Topic: How To Invest

Learn the ins and outs of how to start investing in Canada to boost your long-run portfolio returns

Following these tips on how to start investing in Canada will help you avoid some of the guesswork that can lead to big portfolio losses

You can tell a lot about a couch by sitting on it, checking the price, the delivery schedule, the warranty, the manufacturer’s reputation, and so on. In contrast, investment information is specialized and technical. The returns are uncertain—hypothetical, and subject to random influences. The investment field is heavily regulated to protect consumers, of course. But many perfectly legal investments, sold by the largest and most-respected financial institutions in the country if not the world, have done poorly. For that matter, Ponzi schemes still slip past the legal gatekeepers from time to time.

Are you wondering how to start investing in Canada? As any experienced investor will tell you, a healthy sense of skepticism is essential to investment success. All too often, when confronted with great variety, investors impulsively choose investments that answer the proverbial caveat of “seem too good to be true.”


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How to start investing in Canada: Avoid investing impulsively in the following:

In particular, we advise against impulsive investments in any of the following:

  • Investments that involve options trading, commodity trading, or any other kind of trading.
  • Investments that call for you to borrow money to get involved.
  • Investments that require you to commit to making a series of future payments.
  • Investments in or related to bitcoin or any so-called cryptocurrency.
  • Investments that do not trade in a liquid market.
  • Investments in companies that are just getting started and have not yet established a business that generates significant cash flow, if not a profit.

These are all pitfall-riddled investment areas. You should never rush into any of them, no matter how great the offer sounds. Instead, think about it overnight. Ask yourself, “What can go wrong with this investment?”

Sellers of investments like these may be perfectly honest, and certain that the investments they are selling are top quality. But it takes more than firm beliefs and good intentions to overcome bad odds and hidden risks.

How to start investing in Canada: Build a diversified investment portfolio

Always maintain a diversified stock portfolio—and avoid the temptation of trying to pick hot stocks or sectors.

Here are some tips on diversifying your stock portfolio:

  • Stocks in the Resources, and Manufacturing & Industry sectors in general expose you to above-average share price volatility.
  • Stocks in the Utilities and Canadian Finance sectors entail below-average volatility.
  • Consumer stocks fall in the middle, between volatile Resources and Manufacturing companies, and the more stable Canadian Finance and Utilities companies.

Most investors should have investments in most, if not all, of these five sectors. The proper proportions for you depend on your temperament and circumstances.

How to start investing in Canada: Consider technical analysis as a relevant tool to help you support your decisions

Use technical analysis to support—not determine—your view of a Canadian company. Look at chart readings as one tool among many, but don’t look at the chart for a prediction of what’s going to happen. Look to see if the pattern on the chart seems to support your view of the stock, based on its finances and other fundamentals. But remember that stock markets—and Canada’s TSX is no exception—follow a multitude of factors to varying extents, and the most important or influential factors continually change.

How to start investing in Canada: Use our three-part Successful Investor approach to make smart investment choices

Some investors feel it’s “safer” to include substantial holdings of cash and bonds in a portfolio, rather than focus on stocks. It’s true that this usually dampens a portfolio’s volatility, since the value of the cash won’t change, and the values of the bonds and stocks may often move in opposite directions.

However, we think it’s more cost-effective to seek safety by following our three-part portfolio management philosophy.

First, invest mainly in well-established companies. When the market goes into a lengthy downturn, these stocks generally keep paying their dividends, and they are among the first to recover when conditions improve.

Second, avoid or downplay stocks in the broker/media limelight. That limelight tends to raise investor expectations to excessive levels. When companies fail to live up to expectations, these stocks can plunge. Remember, when expectations are excessive, occasional failure to live up to them is virtually guaranteed, in the long term if not in the short.

Third, spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities). This helps you avoid excess exposure to any one segment of the market that is headed for trouble. This will also dampen your portfolio’s volatility in the long term, without the diminishing of its potential such as you’d get if you invest significantly in bonds yielding under 2%.

What level of “home country bias” do you have in favour of Canadian stocks over U.S. and internationally listed companies?

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