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General investor tips

 
 

Diversify your investments

Take advantage of dollar cost averaging

Know your investments

Only fools rush in

A lifelong process

Don't be caught off guard

Long term goals equal long term growth

Don't take all the credit

A penny saved...

Keep the future in mind

Know your risk level

Understanding the inflation concept

Don't expect to get rich quick

Another type of risk
 
 

Tip #1: Diversify your investments

Remember the old adage, "Don't put all of your eggs in one basket"? That same ideology can also be easily applied to the world of investing since it is never a good idea to put all of your funds into one investment either. As experienced advisors will tell you, this practice is rarely profitable and can often lead to substantial financial losses in addition to a loss of precious sleep.

The solution? Spread your investments around to help cushion your money against variations in the markets. This can help to prevent the occurrence of heavy monetary losses by enabling you to take advantage of the more substantial rates of return associated with higher risk vehicles such as stocks, without loosing the security of lower-risk investments such as GICs.

Tip #2: Take advantage of dollar cost averaging

There is nothing average about using the concept of dollar cost averaging in your investment practices. In fact, if used consistently, it can end up providing you with sizable returns. It involves contributing a fixed dollar amount at regular intervals, resulting in the purchase of more shares when the price is low, but fewer shares when the price is high. This in turn lowers the overall average share price paid over a period of time.

It is also a good idea to use a direct deposit plan with your dollar cost averaging strategies. With this plan, a specific amount of money is automatically withdrawn from your bank account and is used to purchase the shares. Since it is withdrawn directly, you will most likely not even notice that it is missing and what you don't see going out each month can add up to a nice nest-egg.

Tip #3: Know your investments

Making the effort to find out as much as you can about your investments may seem like a huge task, but it really isn't that hard to do and often pays off greatly in the long run. Taking the time to learn how to read financial statements can be very beneficial and will help you learn about the business of a particular company and how they are doing. Participating in an inexpensive investment course can provide you with the skills necessary to understand statistical data provided by the companies that you have included in your portfolio. This can also enable you to analyze the performance of a specific investment against it's competitors and the segment in which it operates.

It is also important to pay attention to the investment statements that arrive in the mail. Reviewing your statements as soon as you receive them is a good way to increase your knowledge and helps you take an active role in your financial decisions in the future.



Tip #4: Only fools rush in

It is no secret that your hard-earned money is important to you and you are probably not that interested in throwing it away. For that reason, it isn't very wise to rush into making an investment decision before you have done your research. Take the time talk to a financial advisor and investigate a number of different options before taking the plunge. Look at the history of an investment to discover its past performance. This will give you a guideline of how it might do in the near future.

Taking the time to learn as much as you can about a particular investment is especially important when thinking of getting involved with equities such as stocks. The stock market can be volatile even in the best of times so it is wise to take your time before getting into the markets and seek out many sources of advice. Financial advisors and people who have invested in similar opportunities are often your best bet for valuable information.

Tip #5: A lifelong process

Once you have begun the practice of financial planning, it is something that you need to continue throughout your life. It plays a large part in most of life's decisions whether you are buying a house, raising children or investing in an RRSP. The basic ideology revolves around planning for a secure future and that usually means starting a soon as possible. However, circumstances have a habit of changing over time and can often result in the need to alter an existing financial plan. For that reason, it is most beneficial to conduct a review of your plan on a yearly basis to make sure you are making the decisions that will be of most benefit to you and your family now and in the years to come.

Tip #6: Don't be caught off guard

As most of us know from experience, family and personal emergencies have a habit of sneaking up on us when we least expect it. Although you can never be totally prepared for every crisis that might befall you, you can remain a step ahead by having at least six months salary available in savings at your disposal. These savings can come in handy in case of unforeseen circumstances such as unemployment and can be a great help if faced with a situation like a house fire. This is yet another facet of financial planning.



