As a young professional, you may be worried about the basics of your financial life, like budgeting and saving. While four in five millennials have started saving for the future, only one in two millennials are investing.1
Whatever your age, investing can be an intimidating endeavor. Because of this, it’s possible you’ve put off investing or haven’t given it much consideration. Regardless of where you currently stand with investing, here are five tips to help you get started and make sure that you are on the right track.
Tip #1: Start Early
You don’t need to be earning six figures in order to start investing. If you’re able to, start small with what you have. A modest amount of money can grow exponentially over time thanks to the power of compound interest. Starting a small investment now can create a big payout later down the road. According to Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” At first this quote might seem like a bit of an exaggeration but the math behind it shows that it is not.
Tip #2: Invest Regularly
While it may be tempting, it isn’t productive to wait around deciding when the perfect time to invest is. This is called trying to time the market, and it has a reputation for not always being a favourable move for the investor. Instead, try investing small amounts of money on a scheduled basis, like clockwork. It’s also important to invest regardless of your recent returns, as past performance does not guarantee or indicate future performance. Instead, create a plan and stick to it.
Tip #3: Diversify
If you only invest in one company or sector, you could lose a lot of money if something causes those stocks to drop. Avoid putting all your eggs in one basket by keeping your portfolio diversified.
Tip #4: Enroll in Your Company's RRSP
If you’re a full-time employee, you may have the option to enroll in your company's group Registered Retirement Savings Plan (RRSP) or other company pension plan. After enrollment, you’ll likely have the option to automatically divert a fixed amount from every paycheck into the plan. Also, any income you earn in the RRSP is typically exempt from tax until you make a withdrawal.2 Not only does this option have tax-saving advantages, but you also won’t even have to think twice about when or how much to invest.
Tip #5: Work With an Advisor
You are always going to have a certain amount of bias when it comes to your money. This can make it tricky to make fact-based investment decisions. An investment advisor offers unbiased, educated guidance to help you make investment decisions based on your long-term goals, not short-term worries. An advisor can provide the dedicated time and know-how needed to properly manage a portfolio that you yourself may not have. If you choose to work with an advisor, consider one that is a fiduciary and a fee-only financial advisor.
Hindsight is 20/20, and there are ways in which everyone wishes they would have handled their money differently in the past. If you’re just beginning to build your portfolio, take the advice we wish we could give our past selves. These five tips are just the beginning, be sure to speak to an advisor before making any big decisions regarding your financial future.
The opinions expressed by myself and other featured authors are their own and may not accurately reflect those of Lifeguard Wealth. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2020, Lifeguard Wealth