How to begin investing, and why you should sooner than later
It'd be a mistake to think you need to accumulate a certain amount of wealth before you start investing, says one expert.
Benjamin Croitoru, a finance professor and associate dean at McGill University, is offering his advice for the latest instalment of CTV News Edmonton's "Saving and Spending" series, focused on helping viewers make smarter financial decisions.
He believes everybody, no matter their financial standing, should have basic investment knowledge.
"You do not need a huge amount of knowledge and, perhaps even more importantly, you do not need a lot to get started and to make a big difference in the long term as long as you are consistent," he told CTV News Edmonton in a recent interview.
HOW TO LEARN
Croitoru says it is possible to learn the basics on your own.
He recommended starting with a free online course offered by his faculty at McGill. The course, called "Personal Finance Essentials," is broken into short modules and requires participants to pass a test before each chapter.
"Don't worry," Croitoru said. "You can take the test as many times as necessary in order to pass. So no stresser."
There are also many excellent books, he added. His favourite is The Elements of Investing by Burton Malkiel and Charles D. Ellis because it is easy, enjoyable reading.
If You Can: How Millennials Can Get Rich Slowly by William J. Bernstein (also available for free as a PDF) is written about the U.S. market, but explains the main principles of investing well, Croitoru said.
Of course, he noted, professional guidance is available at a price through financial advisors and banks.
"You just have to remember that the person you're talking to doesn't work for you. They work for the bank," he said.
"There's nothing wrong with that, of course… It does not mean that they cannot give you good advice."
That's why he recommends doing some reading first before paying for a service.
STARTING AS SOON AS POSSIBLE
Croitoru encourages even people with limited income to begin investing because of the power of consistency and compound interest.
A modest return rate over the long term will turn even a $10-a-day investment into tens, if not hundreds, of thousands of dollars, the professor told CTV News Edmonton.
"That idea of compound interest – it's a simple idea – but most people don't realize how powerful it is," Croitoru said.
"It's very important to keep your money invested as long as possible and of course in practice, that means starting investing even small amounts as early as possible."
The first investments a person makes should be simple and diversified, he teaches.
"You don't want to invest everything into just one kind of product like Bitcoin, or one one stock of a small number of stocks, because that's very risky."
Some financial products like index funds or mutual funds may be attractive to some people, but they get more complicated and come with fees, Croitoru pointed out. And he believes you should be minimizing expenses wherever you can.
Your investing strategy may be customized depending on why you are investing, the McGill professor said.
Usually, the main reason to invest is for retirement, or to support your family.
"On the other hand if you are investing because you want to buy a house in a couple of years or you want to go on vacation next year, you probably want to pick investments that are no risk because you don't know what could happen to the stock market in the short term," Croitoru said.
"You're in for the long haul, the long game. It's not a short game."
STICK TO THE PLAN AND OTHER TIPS
"Don't trust your instincts too much because your instincts are going to get you too excited," Croitoru advises.
More dangerous, he said, emotions people believe are instincts can make them sell at the worst time, after a crash or collapse. Research shows the market will recover to do reasonably well over the long term.
"You're going to sell that at the low price. That's going to be a disaster for your long-term return."
Likewise, he discourages following the crowd, which can influence your decision making.
"Don't invest based on the dominant mood, the dominant sentiment, of the market. It's much better to have a long-term plan and stick to it."
Staying the course goes hand-in-hand with something that may seem contradictory: don't try too hard.
"In order to be a good investor, I think you have to understand there are some things that are relatively easy to control and some things that are almost impossible to control, like forecast, for example… That's incredibly challenging to forecast what stocks are going to become the big stock," Croitoru said.
"Do not try to pick the best times to get in and out of the stock market because that's very challenging and trying to forecast that is likely to cause more harm than good… Focus on the things you can control, even if they don't look very exciting. For example, the fees."
With files from CTV News Edmonton's Katie Chamberlain
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