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Beginners: How to Invest for the Long-Term in Your 20s or 30s

If you’re in your 20s or 30s and you’ve already started to think about investing or retirement, then you’re already way ahead in the game. Many Canadians don’t think about retiring until much later in life, and although retirement may seem like a distant concept, it’s extremely important to get a head start.

Many Canadians close to the average retirement age are worrying that they don’t have enough saved up for a comfortable retirement. Although this time may be many decades away for you, you can prevent giving yourself a tough time by saving early and contributing to a TFSA to unlock the full power of long-term compounding.

Time is on your side, and the time to start investing wisely is now. Although saving for retirement sounds really boring, it doesn’t have to be! Being an individual investor and making your own stock selections is fun! Especially when you uncover a gem that will reward you countless times over the next five years, 10 years, or even 30 years.

Many investors in their 20s or 30s are just starting their portfolios for the first time. A lot of Canadians opt for mutual funds because they’re simple, diversified, and a “professional” runs the fund. Although this may seem like a quick and easy solution, the fees can be quite absurd. Although a 2.8% MER may not seem like much, it really adds up over the course of decades; your retirement could be jeopardized because of obscene fees.

Buy shares of proven businesses that have been successful for many decades

If you’re familiar with the ups and downs of the stock market, then you may want to consider picking up shares of individual stocks. It’s usually a good idea for young investors in their 20s to opt for riskier high-growth plays, but if you’re brand new, you may want to buy stable companies that have a proven history of delivering long-term value for shareholders. Consider strong Canadian brands that you know and love.

Maybe you like trains, like me; Canadian National Railway Company (TSX:CNR)(NYSE:CNI) is one of the best dividend-growth stocks in North America. It has beaten the market over the course of the long term. CN Rail can move goods from both Canadian coasts in addition to the Gulf Coast in the southern U.S. The management team is determined to drive operational efficiencies, and that’s a huge reason why CN Rail is known as “North America’s most efficient railroad.”

If you’re a brand-new investor, it’s important to buy companies that you trust and would be likely to hold in the event of a market downturn. Markets don’t always go up; they go down a lot of the time, so it’s important to be disciplined and remember to think about your long-term goals. With CN Rail, you can sleep well at night knowing that technological trends like e-commerce won’t be affecting the long-term fundamentals of the business.

Although I’m recommending CN Rail as a beginner-friendly stock, it’s also an incredible business for experienced investors to own. The 1.65% dividend yield may not seem impressive, but over the long term, that dividend will keep growing until you can depend on the income when you finally reach retirement age.

Find out what kind of investor you are

As you become more familiar with picking your own stocks, you’ll learn more about yourself as an investor. Maybe you’re incredibly risk adverse; maybe you prefer investing in sectors that you know about. You don’t need to be a master of all industries and all types of securities.

You can have a small circle of competence, and if you stay within it, you’ll do really well over the long run — much better than if you ventured outside your circle. You can always expand your circle in the future if you choose to.

Stay smart. Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette owns shares of Canadian National Railway Company. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

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