The topic of investing can often overwhelm young Canadians — with too many tips floating around, supposedly giving you the “hottest new stocks” for high returns. While it might seem like most young investors in Canada are jumping into the market for fast, short-term gains, the opposite is often true.

According to a survey conducted by RBC of self-directed investors aged 18 to 34, the majority described their investments as being an important part of their long-term financial planning goals (89%) and their future financial security (86%). Also, 77% of respondents said they take a lot of time before acting on their investing decisions.

Understanding investing can be a complicated process, and there’s a lot you need to figure out before making a decision.

To help break down investing in simple terms so you can make investing decisions that are right for you, we spoke with the Director of RBC’s Financial Planning Centre of Expertise, Stuart Gray. He discussed what to look out for when you start your investment journey, how to best assess your risk tolerance, and what knowledge you’ll need to make your first investment.

How to prepare yourself for investing

As a starting point, looking at your financial goals and your timeframes can help you determine what kind of investor you want to be. Investing in a long-term portfolio you’re hoping to use for retirement is going to look very different than investing in one that’s meant to help you save for a medium-term goal like buying property.

Here are some other questions Gray suggests you ask yourself:

Do you want to manage your own portfolio through an online platform like RBC Direct Investing? Would you rather a professional manage your investments instead, through a service like RBC InvestEase? Or would you prefer connecting with an RBC Financial Planner for ongoing support? All of the above?* These are the kind of options you should start familiarizing yourself with, according to Gray, before making your move.

“The good news is that you don’t need to think about all of this on your own,” Gray tells Daily Hive. 

“If you have questions or are finding investing too complex, RBC’s financial advisors can walk you through investing options that range from fully advisor-supported to do-it-yourself online investing — and guide you to the extensive resources we have available for you to learn more, at your own pace, if you want to do your own research.”

Getting into the investor mindset

Once you’ve gotten a handle on what kind of investor you want to be, it’s time to start strategizing about where you’re going to put your money.

There are various types of investments, all with different risk and return levels. Knowing your risk tolerance is important, as that will help as you do your research into your investments to see if they align with your goals, Gray explains.

Getting into the habit of putting money aside regularly, and routinely investing, can make it easier for you to reach your goals. “You could start by setting some money aside every month into a savings account, to see how much you can afford to invest on a regular basis,” says Gray.

“You can then set up an auto-deposit — every payday, for example — to send those regular savings amounts into your investment account and regularly review your account to move that money into investments.”

Managing your investment risk

An important part of being an investor is managing your risks, which can include spreading your money into different investments to help reduce the risk of loss due to a particular investment — or what’s known as “diversifying your portfolio.”

“Diversified portfolios help create a smoother investment experience,” says Gray. “At any given time, any one asset class, region, or sector may be leading the market while others lag. In a diversified portfolio, a decline in one investment may be offset by growth in other assets.”

As well, it can be tempting to make decisions based solely on short-term returns. When you see one investment go up and another goes down, you might make a decision to buy or sell more than you normally would. Gray says this is the opposite of a prudent investment approach.

“It’s easy to get caught up in the headlines and watch your investment portfolio change in value from day to day, month to month or even quarter to quarter. But if you are set up with a long-term financial plan, the short-term volatility will be felt less in the grand scheme of things.”

Those who are brand new to investing should strongly consider the perspective of an advisor. They can help you calibrate your ability and willingness to take on risk, and help you take advantage of the many investment products and solutions that make up your portfolio.

And again, regular contributions can help smooth out the market’s short-term volatility through dollar-cost averaging, rather than trying to time the market with a lump-sum contribution. 

Saving for retirement — TFSA vs RRSP

While your goals might be different, taking advantage of retirement savings can help you grow your wealth long-term.

In fact, Gray says many Canadians underutilize their Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) by mostly using them as savings accounts rather than investing accounts. 

“While both can be used as savings accounts that provide tax benefits, by not holding investments in these accounts you may be missing out on the opportunity to grow your money.”

Each account provides different benefits, and which one you want to prioritize depends on your financial situation.

TFSAs, for example, are flexible, accessible accounts that let you hold a variety of investments, like Guaranteed Investment Certificates (GICs), stocks, mutual funds, Exchange-Traded Funds (ETFs), and bonds.

“TFSAs also provide tax benefits — you don’t get a tax refund for your contributions, but your money grows tax-free and, unlike RRSPs, you aren’t taxed when you make withdrawals.”

RRSPs can help reduce your taxable income and get a bigger tax refund — depending on your contributions. But unlike a TFSA, your withdrawals will be taxed based on your income, so they are better designed for long-term investment growth and provide an opportunity to defer tax until you make a withdrawal in the future, hopefully at a lower tax rate than today.

The best time to invest is now

Regardless of how you want to begin your investing journey, Gray stresses there’s no better time to start it than right now.

Time is an important factor in investing — especially when it comes to long-term goals. By starting today, you’re giving your money a chance to grow long-term. Small, regular contributions to an investment account can grow your wealth better than larger sums when you get older.

“You don’t need a lot of money or experience to start investing. It doesn’t have to be a lot, as even small amounts can make a big difference over time, given market returns and the power of compounding. You can start with just $25 a week — the cost of a coffee a day. Pick an amount to save and how frequently to save it and then set up an auto-deposit to send that money into your investing account.”

Investing your money doesn’t have to be complicated, especially if you’re taking advantage of your options and the guidance available to you.

Whether you’re investing a few dollars or a few thousand, you can access investment advice when and how you want it at RBC, with options to meet in person, by phone, video chat or online to support you along your investment journey.

To learn more, visit RBC’s website.


* DISCLAIMERS

RBC Direct Investing Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Direct Investing Inc. is a wholly owned subsidiary of Royal Bank of Canada and is a Member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. Royal Bank of Canada and certain of its issuers are related to RBC Direct Investing Inc. RBC Direct Investing Inc. does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their own investment decisions. RBC Direct Investing is a business name used by RBC Direct Investing Inc. ® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. Used under licence. © Royal Bank of Canada 2023.

RBC InvestEase is a restricted portfolio manager providing access to model portfolios. Other products and services may be offered by one or more separate corporate entities that are affiliated to RBC InvestEase Inc., including without limitation: Royal Bank of Canada, RBC Direct Investing Inc., RBC Dominion Securities Inc., RBC Global Asset Management Inc., Royal Trust Corporation of Canada and The Royal Trust Company. RBC InvestEase Inc. is a wholly-owned subsidiary of Royal Bank of Canada and uses the business name RBC InvestEase. The services provided by RBC InvestEase are only available in Canada.

RBC Financial Planning is a business name used by Royal Mutual Funds Inc. (RMFI). Financial planning services and investment advice are provided by RMFI. RMFI, RBC Global Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. RMFI is licensed as a financial services firm in the province of Quebec.

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