Last month we looked at stock essentials in our blog, Stocks 101: The Basics. Now it’s time to build on your foundation of knowledge with this month’s blog, Investing 101: A Beginner’s Guide to Investing in Stocks.
What exactly is investing?
In short, investing is putting money towards assets that will grow in value over time and generate a profit. Ultimately, this is a great way to let your money “work for you” and help you reach your financial goals in a manageable and pragmatic way. There are many types of investments, but this guide will be focused primarily on investing in stocks.
What should you take into consideration before investing?
Before you begin investing, you should reflect on your current financial health. First, take a look at your credit card debt; do you have a lot of it? If so, it’s probably best to pay that off as best you can before investing your money in stocks. Secondly, do you have an emergency fund available? If the events of 2020 and 2021 have taught us anything, it’s that you never know what could happen. Setting aside money to cover your basic living expenses in an emergency situation is critical to avoid financial ruin if something unexpected arises. If you have both of those items under control, it’s time to move forward with investing.
Determine how much you’d like to invest in stocks
When looking to invest in stocks, any money that you may need in the next five years is off limits. The uncertainty of the stock market makes it so that short-term stock investments are simply not a financially lucrative option.
As one gets older, keeping your money in stocks may become less beneficial. A quick trick to determine what percentage of your investable money should be put towards stocks over other investments is to subtract your age from 110. You can adjust this accordingly based on your own life goals and direction, but this number gives you a good place to start.
Where do I buy stocks?
Once you’ve determined the amount you want to invest in stocks, it’s time to open an investment account or brokerage account. There are a few types of brokerage accounts to consider, mainly a standard account or a Registered Retirement Savings Plan (RRSP). If you’re looking for ease of access to the money you invest and don’t want to be subject to the annual RRSP limit, a standard brokerage account is probably best for you. However, if you want to build up funds for your retirement, an RRSP may be more in line with your needs as they are quite advantageous in terms of taxes. The RaeLipskie Partnership is happy to help you determine what type of account is best suited for you in your investment journey. Reach out to us here!
How do I know which stocks to choose?
Choosing stocks can be overwhelming, especially if you don’t have a great deal of knowledge about the different options. One way to help guide your selection is to work with a portfolio manager. Their expert guidance will help you to invest intelligently, maintain a diverse portfolio and avoid the common pitfalls of new investors. The RaeLipskie Partnership has a great selection of knowledgeable portfolio managers who can help you do just that. You can also find more benefits of working with a portfolio manager in our April blog!
How long should I keep my money invested in stocks?
The best way to make money through the stock market is to keep your stocks for as long as that business is growing and doing well – or until you need to withdraw it. There will always be ups and downs in the stock market, but continuing to hold stocks in good companies as time goes on will ultimately lead you to a greater return.
We hope this guide has given you a better idea of how to move forward with investing as a beginner. When you’re ready to make stock investments, utilize the resources available to you and reach out to The RaeLipskie Partnership for further guidance.