Tip #7: Long term goals equal long term growth

Investors that have done their research know that they are not likely to acquire a large amount of investment income over a short period of time. On the other hand, it is amazing to see what even $5 per week can grow into over the long run. So, what is the secret to being able to eventually enjoy the fruits, or profits, of your labour? The key is to remember that long-term-growth results from a long-term-plan that will come about because you have long-term-goals.

Tip #8: Don't take all the credit

Understanding credit is one of the most important lessons that a young investor can learn. It is also a beneficial one to remember as we age because debt should never be taken lightly. Taking credit for granted is a mistake that many make and they often don't understand the full implications of doing so until it is taken away. A bad credit rating can negatively affect many future opportunities, from buying a car to being approved for a mortgage. Keep in mind that it is money that you owe, even if the debt is in the future.

Tip #9: A penny saved...

There is an old saying that says: "A penny saved is a penny earned". This phrase is a favorite of many who are familiar with the magic of compound interest because they know that a penny invested becomes nickels, then quarters then dollars and more dollars and more dollars...

Tip #10: Keep the future in mind

We are faced with temptation in our lives every day, whether it be the temptation of buying a new car or having that last piece of chocolate cake. But keep in mind the fact that you should not buy today's pleasures at the expense of tomorrow's security. The easiest way to illustrate this is to imagine what would happen if you withdrew money from your RRSP to purchase that large ticket item that you have had your eye on. Not only would you be penalized through taxes for withdrawing the money in the first place, but you would also loose the benefit of letting that money grow in the tax-sheltered environment that an RRSP provides. The withdrawn funds are no longer earning compound interest and you will not have those funds to use when you retire.



Tip #11: Know your risk level

All successful market participants must have a good understanding of financial risks and of the tools to manage them. It is important to be able to identify the level of risk that you are most comfortable with before making an investment. For example, when your risk comfort level leans more toward the world of GICs, taking part in the stock market can be a bad idea. Since you are not comfortable with the level of risk associated with the stock market, you will most likely distress at each move that the market makes.

Also, it is wise to avoid piling all of your money in one vehicle or investing it all at one time. If you don't fully understand the investment or it's risk, you should be asking yourself why you are buying it. This can save you from wondering at a later date why you ever bought it in the first place!

See Investment Risks

 

Tip #12: Understanding the inflation concept

Inflation is often a concept that many people don't understand. As it relates to the world of investing, inflation is important because it can have a direct impact on certain returns. Inflation is described as a condition of rising prices and it affects nearly every aspect of daily living. It is measured by the consumer price index and results in a rise in the cost of living over time.

For the past number of years, the rate of inflation has remained relatively low, but even with a low inflation rate over the next several years, we will require substantially more money in the future to maintain our present standard of living. This has a great impact on those making decisions on how to provide income for their retirement as inflation has an effect on RRSPs. The funds in your RRSP at the time of your retirement are going to have to be able to provide you with a comfortable lifestyle according to the value of the dollar at that time. The importance of starting early is once again emphasized along with the need to understand the various effects of inflation.



Tip #13: Don't expect to get rich quick

Although some have been known to be successful at it, most people do not enter into the world of investing with the expectation of realizing immediate, substantial profits. Most vehicle types are structured over a certain period of time and it has been shown historically that longer-term investments often outperform their short-term counterparts. The real test of an investment is how it does in the long haul, meaning periods of five to ten years.

Tip #14: Another type of risk

There are several different types of risk that affect the way we live our lives however, purchasing power risk can have a considerable impact on your investments. While purchasing power is defined as the amount of goods that can be purchased for a specific dollar amount, purchasing power risk occurs when inflation eats away at your investment profits.

Extra thoughts

It is a good idea to purchase bonds through a payroll deduction since the decrease in your take home pay will be small and probably not very noticeable.


Notice:- Fiscal Agents Financial Services Group are not engaged in rendering tax, accounting or legal professional services or advice. The comments on this page are not intended, nor should they be relied upon, to replace specific professional advice. Before acting on material contained herein, readers should seek advice that is appropriate to their personal circumstances from a professional advisor.





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