Investing in the stock market can be overwhelming for the majority of individuals. In addition to the volatility associated with equities, the financial terms, ratios, and other metrics make it a confusing proposition for newbie investors. But stocks as an asset class have managed to outpace inflation, allowing investors to create long-term wealth consistently.
Keeping these factors in mind, let’s see how Canadians can start their investment journey today.
Invest in blue-chip stocks such as TD Bank and Enbridge
Investing in blue-chip stocks is a popular investment strategy globally. Here, you identify companies that enjoy wide economic moats, generate predictable cash flows, and ideally pay you a tasty dividend yield.
Two such TSX stocks include Toronto-Dominion Bank (TSX:TD) and Enbridge (TSX:ENB).
TD Bank is among the largest financial institutions in North America and has survived multiple recessions. Down 23% from all-time highs, TD stock currently offers a dividend yield of 4.6%. It’s also priced at 9.5 times forward earnings, which is very cheap, given analysts expect earnings to grow by 10.5% annually in the next five years.
Enbridge also pays investors a forward yield of 6.6%. A diversified energy infrastructure company, Enbridge is relatively immune to fluctuations in commodity prices, as its cash flows are backed by inflation-linked contracts. This predictability in earnings has allowed the energy giant to increase dividends by 10% annually in the last two decades.
Since May 2003, TD Bank stock and ENB stock have returned 910% and 1,000%, respectively, after adjusting for dividends. Comparatively, the TSX index is up “just” 454% in this period.
Invest in megatrends such as clean energy
The worldwide shift towards clean energy solutions is accelerating, as countries are focused on fighting climate change. A report from Allied Market Research estimates the renewable energy market to touch almost US$2 trillion in 2030, up from US$882 billion in 2020, making companies such as Innergex Renewable and Brookfield Renewable Partners top bets right now.
Both these companies continue to expand their base of cash-generating assets driving future cash flows and dividend payouts higher. In the last 10 years, shares of Innergex and Brookfield have surged by 118% and 363%, respectively.
Invest in tech ETFs
The technology sector is extremely disruptive, making it quite difficult to identify winning bets consistently. But tech stocks generally grow at a healthy pace and are ideal for those with a high-risk appetite.
Canadian investors can consider investing in index funds such as iShares S&P/TSX Capped Info Tech ETF. This fund provides you with exposure to some of the largest tech stocks in Canada, including Constellation Software and Shopify.
The XIT index has gained 475% in the last 10 years and is up a whopping 925% since May 2003.
The Foolish takeaway
Newbie investors should keep investing simple and should avoid trying to time the market. Investors basically need to hold shares of quality companies across sectors allowing them to diversify their equity portfolio and lower overall risk. These companies should have the ability to consistently grow earnings and cash flows over time, resulting in market-beating gains.