Do you have leftovers from your paycheque every month? If you do, congratulations! By spending less than you make, you can save for your future. Actually, that’s where your initial investment funds come from–your savings.

Think about it. Even if the wealthiest people on earth spend extravagantly, they’ll eventually run out of money.

So, in order to stay wealthy, you first need to save. Second, invest those savings.

Your investment start-up fund

For new investors, their investment start-up fund would come entirely from their savings.

Statistics Canada notes that the 2013 median income for individual Canadians was $32,020. Assuming a 3% growth rate, this year’s median income would be almost $35,000.

Peter is a new investor who just finished college and found an entry-level job to earn a median income of $35,000. A nice start would be if he could habitually save 10% of his gross income, totaling $3,500 a year.

Because he’s in a low-income tax bracket, he decides to begin saving and investing in a tax-free savings account.

For starters, he’d like to stick to dividend investing because dividends from quality dividend-growth companies are more reliable than volatile stock prices.

Building his portfolio

Peter has been preparing himself by spending at least an hour each week for the whole year reading about investing with a specific focus on dividend-growth investing, which made his retired aunt rich over time; she’s now maintaining her wealth because she’s only spending her dividends but not the principal.

Peter loves the idea of dividend investing because it will help increase his available funds for investing. On top of his savings of $3,500 per year, his dividend portfolio will generate additional income to add to the $3,500.

At the end of the first year, Peter decides to invest $1,750 in each Fortis Inc. (TSX:FTS) and Canadian Western Bank (TSX:CWB). The companies are two of the top Canadian dividend-growth stocks with over 20 years of consecutive dividend increases.

Today, Fortis yields 3.75% and Canadian Western Bank yields 3.6%. So, if Peter invested today, his portfolio will generate an annual income of roughly $128 for the first year without accounting for any dividend hikes. In the next year, he’ll then have roughly $3,628 to invest.


Peter’s two-stock portfolio lacks diversification. However, investing in a solid utility and a discounted bank is a good start. If he tried to invest in more companies with the original $3,500, the commission fees would be too costly.

Peter plans to continue building his income portfolio one stock at a time to diversify slowly.

He knows that he will only stick with quality companies that tend to be profitable, even when the economy is not doing well, which means he’ll avoid companies that are affected by commodities directly.

In the early stage of investing, Peter knows that his savings rate is very important. He’s going to add any bonuses and raises he get from his job to his investment fund for a higher income to speed up the growth of his portfolio.

Urgent update: Motley Fool issues rare "double down" stock alert

Not to alarm you but you recently missed an important and rare event. Stock Advisor Canada issued a "double down"... and history suggests it pays to listen. Because 10 of the most lucrative "double downs" in one of the Motley Fool's premier services skyrocketed an average of 434%! So, simply click here to discover why Motley Fool "double downs" have some investors rocking with excitement. Five years from now, you'll wish you'd grabbed this stock. Click here to learn more.


Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.

We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.

We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!

Fool contributor Kay Ng owns shares of CDN WESTERN BANK and FORTIS INC.