Hey guys. One of my biggest passions is investing in the stock market (alongside Cryptocurrency). But for now, I will leave crypto discussion for another post. This article is specifically for those who want to learn to invest on their own. I could go on forever about how investing in mutual funds is a bad idea (if the market is strong you pay the managers fees, and if the market tanks you still pay them fees AND lose your principle; while they still win regardless).
Due to me liking to keep my articles short and sweet; if you want to read some great books filled with investing advice (and these books all say the same thing about letting someone else manage your investments/mutual funds etc) then look into these that I've read:
Principles - by Ray Dalio
The Intelligent Investor - by Benjamin Graham
Money Master the Game - by Tony Robbins
Where to start:
- PAY OFF BILLS & DEBT FIRST.
- There is no sense investing when monthly you are getting hit with high interest from visa's, student line of credits, personal line of credits, car loans, etc. Do the best you can to mitigate the debts first!
Open your own investing accounts (I myself am a Canadian Resident so for us its as easy as calling your bank and asking to setup Direct investing account (TD Canada) or Investors Edge account (CIBC). Just say you want an account to manage your own investments. The fees are cheap and typically range from $6.95-$9.99 per trade so keep trades to a minimum. Now again for Canadians - you have two options I'd recommend: TFSA account or RRSP account. I would first choose your TFSA because no matter how much money you make on your investments (Capital gain) you don't have to pay ANY tax on the profits! This is great in comparison to if it was in your RRSP; when you finally take out your funds in retirement you have to pay tax on that capital gain as well as the principle. A nice thing about TFSA investing is you can take your money out with no penalties. An RRSP does have perks though; if you owe money at tax time you can limit how much you owe (or get money back) by contributing to your RRSPs and investing within the RRSP account. See what works best for you!
Decide on how long you want to invest for and the risk level you want to take. If you are young and don't need the money in the next few years you can hold more "growth stocks". Rather, if you want more of a secure investment you can invest in Dividend stocks. Dividend stocks pay you an annual interest (good ones will pay 5-6% annually on your principle invested) but typically see little movement in the growth of their stock. This is because essentially a company see's that they can't use the investors money to further rapidly grow their company so the best thing to do with the money is return it to the investors as a thank you gesture for sticking with them long term. Another solution if you want to be very hands off is go with a market indexed low cost ETF (Vanguard offers great ETFs for low fees). If you are wanting to be very safe people have recommended bonds. Bonds essentially are you lend your money to a company or government for a specified time frame, and they promise once that time frame is up; they will give you back your principle AND interest accumulated on it. Depending on the risk level of the bond these bonds can provide interest of 1.5-3.5%.. However; my opinion is to stay away from bonds at this current time in the economy. Bonds HAVE done well in the past (we are just coming off a 40 year bull run of the bond market). But, with the interest rates being at such a low now that they have nowhere to go but up; this will make bonds less valuable. It essentially just keeps your money tied up making very little interest at the end of the day when it could have been making 5-6% annually in a dividend stock (with your option to take the $ out of the stock at any time).
Setup a goal for how much you want to invest. If you listen to Warren Buffet he LOVES compound interest. Google a compound interest calculator to find out just how much your money will grow at say a 8% annual growth over 25-40+ years if you have a bi weekly deposit into your account of $100-200.
Buy the stocks you want to buy:
This is again all preference. Everyone has different opinions on what to do. When to buy a stock (is it a good price? is it a good time to buy it? Are their financial quarters coming up?) is a concept itself you'll have to be familiar with to feel confident. Again, I wont write the principles on what to look for when buying a stock in this article but see my other article on Principles of buying a stock for my own created checklist on deciding if its the right time/price to buy a stock!
My stock picks:
Dividends:
CIBC & Enbridge
Reasons: Both have great dividend history with no dividend cuts (this means the company has continuously provided dividends over many years) and both have strong P/E ratios and will actually have a gradual growth on the stock price as well as the dividend over the years to come. They both have strong moats/footprints in Canada and have a strong history and lots of room for growth.
Growth stocks:
Berkshire Hathaway (Class B)
Reason: This is Warren Buffet's company. The Class A share sells for about $260,000usd. Luckily he offers a Class B share which is the same share just a fraction of the cost ($188usd today). Berkshire has had very promising financials over the years and with Charlie Munger and Warren Buffett running the company they have done extremely well and will do very well over the years to come.
Alibaba, Tesla, Apple, NVIDIA, Netflix, Facebook
Reasons: These are my tech stocks that I love. Some might argue these are such high valued stocks that they are too high to buy into. I don't believe this one bit. There P/E's might be relatively high but a high P/E is okay as long as the expectations of growth are actually happening as expected. These companies are all very well set in their sectors financially and management wise to continue to soar and take market dominance over the many years to come.
Market Indexed ETFS:
VFV (Vanguard S&P 500 of the NYSE traded on the Toronto Stock Exchange)
VEE & VIU (Vanguard Emerging markets and developed international markets traded on the Toronto Stock Exchange)
Reasons: These three market ETFs offer you diversification globally at cheap fees (way cheaper than going with a mutual fund). More specifically focus on VFV (S&P 500). As Warren Buffet says, over time VERY FEW people ever continuously beat the US stock market. He also has said that if he were to leave all of his finances to his family and how would he invest it for them if they knew nothing about investing - he said he'd put the money into a low cost market index of the S&P500
On a closing note. This is just solely my opinion on how to start getting yourself into investing in a nutshell. Don't just take my stock choices without researching first! follow me to follow many articles to come with more detailed information about stock picking, ways of investing, cryptocurrency, etc.
Final notes: A few things to remember when investing is to never put your money into a stock that you aren't able to afford to lose. By doing this you prevent yourself from the emotional effects of watching your principle dollar go into the negatives if the market takes a dip. Just remember, the market always comes back stronger after a dip! The trick is knowing how long the dip will last!