You finally have a steady income and you think it’s great that you can buy everything you’ve always wanted, yet you’re being advised by the bank, a financial advisor or a family member to start investing a part of it. You’re unsure where to begin and are afraid to invest your money.
This is a common problem with many Canadians. According to Global Investor Pulse, 51 per cent of Canadians are afraid to hit unfamiliar territories with investing – they believe by placing their money into a savings account there would be no risk involved, and 46 per cent say they like the liquidity of cash.
But, depositing money into a savings account or holding onto cash is not beneficial in the long run because it will not provide any profitable returns. And, it could affect your retirement plans because Canadians can no longer rely on the government for a pension and benefits.
Look at it this way: the wealthiest Canadians are also investors. They don’t let their money become stagnant and earn zero profit; they invest in things that give the most profit in return. If you haven’t begun to invest, then it is time to visit a financial planner or do some research and get started. The following are three important things a novice investor should know.
As a novice investor, you should decide on the purpose of your investment. Do you want to buy a house in the next couple of years, or own your own business? Are you wanting to start investing for retirement, financial security or a college fund for your kids/children? It is important to know the purpose of your investment in order to recognise the type of investment that suits the need or purpose.
Also, knowing the purpose of your investment will decipher your time horizon. A time horizon is the length of time an investment is “made or held before it is liquidated.” It will help you, or your financial planner, know which investment vehicle to consider. Also, it will enable your financial planner to know when to move your money into a low-risk or high-risk investment.
Thus, a time horizon determines an investor’s risk tolerance – if your investment should be a high-risk or low-risk. A long-term investment (investments that are 10 years or more) is considered to have a high-risk tolerance because it has time to recover and gain profits if the investment drops in value at any point-of-time. A short-term investment, on the other hand, will not recover in time. That is why short-term investments are often considered of having a low-risk tolerance.
Now that you’ve seen the importance of being aware of your time horizon, purpose and risk tolerance before you invest, book an appointment with a certified financial planner or do a thorough research and find out which investment is right for you.
What do you think first-time investors should know? Should we be educating Canadians at young age to have a positive mind-set towards investing? Should we show them the benefits of investing and how it can help their retirement plan, or plan to buy a house or own a business? Tell me what you think.
M. Policicchio | DBPC Blog