For most of us, investing can be an intimidating process. While we might be interested in putting our hard-earned money to work for us, it’s hard to know exactly where to begin. If you have dreams of owning your own home, travelling the world or retiring early, though, it’s worth it to start figuring it out.
There are tons of options out there when it comes to investing, although aspiring investors might not be aware of them. So, we’ve rounded up some facts about investing, as well as some key advice taken from BMO SmartFolio, to provide insight into what it takes to start investing.
1. YOU DON’T NEED A LOT OF CASH TO START INVESTING
While buying a house requires a significant down payment, you don’t need tons of money to start investing. You just need money you’re willing to set aside and not touch over the long term — whether it’s $50 a paycheck or $1,000.
If you don’t have a ton of money to invest initially, you can take the low-cost route with a service like BMO SmartFolio. This online investment management service matches you with an investment portfolio, which is then professionally managed by experts. It only requires that investors put down $5,000 to get started, making it a good option for those with fewer available assets.
2. YOU DON’T HAVE TO PLAY THE STOCK MARKET
Investing doesn’t have to mean monitoring the New York Stock Exchange and gambling on the next big thing. That would require more time and energy than most of us have to spare. Many other options exist for investors, such as owning mutual funds or exchange traded funds (ETFs).
While investors might not be as familiar with ETFs as mutual funds, ETFs are currently gaining in popularity because of their diversity, especially among millennials. An ETF is an investment fund that can be traded just like a stock. However, ETFs represent a basket of stocks, bonds or other securities, rather than just one investment type, which means you don’t have to put all your eggs in one basket. The funds within an ETF can balance each other out when one is underperforming, providing investors with a low-cost option for a well-diversified portfolio.
3. THE EARLIER YOU INVEST, THE BETTER
The phrase “the early bird gets the worm” certainly applies here. The younger you are, the better positioned you are to begin investing. This might seem tough when you’re still paying off debt or scraping together rent money, but if you can pull together a little extra cash, it could be in your best interest to put it to work.
Where this becomes apparent is in your compounding returns. Compounding returns refer to the process of generating earnings by reinvesting earnings year after year. For example, if you invest $5,000 today and earn an annual return of 10%*, you’ll have $500 more at the end of the year. If, rather than spending that interest, you leave it to continue earning, you’ll earn $550 in the next year if the annual return remains at 10%. The earlier you begin, the longer the compounding returns have to grow.
4. YOU CAN START INVESTING WITHOUT ENLISTING AN ADVISOR
While an advisor can provide you with specific advice when it comes to building a portfolio, you might not have the cash on hand to enlist their services. On the other hand, you might not be confident enough to start investing all by yourself. It’s possible to strike a balance between the two by using an investment service like BMO SmartFolio.
After you fill out a questionnaire on the BMO SmartFolio site, you get matched with one of five investment portfolios made up of ETFs, which a team of Portfolio Experts manage for you. And because managing an ETF requires less administrative support than other investments, you don’t need to engage an independent advisor to help you with it.
5. YOU CAN INVEST HANDS-FREE
Between getting to the gym, working that nine-to-five and maintaining relationships with friends and family, you don’t have time to learn how to build or portfolio or worry about investing. More and more services these days are hands-free, and investing can be the same.
BMO SmartFolio can get you started with their online service, which contains all the information you need to begin investing. Then you hand off your investing to a team of financial professionals who manage the portfolio for you. You can check in as frequently as you like on the online dashboard to see what you own and how your investments are doing.
Investing is about making smart decisions now to set yourself up for success later. Equip yourself with the knowledge you need to find the best option for you. Even if you start small, taking a little out of every paycheque to invest in your future makes a whole lot of sense.
*The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the returns on investment. Commissions, management fees and expenses all may be associated with ETF investments. Please read the prospectus before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.
BMO SmartFolio is a product of BMO Nesbitt Burns.
if i wish to just put down a flat $5000.00 and wish to diversify it in a couple of different companies but the same stock, is that possible?