Taking care of our money is a priority in life, and many of us make attempts to squirrel away a portion of income for the future, or at least for emergencies and rainy days. One of the best ways to take care of your money is to make use of smart investment options like stocks, however, it can be wholly confusing trying to figure out how to do this. Many people think that putting their money into a savings account is the best choice, however, when you consider the interest that you gain on an account like this versus the rate of inflation, you’re still technically losing value on your money. Inflation is inevitable when it comes to money.
For example, in the 70s, Canadians will have been paying around 30 cents or so for a cup of coffee. Whereas today, you can expect to be paying 2-3 CAD a cup. This isn’t due to a change in the direct value of our physical currency—people didn’t stop assigning value to their dollars—it’s actually a change in the cost of products and commodities, which in turn devalues the currency we use. If things are now more expensive than they used to be, we will need more money to continue to enjoy our lives, and therefore extra income becomes less of a luxury and more of a necessity. So, why is investing our money a good idea for saving and making money?
What Is An Investment?
Simply put, this is where you put money into a business or commodity with the intent of making a profit. It’s important to note though, that there are many different types of investment opportunities out there and knowing how they work is essential when deciding what to put your hard-earned cash into. There are stock investments, where you buy shares in a specific company and ultimately end up owning a percentage of that business. These can be incredibly small denominations, however even the smallest of shares can earn you great profit. Once you’ve bought those shares, and that particular business increases in value, you could then sell your shares at their new, higher value to make a profit. Of course, it could also go the other way if that business loses value, making your shares less valuable than when you originally bought them.
What Are The Differences Between Canada And The US In Investing?
When people around the world think about investing and trading on stock markets, more often than not we’re going to picture the hustle and bustle of wall street, with day traders shouting over each other to be heard above the rest of the cacophony. However, both the US and Canada are relatively similar when it comes to trading and investing, as with the rest of the western world, although there are some slight differences that are worth noting. While the New York Stock Exchange is by far the largest and most stable on the planet, and has a huge number of liquid stocks, allowing for lots of trading freedom. In Canada, the TSX or Toronto Stock Exchange is a similar entity and operates in the same way as the NYSE. The differences between them are simply the stocks available, as well as the currency used to trade.
Identify Your Goals
Once you feel as though you have a basic understanding of the way in which investing works, it’s now time to sit down and think about why you want to invest. Are you wanting to save money for your children’s college fund? Maybe you’re looking to generate wealth for investing in property or other physical assets? Or perhaps you’re just wanting to bolster your income with some positive investment opportunities. Whatever your reasons, make sure you are clear with yourself as to what your goal is and focus on it. Don’t let yourself get carried away. Once you reach your goals, secure your investments by removing them from the stock market and complete what you set out to do before jumping back in with a new goal.
Lay Out Your Plans
Similarly to figuring out your goal, try not to trade on the stock markets without a clear plan. There are so many tools available now that can assist you in clear planning and efficient trading. Today, many traders utilize automated trading systems in which they can keep trading even when they aren’t present. You can set buy and sell orders on your stocks to ensure they are sold once reaching a particularly high value, and also prevented from selling if the value drops below a particular threshold. Holding onto stock that’s decreasing in value is sometimes your best option, although it may not feel like it at the time. Waiting for that stock to hopefully rise back up can be worthwhile. Ultimately, don’t go into this blind. Make sure you’re certain as to what your gameplan is and avoid deviating too much, although it’s important to have some flexibility, especially when it comes to volatile markets like the cryptocurrency market which we’ll discuss further down.
Dividend Stocks
A brilliant idea for investment is to buy dividend stocks. These are stocks from companies that are relatively stable and have proven to be incredibly profitable and successful over the years. To encourage people to keep investing, or to retain their stocks in the company, they will pay out a percentage of their profits in what is called dividends. Dividends are much better than earning interest in a savings account, and they are based on that company’s profits, so check out some of the best dividend stocks in Canada, laid out by Wealth Simple. The more success the company finds, the better the payouts for shareholders. These payouts may not be astronomical, but it’s an added trickle of income that can really add up. In some cases, you could also reinvest those dividend payments straight back into new shares in that company, increasing your total shares, or take that money and invest it elsewhere, broadening your portfolio.
Online Accounts
The world of online trading has become incredibly popular over the past decade, with many different apps becoming available for use to the general public. This has increased the accessibility to trading a hundred-fold, and many people are getting involved in buying and selling stocks and commodities when those same people wouldn’t have even thought about trading beforehand. Choosing the right trading platform for you is an important decision, and you should think about doing plenty of research into these broker apps before committing to one. A very important feature for you to look for is apps that provide you with a guaranteed stop loss. This is an order whereby trading of that particular stock will cease on your account if it surpasses a set threshold. This reduces your losses and allows you to hold onto your stock in the hopes that its value will rise once more to continue trading for a profit. Most, if not all online trading accounts also offer demo accounts for those that are still getting used to trading stocks. This is where you can practice using the tools provided by the app, without the risk of losing real money. While you’ll get to grips with the way in which that online service works, you’ll also learn a bit about the way the markets work too.
Financial Advisors
Another smart choice for trading would be to find a professional whose job it is to make people money. Financial advisors are experts in their field and trade day after day on stock markets. They will invest your money for you, making educated decisions, maximizing your chances of earning a profit on your trades. Of course, it’s worth noting that to make money, these financial advisors often take a percentage of those profits, as well as charging a fee for each trade. This means that you could be losing money unnecessarily if you’re not careful, however, the promise of that percentage of profit means that these financial advisors have much more incentive to finding you the best trades.
Diversify Investments
When investing your money, the most common phrase that you should keep in mind at all times is to not put all of your eggs in one basket. In terms of trading, this means you should be expanding your trading portfolio as much as possible, maximizing your reach and improving your chances on making a good investment. It’s important to vary your investment choices among stocks, commodities, and even things like crypto.
Buying Cryptocurrency
The surge of popularity for cryptocurrencies follows the unbridled success of those that invested money in Bitcoin many years ago. In February 2011, the value of Bitcoin reached 1 USD. If you’d have invested 1000 USD into Bitcoin back then, today you’d have just over 62 million USD. This type of investment is unprecedented and is extremely rare to find or predict. However, these success stories have catapulted cryptocurrency into extreme popularity. Some people trade solely in crypto, although it’s highly recommended to diversify those investments as mentioned above, especially due to the cryptocurrency markets being highly volatile entities. Whatever you choose to invest in, make sure you do your research first, and remember not to invest what you can’t afford to lose.
