If you’re a young investor, you should strive to keep things simple and seek to grow capital gains over the long run, rather than chasing the higher yielders. Indeed, dividends are magnificent ways to compound wealth, especially in a tax-free account like a TFSA (Tax-Free Savings Account).
That said, higher yielders tend to have less-than-stellar growth prospects. Although there are certain companies that can grow earnings, sales, and sizeable dividends, most younger investors should be willing to take risks to increase their wealth while also seeking to minimize risks where possible.
How to look at risks as a younger investor seeking to build wealth
Even though young investors can tolerate risk more than their parents, that does not mean they should be reckless by speculating, gambling, or just playing the game of greater fools (that’s based on the Greater Fool Theory) by hoping someone else will pay a higher price than you did. Indeed, volatility isn’t risk in itself. If you can handle huge swings in either direction, that doesn’t mean you should take a chance with a momentum stock that you cannot value.
Undoubtedly, it can be more useful to view risk as the chance that you may be caught with huge losses that may be difficult or even impossible to recover from. Indeed, mistakes happen in the world of investing. But if you seek to minimize such mistakes (irrecoverable losses), I believe that you’ll do well over the years as an investor, as you continue to add to your skillset and push closer to your (early) retirement goals.
Just remember Warren Buffett’s first rule of investment: don’t lose money!
In this piece, we’ll look at two affordable stocks that could help you build wealth without having to risk your shirt.
Waste Connections
Waste Connections (TSX: WCN) is a time-tested market beater that has continued to rake in profits via the dirty business of waste collection. The business model isn’t exciting, but the fundamentals and wide economic moat definitely are. Waste Connections is a company that can move forward, even in the most dire economic conditions. Waste is still generated, even in a recession. And somebody needs to clean up the mess. Waste Connections has done well, and its trajectory has been rather predictable.
It’s a defensive company with an excellent management team that has room to expand in both waste collection and recyclables. Many analysts hold WCN stock in high regard, and it’s not a mystery as to why. At around 24 times forward price to earnings (P/E), Waste Connections is a solid buy for any long-term period, regardless of what talking heads expect from the economy. The 0.77% dividend yield is also poised to grow over the years too!
TFI International
TFI International (TSX: TFII) is a logistics company that’s also delivered for investors over the years. Undoubtedly, the post-pandemic surge propelled shares to new heights. Today, the stock is off around 11% from its all-time high. On Tuesday, shares shot up nearly 8% in a day — a move that may be just the start.
On the acquisition front, TFI has done a great job of uncovering value in the LTL (less-than-load) trucking scene. As the economy heals and TFI pursues deals, look for the stock to rise even further. At writing, shares trade at 13.2 times trailing P/E.
