I think it goes without saying that financial independence is a dream that many Canadians share. Even you, the one reading this article: I’m sure you also share the common goal of being able to live off of your investments. There are many ways that Canadians can achieve that goal. In my opinion, investing in the stock market may be the most feasible way to do so because it has a very low barrier to entry.
Unfortunately, many Canadians find the stock market to be very daunting. When I started, I felt like there was so much to know before I could jump in. Fortunately, I did eventually take the plunge and started my way towards achieving financial independence. Many years down the road, I’m now very fortunate to be able to share a few tips with those who may be closer to the start of their journey towards financial independence. Without further ado, here are a couple of stock market investing tips for 2024!
Have your finances organized before you invest
One way to ensure that your portfolio has the best chance of growing is to give it time to do so. At The Motley Fool, we believe in taking a long-term approach to investing. This means investors shouldn’t focus on overnight successes. Instead, look for companies that you’d be happy to hold for years to come. After all, when you invest in a company, you become a part owner in that business. So, make sure you’re happy to be a part of their story as well.
One way that you can ensure that you give your portfolio time to grow is by only investing money that you know you won’t need for the next few years. You can allocate money towards investments by using a disciplined budgeting strategy. For example, if you’re a proponent of the 50/30/20 rule, then it’s very possible that you’ll be able to continue investing comfortably for the foreseeable future.
For those who are unfamiliar with the 50/30/20 rule, here’s a quick explanation. Take your post-tax income. 50% of that should go towards your needs. This could be rent, your car, phone bill, or anything else that you absolutely need on a day-to-day basis. Next, allocate 30% to your wants. These are things that will increase your quality of life, such as eating out, extracurriculars, or subscriptions. Finally, 20% should be saved and invested.
In my opinion, if you only ever invest out of that 20% of your income, then you likely will be able to leave your money in the stock market, giving your portfolio sufficient time to grow. It also means that you could be well on your way to sustainable contributions.
Only invest in companies you know
As a new investor, it may be very appealing to buy shares of companies that your family or friends talk highly about. Or maybe you read a blog post online that highlighted how a certain stock could be the next big stock market winner. Unfortunately, these could very well be traps. Instead of investing in those companies, start by investing in companies you interact with every day.
Consider a company like Bank of Nova Scotia (TSX:BNS). If you use them for your personal banking needs, then you’d already be very familiar with their business model. From there, it isn’t too hard to find out that they’re an outstanding dividend payer. With those things in mind, it could be very possible that you choose to invest in that company. Choosing companies you’re familiar with is crucial because it could give you the needed confidence to continue holding shares if the market were to take a momentary dip in value.