Investing, whether in stocks, mutual funds, or guaranteed investment certificates, can be a daunting prospect for the uninitiated. Navigating this mire of phrases, acronyms, and designations is often half the battle – especially for young people trying to figure out where to park their savings.
Regardless of what you’re investing in, getting started early is the first part of developing good investing habits, according to Yuryi Zabolotnyuk a finance professor specializing in investments at Carleton University. But he says getting an early start isn’t the only thing that needs to be done.
“You need to know how comfortable you are with risks,” said Zabolotnyuk. “Your investments need to reflect what you’re willing to lose.”
This is something that Khaled Hawari, an entrepreneur and business student, knows well. Hawari runs his own management and con
sulting group in addition to studying. Checking for financial news has become the first thing that he does in the morning.
“Trading, without a plan and without committing the time and energy to do it right, is a route to losses,” said Hawari.
“Professional traders are betting that plenty of suckers are out there, trading in just such a random way, because that creates the losers that allow them to take profits in a zero-sum market.”
Getting involved with investing early might be a good idea, but finding smart investments can be a challenge. The most important thing about investing is to understand just what you’re getting into.
“You should never, ever invest in [companies or stocks] you don’t understand fully,” said Zabolotnyuk. “If you don’t understand what they do, or how, then you shouldn’t deal with them.
“You need to be able to explain how an asset generates a profit, preferably in one or two short sentences. If you can’t, you’re gambling, not investing,” added Hawari.
Once you gather the confidence to commit to investing, there are four questions you need to ask yourself according to Zabolotnyuk.
• How long will you be investing for?
• What tax circumstances have an effect on your investments?
• What are your unique circumstances?
• Are you aiming for a short term strategy, or a long term one?
Diversifying your investments to avoid losing everything is something both Zabolotnyuk and Hawari recommend.
Active traders manage a higher potential risk, for higher gains. Passive investment deals more with managing stable long term assets.
“If there is any chance you might need the money you plan on investing at any time during the next five years, you shouldn’t invest in stocks,” said Hawari.
If you’re just getting started then Hawari recommends setting up a Tax Free Savings Account (TFSA) and tying it to a mutual fund. Mutual Funds are group investment plans which are used to safely deal in securities.
Those who are entering the market might be tempted to enlist professional investment advice. Although this can help the majority of people ease off the learning curve, it’s generally less of an aid to anyone with a handle on investing.
“You only ever want to bring in an advisor if they can make you money,” said Zabolotnyuk. “If he charges you 2% a year, and you make more than that – good. It’s worth it.”
Advisors charge the same rate whether they make you money or not, so choosing wisely is important. Whether you choose to use an advisor or not it all comes down to what makes you the most comfortable in your investments and risk taking.