Basic Investment Principles for Young Canadians

Financial advisors state that all young Canadians should apply basic investment principles – but only after finishing two important milestones. Completing education, experts say, should be the first priority in achieving financial security. Stable employment should be secured next, followed by a financial plan to place a young adult on the road to a lifetime of monetary success. Most older adults struggle with making financial decisions for their future. The majority of twenty-somethings have no idea where to begin.

No one is born with the ability to master savvy investing strategies, but there are unlimited resources available for guidance in the right direction. The most successful investors learned the importance of managing their own money, which is the first principle of investing. 

Save Money Before Investing

The ultimate goal of investors is to make their money work for them. With the exception of people born into wealth, having extra cash to invest involves saving up money left over after expenses.  It takes real commitment to set aside any money left over after necessities like housing and food. But it is not a step that can be skipped if capitalizing hard-earned cash is part of the future financial picture.

For young adults, or any age group, saving money entails learning to live within their means. Careful attention must be paid to how money comes in and out each month. It may take several months of documenting to realize that cash that could be invested is being spent on things that are not needed. Some spending cuts have to be made in order to build wealth.

The serious young Canadian investor should be proactive in setting aside money for future investments. One idea is to put extra earnings in a high interest savings account. Automatic payroll deductions are an easy way to save money to resist the temptation to spend. A part-time job during spare time to earn extra cash can help. Tutoring, driving people around, or running errands are also popular money-making opportunities.

Investing money is an endeavor with the future in mind, and gratification is not always immediate. Some people use investing to build wealth, while others just want to make sure they have enough money to live comfortably after retirement. Whatever the reason, success is only achieved by discipline and advance planning. This basic investment principle involves soaking up as much information as possible before investing one single dollar.   

Advance Preparation

It is never too soon to start learning about investing. There is so much to know about the subject that it getting a head start is the sensible thing to do. It’s a good idea to start with the vast array of terminology in order to better to understand the “language” of investing and finance. Valuable information can also be gleaned by picking the brain of a friend, coworker, or family member with investment experience. Other ways to learn how to invest include:

  • Joining one of many online communities specifically geared toward young investors. Personal finance hubs provide resources like links, videos, and networking opportunities.
  • Advanced learners can join financial forums where investors hang out and bounce around opinions, advice, and experience among themselves.

After learning enough about the financial market to feel comfortable, creating a virtual portfolio is a way to practice investing without putting up cash. The idea is to allow people to master investment skills by playing a virtual “game” that simulates trading. Players build portfolios and react to the stock market in real time while competing with other participants. Virtual portfolio sites can be found on major search engines and finance-related websites.

What Beginners Should Know

When it’s time to start, new investors have to keep everything in their lives in perspective. Of course, everybody wants to see their investments do well – that’s the whole point of the process. However, stressing too much about investing or anything else is not worth risking mental or physical health. Likewise, regular income that is needed for daily living should never be put at risk to pursue an investment possibility.

Finally, the time comes when the young Canadian is ready to dip their toe in the investment waters. They’ve socked away some dough, performed their due diligence, and have a healthy perspective regarding financial priorities. 

Some ways to invest with less stress and potentially more profit:

Ownership assets (stock, real estate, and small business) are considered across all economic classes as investments that build wealth the most.

Investors who diversify reduce risk because they hold a variety of types of assets that don’t move up or down in the same place at the same time. 

It helps to remain realistic when it comes to expected returns. Gains are realized over the long run, usually 9-10% each year for stocks and real estate. Small business owners might see higher returns after they’ve invested years of hard work into the business.

Hiring an advisor to help with investing should be approached carefully. New investors should research the advisor in advance in areas of competency and any conflict of interest before hiring.

Only investors with a good understanding of their overall finances can expect to make good decisions. Before investing, things like debt, tax situation, life insurance, and retirement savings should be examined. These will help to determine whether a potential investment is a good fit. 

Canadians who are just starting to invest must verify that a seller is registered with the local securities regulator to prevent fraud.

New investors should not give up when an investment takes a downturn. This is an expected event that even the best investments go through. Since no one can predict the future, a fledgling investor should ignore prognosticators who predict gloom and doom. A good investment will usually turn around in the long run. 

Sound Investment Choices

Millions of investors have built wealth by investing in what they know. It is much easier and also fun to track and monitor investments areas in which the investor is familiar. But familiar or not, investors should always diversify their investments rather than have them in one place. It is far too risky to place all funds in one place and wait to see whether the investment will sink or swim.

Now is the time for young adults in Canada to maximize contributions to their retirement plan and grab the tax advantages. Other investments:

  • Tax Free Savings Accounts (TFSA) with no tax on capital gains, interest, and dividends.

  • Exchange-traded Funds (ETFs), which let Canadians invest in mutual funds for a mere fraction of traditional costs. They can be purchased at a number of low-cost marketplaces.

  • Maximizing returns by purchasing stocks that pay dividends as much as possible.

  • Certificates of Deposit (CDs). Like savings accounts, they are a minimal risk investment option for beginners.

It is common for new investors to get into trouble by making investing too complicated. The key is to keep it as simple as possible. Starting out, passive investments such as mutual funds are preferable over more aggressive investments that involve a lot of buying and selling. The purpose of investing is not to “beat the market”. But following sound investment principles does result in financial wins! 

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Sheila Kay

Sheila Kay is an author, ghostwriter and editor residing in the Atlanta, GA area. Among her favorite writing genres are creative nonfiction, self-improvement, and finances. Her first published book, PTSD and the Undefeated Me, is a memoir which has been a stepping stone to her involvement with mental health advocacy for military and civilian men and women. She is currently working on the first fiction novel to be published under her name. For more information or to purchase her books, visit Sheila’s Author Page on