If you’re new to investing, keep these tips in mind to help you get started.
- Decide how much you can realistically invest each month.
If you’re a new investor with a long time horizon, then you have more years to potentially benefit from compounding your investing and saving returns. It can be tempting to invest as much as you can to take advantage of those compounding returns. It’s important that your investing contributions don’t get in the way of your day-to-day expenses.
For example, consider what might happen if you started contributing large amounts to your retirement fund, but without leaving enough monthly cash flow to cover your day-to-day spending or short-term savings. In this case, you’ll end up having to dig back into your savings to cover regular expenses or rely on credit cards or loans which you’ll have to pay back later.
If you haven’t made a monthly budget before, try it out for a month or two to see how it helps you track your spending. A budget can provide you with a clearer picture of how much you can put towards investing or saving each month.
- Set goals for what you want to do with your money
Knowing what you’re investing for will help you to make an investing plan that’s right for you. Setting investing goals means knowing what the money is for, when you’ll need the money, and how much you need to reach your goal. It’s okay to have more than one goal at the same time.
A common investing goal is to build a retirement fund. A retirement fund is a long-term goal that might use an RRSP or TFSA, or both. These accounts can hold a variety of investment types and allow you to diversify your strategy.
You could also save for an emergency fund using a savings account. This might be a short-term goal that you build over a couple of years. If you’re not sure if saving or investing is the right way to reach your goal, consider the differences between saving and investing.
- Make the most of extra income when you have it.
Watch out for times during the year when you have a little more extra money than usual. For example, you might receive cash gifts on your birthday or holidays, or you could get a refund at tax time. It’s good to be ready with a plan for how to make the most of it.
When you have extra income, you could:
- Start or continue to build your emergency fund.
- Reduce your debt or even pay it off completely.
- Add to your retirement savings.
- Contribute more to your long-term investing goals like your retirement fund or down payment.
You could also divide additional money among more than one goal. Your choice might also be different one year to the next. Learn more about managing cash flow and making a budget.
- Think twice before choosing a trendy investment.
You may have started investing because you saw something online or because of a tip from friends. Some investments become popular through the media, celebrity endorsements, or simply because they are new.
It’s also become more common for financial influencers or finfluencers to endorse investments or other financial products, even when they may not be qualified to do so. Sometimes these endorsements can be harder to spot, as they might be presented more as entertainment than advice.
While it might be tempting, and comforting, to go along with decisions of a larger group, be cautious about following the crowd. Just because an investment opportunity is trendy, doesn’t mean it’s the right one for you. Learn more about herd behaviour and how to avoid it.
- Consider the benefits of diversification.
A diversified portfolio can help reduce risk. Risk is the potential to lose some or all of the money you invested. In general, higher-risk investments offer higher potential returns, and lower-risk investments offer lower returns. If you were to hold only investments of one type, then your whole portfolio would have the same level of risk.
Diversification is important because:
- Not all types of investments perform well at the same time.
- Different types of investments are affected differently by world events and changes in economic factors such as interest rates, exchange rates and inflation rates.
Diversification means holding a variety of investments in your portfolio. The right mix is different for each person, but it could include holding a variety of stocks, bonds, cash and other investments in different industries, countries or asset class.
- Protect yourself from frauds and scams.
One of the best ways to protect your money is to learn to recognize what investment fraud looks like.
Fraudsters will often change the scams they use, but many of the tactics they use are common across different scams. Some of the most common red flags of fraud are:
- Promises of high returns with little or no risk.
- Claims of insider information or a “hot tip”.
- You feel pressured to buy now.
- The person or company selling you the investment isn’t registered to do so.
It’s always a good idea to pause if you’re not sure an investment is right for you. Don’t give in to sales pressure. Ask questions until you are satisfied — and if you’re still not sure, walk away. If something seems too good to be true, it probably is.
Learn more about eight common investment scams and how to spot them.
- Check registration.
Any individual or firm trying to sell you investments or provide you with investing advice needs to be registered to do so. Taking the time to check before you invest can help you protect your money and avoid fraudulent people or companies.
When you check registration, you can find out whether the individual or firm is registered with the securities regulator in your province or territory. Their registration status will also inform you of the products or services they are allowed to provide and if there have been any regulatory disciplinary actions. Registration also helps protect you from unqualified or fraudulent investment professionals.
It’s a good idea to check registration any time you are offered an investment opportunity — if they’re not registered, this is a potential warning sign of fraud. Learn more at CheckBeforeYouInvest.ca
- Consider the type of advice you might want.
There are many ways to start investing, and also many ways you can access investing advice. If you’ve decided to take a do-it-yourself (DIY) approach, consider how you’ll research information about your investments. There are several ways you can evaluate companies before investing in them. And if you’re seeing investing tips on social media, consider the risks of relying on social media information.
Online investment advisors, or robo-advisors, are another way to access investment advice. Online advice models provide discretionary portfolio management, meaning that the online advisor makes decisions on your behalf, based on the information you provide. This advice model typically has lower fees than working with a financial advisor in person. However, you may not receive as much personalized contact as you would when working with a traditional investment advisor.
If you decide that working with an advisor is the right choice for you, consider your needs and how involved you want to be in your investing decisions. For example, do you want help managing one specific account, or for broader support managing multiple investing goals. You might also want help to develop a financial plan. You can shop around before deciding which advisor is right for your situation. And if you decide later that your advisor it not working out, you can change advisors. Learn more about working with an advisor.
- Know what fees you’ll be paying
Understanding the fees you pay when you invest is important because they can reduce your overall returns. Common fees include mutual fund fees, ETF fees, RRSP fees and RRIF fees. There may also be fees for opening or managing an investing account, or to buy and sell investments.
One way to keep on top of your fees is by reviewing your account statements. You should receive these monthly or quarterly. They show the activity in your account and provide an update on your investments. You might receive statements in the mail, email or view them online. When you receive your account statements:
- Check that the investments bought and sold are correct.
- Check that the fees and commissions charged are correct.
- See how much your investments have gained or lost.
Contact your financial representative if anything in your account statements is unclear or seems incorrect. New rules around total cost reporting will make it easier to see all costs associated with your investment transactions in one place, starting in 2027. Learn more about reviewing your account information.
- Be guided by your long-term plan rather than emotions
Although it may be easier said than done, try to let your investing decisions be guided by your goals and your budget, rather than your emotions. This can be challenging to manage as a new investor.
Markets can swing up or down, sometimes on the same day. When markets drop, it can be easy to let fear take over and be tempted to sell. Likewise, when markets are strong, feelings of overconfidence can lead you to take more risks than you might otherwise.
Responding to market changes by buying or selling investments frequently may not be as helpful as it seems. Many investors overestimate their ability to “beat the market” by trading frequently. This can leave them with lower returns than if they just held onto a broad set of investments for a longer term. Learn more about overconfidence and how it can affect your ability to reach your financial goals.
If you’re feeling stressed about your investments, that could be a sign to check in with an advisor, re-consider your level of risk tolerance, or check in with your long-term plan. Learn more about how volatility affects your investments.
Summary
Keep these tips in mind when you start investing:
- Know how much you can save or invest each month.
- Set realistic goals.
- Target any extra money.
- Avoid trending investments and remember the importance of having a diversified portfolio.
- Protect yourself from scams and checking registration before you invest.
- Consider the type of investment advice you want and the cost.
- Commit to a plan rather than being guided by emotions.
