If you’re new to investing, knowing where to start can seem overwhelming. There are so many types of investments to choose from, each with their own level of risk and potential return. If you’re not sure how to get started, these tips can help.
Know what you’re saving for
Is your financial goal to fund your retirement in 30 years, buy your first home in the next three years or something else? Knowing what you’re saving for will help you figure out how long you have to save (your investment time horizon) and how much you’ll need to save each month to get there.
Once you’ve figured that out, take a look at your monthly budget. If you have room in your budget to start investing enough to meet your financial goal, you’re already in good shape. If you don’t have much room in your budget, think about what you would be willing to cut back on. It’s fine to start small. For example, cutting out a $5-a-day coffee habit could help you save $100 a month.
If it’s still not enough, think about adjusting your goals or your time horizon. For example, you may be able to save for a down payment on your first home over five years instead of three.
Know how comfortable you are with risk
Are you comfortable with losing money on your investments from time to time, knowing that you could gain it back (and then some) over the longer term? Or do you lose sleep over the thought of your capital going down in value?
There are many different investment options on the market and each comes with its own level of risk. Typically, the higher the potential return of an investment, the higher the level of risk. What does this mean?
If you want your investment to grow faster - so you reach your financial goals more quickly - you have to be comfortable with accepting a certain level of risk. This means that you might periodically lose money on your investments over the short-term, but there’s potential you’ll earn more on your investment over the long-term. If this sounds like you, consider investing in equities or equity mutual funds.
On the other hand, if you hate the idea of losing any of your capital, your focus will be on capital preservation. You may want to choose lower-risk, lower-return investments, like a basic savings account, guaranteed investment certificates (GICs) or a mutual fund that invests in bonds or money market securities. With these types of investments, it might take you longer to reach your goals, but you also won’t be worrying constantly about your money.
Talk to a financial advisor
This article just scratches the surface of starting out as a new investor. There are many other investment options available to you and other factors to consider, like diversification, liquidity, trading costs, account types and investment fees. Speak to a financial advisor, who will work with you to choose the right investments for your financial goals, time horizon and risk tolerance. An advisor can also help maintain a regular savings discipline so you can grow your money steadily over the long term.
To learn more about your investment options and how to get started with investing, visit AGF.com/ValueOfAdvice. If you want to know how to find the right advisor for you, read How to choose a financial advisor.
The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.