Monday, January 11, 2021 / 3:21 PM / By Aqib Raja / Header Image Credit: iStock
Everyone takes their first steps in their investment journey as beginners. Even Warren Buffett and Jim Rogers grew their weather by starting as rookie investors. It takes plenty of time, patience, and mistakes to become a savvy investor. Investing is not something you can master overnight.
If you are a novice, where do you start when it comes to saving and investing? We have compiled a list of investment savings ideas to help you get started. Here are the six best ways to do investment savings for beginners:
1. Automatic Savings Program
The personal savings rate in North America is shockingly low. Even before the coronavirus pandemic paralyzed the global economy, too many people - young and old - were not saving for a rainy day or their winter years. There have been many reasons for lackluster savings and even investing, from the rising cost of living to inadequate pay. This problem is compounded by high levels of debt and fears of stock market crashes.
Financial experts believe that an effective solution to encourage better financial planning is an automatic savings program. The concept is simple enough: money (you decide the figure) is taken out of your account every month and transferred to an account of your choosing. A simple, "set it and forget it" approach to growing your savings.
Before you know it, you have a handsome little pile of money that has accumulated some interest!
2. Mutual Funds
Are you interested in getting involved in the financial markets? If you are like many others, you became interested in stocks at the height of the coronavirus-induced market mayhem in March 2020. Stocks, bullion, energy, and benchmark indexes cratered to levels unseen in several years. This allowed a new breed of investors to start building positions in companies like Tesla, Walmart, Starbucks, and many other noteworthy tickers.
If individual stock picking is not your thing, then would mutual funds be a workable alternative? A mutual fund is a type of financial product that collects a pool of money from investors. The money is invested into a portfolio of stocks, bonds, or money market assets. Each investor purchases units of a mutual fund with a weekly, bi-weekly, or monthly contribution.
For example, you could buy a mutual fund that concentrates its capital into health care stocks. Or you might scoop up units in a mutual fund that invests in companies in emerging markets. The mutual fund sector is enormous, with thousands of different options across the world.
3. All-In-One Checking and Investing Account
All-in-one checking and investing accounts could be the next big trend in the world of banking. An all-in-one checking and investing account functions similarly to a checking account, except for two things: your deposits are automatically invested into a diversified portfolio of ETFs, and you can start earning investment returns on your balance. Convenience and growth, all from one account! This unique financial product offers a diverse array of features for users:
4. GIC Laddering
In an ultra-low interest rate environment, guaranteed-investment certificates (GICs) are not the most appealing investment vehicle right now. Whether you are investing in fixed- or variable-rate GICs, it is hard to earn much on your capital.
So, are GICs a part of a bygone era when interest rates were around five per cent? Not quite. Here is a solution to this low-interest financial product: GIC laddering. This is a strategy whereby you purchase GIC investments without locking in all your money into a long-term investment. When each term matures, you reinvest the new sum (principal and return) in a five-year GIC term.
This way, you have access to your money in a shorter amount of time and you can potentially take advantage of higher interest rates.
5. Dollar-Cost Averaging (DCA)
Far too many times, novice investors will buy high and sell low, hoping to take advantage of the next pump-and-dump stock to make a windfall in a short period. While this may seem like a successful tactic at first, it is not a sustainable strategy to enjoy long-term growth.
Instead, dollar-cost averaging is something many financial experts propose for beginner investors. Also known as a constant dollar plan, DCA is an investment strategy that consists of buying a fixed amount of money in the same stock or index fund at regular intervals, no matter if it is up or down.
As an example: you might buy 100 shares at $23 one month. You may then acquire 50 shares at $46 another month. Later, you could buy 75 shares at $32 during a separate 30-day period. Overall, the median price is $32. This allows you to take advantage of the downward trends and avoid getting distressed during selloffs.
6. Robo-Advisors 2021?
Is 2021 all about the robo-advisor? With a new generation of investors entering the financial markets, many are bypassing the conventional financial expert route, and instead turning to digital platforms that give automated algorithm-driven approach to money planning.
Robo-advisors on average are a cost-effective alternative to managed-portfolio firms, with fees ranging from 0.00% to 0.89% per year. It is a worthwhile investment since this technology allows for a hands-off solution to growing your money, ideal for a newcomer to the world of investing. As Millennials and Generation Z investors come to dominate the market over the next decade, the robo-advisor is primed to continue growing in popularity, far beyond 2021!
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