could help you earn more. As you get nearer to retirement, on the other hand, you want a more conservative portfolio with a healthy long-term growth.
Getting Started
Understand the five things we covered previously and you can approach stock investment as an opportunity worth seizing. It is all about understanding the basics and knowing how to approach the instrument like a pro. Yes, you will make mistakes, but everyone does and that’s okay. As long as you still end up with a solid portfolio at the end of the learning process, you are in a good shape.
Of course, you don’t have to approach the market on your own. Many of the platforms available today also offer features like access to consultants, AI-powered robo-investors, and guides that simplify the complex nature of stock investment. Some platforms also let you place your investment on autopilot, allowing you to worry about other things in life.
Regardless of the approach that you choose to take, covering the five basics discussed in this article is still important. Even when the portfolio is on autopilot, knowing what’s happening in the market and how to best approach it is a huge plus. You will find investing more relaxing, and you can maximize the return on your investments better.