How do you start investing when the paycheque is gone between bills and mortgage?
The best way to start is to put away a little at a time. Use a High Interest Savings Account and put $10 or $25 into it every paycheque. When you get a bonus, put $100 into it. Most people don't even notice the money is gone from chequing if it's done as soon as they are paid. Add more to the regular savings amount as the years go on.
What is the best product to start an investment? The easiest way tot start is with a high Interest Savings Account (HISA). Once you have accumulated a few hundred dollars it would be a good time to look to someone for advice. There are many investment counsellors, financial planners and websites that will offer advice about this. Choose a company, person, or site you feel you can trust. Credentials can help (CFP designation?), but references may help you even more.
Where should I put my money as it starts to build up? There area a variety of investments that you can use to grow your money:
Term Deposits guarantee growth and are very safe because your principal is protected up to $100,000 at most banks, and unlimited amounts at Alberta Credit Unions. The rates of return often tend to be lower than mutual funds because of the low risk of the investment.
Mutual Funds are usually a collection of investments in various companies. A mutual fund can hold investments in a variety of companies and industries or be more focused on a specific industry. This collection of investments has a manager that chooses when to buy and sell stocks to provide the best performance possible for the mutual fund. Because of this hands-on management there is usually an annual management fee involved with mutual funds that is charged whether or not the fund has grown in that year. Holding a few different funds that invest in different areas can be very useful in diversifying your investments to lessen your risk in case one or two industries have downturns. Good gains are possible with mutual funds, but you can also lose much of your investment as 2008 showed many of us.
Stocks represent ownership of specific companies. Your investments can grow through stock price increases or through dividends. Risk comes through owning only one or two companies (thus your nest egg is subject to what happens to only 1 or 2 companies), especially if one is not an expert on that company or industry. Returns can be good, but unless the stock is from a blue chip company (good, solid history of returns) you will need to be watching the stocks regularly to make sure you prevent losses in your investment.
There are some other places to put your money as well, but they aren't usually meant for people just starting out. Make sure you get advice from someone who knows what they are talking about. You will want a good understanding of what your risk tolerance is and your timeline that can allow for the regular ups and downs of the market. Even if it all seems overwhelming, the best thing to do is at least start putting money away and then figure out how you will make it grow. If you don't start with at least that, you may never start saving at all, which means you will end up with no savings. That's not what anyone wants. Jerry
Great article! This blog has been really informative alongside the credit counseling I've been getting lately.
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