At the start of the pandemic, I found myself with more time on my hands since a lot of my regular activities and social engagements were put to a halt. Because of that, I found myself with more money on my hands. Rather than let it collect dust in a savings account, I started researching investing – a world I’d never set foot in before.
If you’re anything like me, you didn’t learn much about money in your high school education. When college hit, I found myself far too busy to dedicate any time to financial growth. Knowing now how easy it can be, I regret that I didn’t start sooner.
You’ll often here banks and investment platforms encouraging people to invest regardless of their financial state, and I used to think that was just a marketing strategy. But considering what I’ve learned about since then, I’ve changed my opinion a lot. Whether you have twenty dollars or twenty thousand, you have options when it comes to investing.
Here are a couple of Investing 101 tips to get you started:
- How Are Stocks Different From Cash?
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You may have overheard the saying of money being ‘tied up in stocks’ before. What they really mean is that in order to use that ‘tied up money’ in your own life, you’d need to sell some of your stocks, hopefully at a higher price than they bought them. Then, the stocks will be converted back to cash in your bank account. This process can take up to a couple business days, so it’s best to keep your stocks separate from your emergency savings
- What Level of Risk is Best for a Beginner?
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When you’re putting your money in stocks, you’re taking a risk no matter what. The markets have crashed before and sent entire countries into crisis, but that’s not a reason to stay away from investing. Rather, understand the difference between low, medium, and high risk, so that you can do what feels comfortable for you. Back in 2020, my first investments were in Canadian national bank stocks because they’re stable and low risk. I won’t be making a lot of money off of them any time soon, but since they continue to go up in value, they’re a great way to boost your savings for your financial goals, like retirement, paying off student loans, or putting a down payment on a house. If I snagged your interest with that, here’s a beginner’s guide to investing in bank stocks.
- How Can I Learn About a Company’s Stock?
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Let’s say you’re thinking of investing in Apple. If you perform a basic google search of ‘Apple Stock’, you’ll have everything at your fingertips about where the company’s stock is at, from daily trading to long term trends. This is the point where it’s easy to get overwhelmed. But fear not – things are not as complicated as they seem. Money Under 30 has a great tutorial (using Apple as a working example) to show you how to interpret trends and help you make an informed decision on whether or not investing in the company is right for you.
- What The Heck is a Dividend, Anyways?
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Bear with me on this one, because we’ll need to do the math to get to a definition. Some companies that have been around a long time and have a successful history in the market provide special payouts to stockholders called dividends.
For a clearer definition, let’s look at the Toronto Dominion (TD) bank in Canada. TD pays dividends to its investors every quarter. In that way, if I bought 100 shares, that is 100 individual stocks in TD then the money my stocks earn isn’t just based on how much the stock price has traded and increased since I bought it. It’s also based on a set dollar amount per stock, per quarter that TD pays me – a dividend. For example, in January of this year, TD announced that it would be paying a quarterly dividend of 79 cents per share to each shareholder. With my hypothetical 100 shares, that means that during that quarter, I made $79 off of my shares. Curious what to do with those 79 dollars? If you don’t need the money, reinvest them! You can learn about how to do that here.
- What are the Pros and Cons of Different Investing Platforms?
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Here in North America, chances are that your bank has its own investing services for customers. Banks usually offer the largest variety of account types for your investments, whether that’s a tax free savings account, an education savings, retirement savings, or disability savings plan. The downside? They have trading fees, and those tend to be high. For instance, BMO charges users a fee of $9.95 every time you trade. If that doesn’t float your boat, other options are available. Wealthsimple is the latest user friendly app for investors. While the account options are more limited than banks, Wealthsimple doesn’t charge any trading fees, except for currency conversions. For that reason, they’re a big competitor of bank investing platforms right now.
- Do I Need a Lump Sum of Money to Get Started?
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The simple answer to this is no! Even on a student budget, if you’re able to forgo a few coffee purchases a month and come up with $20 dollars, you’re ready to invest.
The price of a share will differ from company to company, so it’s always best to look into which companies you’re interested in buying from, and then see how much one stock costs. For instance, one stock in the Walt Disney Company right now will set you back about $190 dollars! A lot of students won’t be able to buy many of those up front. If you’re finding the price of stocks overwhelming and out of budget right now, then micro-investing might be for you. In micro-investing, your day to day transactions like buying coffee and groceries are rounded up and the extra money is either put into a savings plan for you, or invested directly into low-cost stocks of your choice.
As a parting note, these 5 tips are based on my experiences learning to invest on my own in 2020. They may not reflect your situation, but hopefully they provide additional resources that will help you start to think about investing!
Above and beyond the tips above, getting investing advice from someone you trust is a must. Look for an advisor who won’t have a conflict of interest. Rather than giving your friend the benefit of the doubt on why you should invest in their cosmetics startup, bring your situation and the facts to a credible financial planner, at a bank or investing firm, so that they can help you make an informed choice for your financial future.