Canadians interested in investing may have been sitting on the sidelines during the last few years, and I wouldn’t blame you. Since around 2018, we’ve seen drops in the market, a pandemic crash, and now a market downturn that, even as a soft landing, would be quite difficult.
But also, right now, the market is rebounding quite significantly. In fact, the S&P 500 is back at the heights achieved back in 2021! Therefore, now could be an excellent time to jump into the market. But before you do, make sure to consider these strategies every beginner should know.
Keep some cash aside
Just because you want to invest doesn’t mean everything should go into stocks themselves. Instead, make sure that you create a consistent strategy that also includes some safe investments for emergency purposes.
That’s why one of the first things investors should do is create an emergency fund. This would ideally make up three to six months of your salary. You don’t necessarily have to keep it in actual cash, though. Instead, consider putting it into a short-term Guaranteed Investment Certificate (GIC).
There are multiple GICs out there right now with interest rates around 4.5%, even on 30-day options! Therefore, you can create a fixed income at an excellent rate but still have the option to take it out after 30 days if you need it.
Think long term
Another part of investing that beginners should consider is to think long term when investing. Don’t invest in a stock hoping for huge returns in a year. You’re not a professional investor; you’re a retail investor and a beginner one at that. So, make sure you’re not looking at stocks that may need to be rebalanced over and over again.
Therefore, take the time to educate yourself on the market before you invest in it. And you’re on Motley Fool, so clearly, you’re already doing so! Part of that education should include looking into a diverse range of stocks, bonds, mutual funds, exchange-traded funds (ETF) and other investment strategies.
That’s where meeting with a financial advisor can help. An advisor can help you create long-term goals with you and figure out your risk tolerance. Older investors likely will need cash soon, so they don’t have the option for riskier investments compared to younger investors. So, make sure you educate yourself, think long term, and talk to an expert.
Keep it small and consistent
Finally, if you’re new to investing, don’t just go ahead and invest large amounts in the most popular stocks. Instead, consider investing small amounts on a consistent basis. That might even be just $100 or even just $20! It should be whatever your risk tolerance allows for at this point.
But then, keep it consistent. Make investing and your strategies part of your life. Consider setting up automated contributions to a tax-advantaged account, such as the Tax-Free Savings Account (TFSA). Furthermore, create alerts on some of the stocks, ETFs, and other investments you’re interested in. That way, when there’s a 5% drop, for example, you’ll have the cash on hand to invest on the dip!
And if you’re looking for an option to get started, look into an ETF such as iShares Core S&P 500 Index ETF (CAD-Hedged) (TSX:XSP). This ETF invests in the companies that make up the S&P 500, offering a 1.27% dividend yield as well. You’ll therefore get a huge portfolio for a fraction of the cost. This is an excellent place to start for any new investor, with shares already up 7.5% year to date as of writing.
So, don’t be scared of investing; get into it! Simply follow these easy steps, and you’ll never have to worry about investing again. What’s more, you’ll be making more than would be possible, keeping it all in cash.
