From the outside, investing for wealth can appear to be intimidating and overwhelming. How to start investing is often reported as a barrier to first time investors. That is why we have put together this beginners’ investment guide for those asking, “How do I start investing?”
Get Started Investing As Early As Possible
Have you heard the popular Chinese proverb that declares: “The best time to plant a tree was 20 years ago. The second-best time is now.”? If you want success and growth in the future, the best time to start an investment fund is now. The younger you start investing, the better.
Starting an investment fund when you are young gives you the advantage of time for solid returns on your money. That said, it is never too late to start putting some of your cash into investments.
Because investing brings in compound earnings, in other words the returns earn their own return, your investment account increases exponentially over time. The path is not linear, though. The stock market experiences ups and downs. That is where having enough time to ride these fluctuations out is necessary for long-term results.
Decide How Much To Invest
Before you decide how to start investing money, you need to decide how much to invest. While starting small is better than not starting at all, the best way to determine how much to invest is by answering these two questions:
- What is your investment goal?
- By when do you need to reach it?
Retiring comfortably is one of the investment goals we most often hear from our clients. Set yourself a target of investing 10% to 15% of your annual income for retirement. If your employer offers matching dollars to a Registered Retirement Savings Plan (RRSP), that is included in the percentage.
When it comes to other investment targets, start with the two answers from above – the amount your goal requires and your timeframe. Then work backwards to calculate your monthly or weekly investment amounts.
Understand Your Investment Options
There are various options on how to start an investment fund. Being knowledgeable about each type gives you the power to make the best decisions for your life circumstances, financial situation, future goals, and your appetite for risk.
- Stocks, also known as equities, are shares of ownership in a particular company. The share price of stocks varies considerably depending on the company. Some sell for single digits while others go for thousands of dollars each.
- Bonds offer less risk, but also lower long-term returns. A fixed-income investment, a bond is a loan from an investor (you) to a corporate or government entity. You earn interest until the loan is paid back.
- Mutual funds are a package of mixed investments. Instead of choosing which stocks and bonds to purchase individually, you buy a diverse portfolio in one transaction. Each states its investment objectives in a prospectus.
Generally they are managed by professional money managers. Some, like index funds, appeal to cost-sensitive investors because they eliminate professional management and only include stocks related to a major market index.
- Exchange-traded funds (ETFs) are similar to mutual funds in that they comprise a bundle (called indices) of investment products. How they differ is that they can be bought and sold quickly. EFTs are ideal when you are new to the world of investing as they are a great starting place when you are starting to build a share portfolio.
Pick An Investment Strategy
The investment strategy of a 22-year-old will differ greatly to that of a 60-something. Again, it all boils down to your goals and timeline.
- If you are investing for the short-term (within five years), stocks are a risky choice. A low-risk investment portfolio is a better choice for you.
- Long-term goals look forward 20 years. Because that gives you time, stocks are viable. But if you don’t have the time or inclination to trade specific stocks, mutual funds, index funds, or ETFs are your best bet.
If you want to know how to start an investment account, you need supportive resources to guide you. At Nour Private Wealth (NPW) , we understand your goal of beginning investing. We can offer you the peace of mind you need.
Our team of investment planning advisors service clients like you across seven Canadian provinces, providing support along the way. Let us work with you to create a path for the future you desire. Get in touch with NPW today before you make any decisions. Let us help you choose the best options about how to start investing.
This commentary is provided for general informational purposes only and does not constitute financial, investment, tax, legal, or accounting advice. Please speak with your accountant about tax or accounting advice. Individual circumstances and current events are critical to sound investment planning and not all investments are suitable. Please speak with your investment advisor prior to investing.