With most of us stuck inside due to Ontario’s most recent lockdown, I’m sure many of you have been looking for a new hobby or interest. Might I suggest you give investing a try?
Investing can not only be a fun pastime, but can also be pretty profitable, as I’m sure you’ve recently gathered. The ability to avoid inflation, earning extra income and really allowing you to dig deeper into the fundamentals of business are just some of the benefits of basic, long-term investing.
Icky inflation
People sometimes do not realize that when they leave their money in the bank or save it as cash, they lose money due to inflation—the general increase in prices and fall in the value of a given currency.
Recently, Canada’s inflation rate has ranged from 1 to 2 per cent annually. This means that if you do not have your money invested, you will most likely lose money every year, as most banks do not pay a high enough interest rate to counterbalance annual inflation rates.
However, when money is invested in the stock market or bonds with low volatility (meaning investments with values that don’t change dramatically), you can beat inflation by making up for the loss in value of whatever currency you’re saving through the increased value of your investments.
For example, at the time this blog was written, Apple’s stock value was up over 70 per cent in 2020. Apple’s stock is the only one that saw favourable increases.
The American stock market index, the S&P 500, measures the stock performance of the largest 500 companies in the U.S—and is up over 16 per cent from last year.
So if you had invested your money in Apple or the S&P, rather than kept it in a basic savings account, you would have seen a tangible increase in your savings, rather than a reduction due to inflation beyond your control.
So now that it’s clear why you should invest, it’s time to start looking into how to invest.
What to consider before investing
While the stock market’s risk and benefits are clear, getting started in investing can be confusing even at the very early stages, as many people do not know which broker—a program, person or organization that buys and sells stocks for others—to use.
In my experience, when it comes to finding the right broker, there are three main things to consider.
The first thing many people, especially students, should consider when opening an investment account is financial value, meaning the commission fees you pay to a broker every time you make an investment.
Some banks and other brokers will charge a certain percentage or fee every time you buy a stock. For example, TD Bank will charge you $10 every time you buy or sell a stock. I have used their services and found this to be quite expensive, as $10 dollars a trade can certainly add up, especially at the beginning.
Fortunately, there are many other options. The broker I currently use and recommend is Wealthsimple Trade, which is delivered entirely online and one of the two different services offered by Wealthsimple Inc.
Wealthsimple is an app that manages investing for you, and Wealthsimple Trade is an app and website that allows you to manage your own investing. I highly recommended the latter, as it will enable you to trade Canadian stocks with no commissions or fees, since you’ll be doing all the work.
The next thing to consider is determining what kind of investment account you want to open. There are three types of accounts to contemplate setting up. The first one is a personal account, which has no contribution limit (meaning you can put as much money as you want in it, when you want to). If you happen to make any profits using a personal account, the government can charge taxes on it.
The second is a Tax Free Savings Account (TFSA). In this account, you are allowed to invest a certain amount of money into your account without being taxed at all.
This tax-free amount is determined by your age, with the maximum amount increasing by $6,000 every year once you turn the age of 18. For example, a 21-year-old would be allowed to invest $6,000 multiplied by four years, tax-free. You can also withdraw from this account at any time, though if you withdraw a certain amount, your contribution limit will remain the same.
Finally, the last account is the Registered Retirement Savings Plan (RRSP). You can invest a portion of your income up to a maximum of $27,830 dollars a year in this account. This money is tax-free for the time it remains in the account and can be withdrawn at any time, though when withdrawn, will need to be filed as income and therefore taxed as income.
For example, opening an account with the bank you use may not be the cheapest, but it may be the most convenient, particularly when you’re looking to deposit money. However, when deciding which broker to use, you have to determine what is most important to you—whether it’s value, convenience or a combination of the two.
Put your money where … the good investments are
To help you start, here are three investments with good growth rates that I believe are particularly suitable for new investors:
Vanguard FTSE Emerging Markets All Cap Index ETF (VEE.TO)
This is an Exchange Traded Fund (ETF), which is a group of stocks that are bought and sold throughout the day on stock exchanges (meaning their value fluctuates pretty often).
It holds stocks and assets that are in emerging markets and developing countries, and as an ETF, is pretty attractive in that it’s low cost, taxed at a low rate, and is easily tradeable. Its primary holdings are in China, meaning it holds companies such as JD.com and Alibaba.
This investment could outperform the market as China’s overall economy continues to grow faster than the U.S.’s and Canada’s. Furthermore, China also has fewer cases of COVID-19 than the U.S. and continues to see its economy recover faster than most international countries.
Finally, the new Biden administration seems to have a more healthy approach to dealing with China than the Trump administration did, which could mean more trading for China’s economy as tariffs are less likely to be implemented.
Alimentation Couche-Tard Inc. (ATD-B.TO)
This company is known best for its mass ownership of gas stations and convenience stores. Its stock has recently fallen approximately 10 per cent due to speculation surrounding an acquisition they attempted to make. It’s definitely an investment worth looking into because the stock has yet to regain its previous price.
The company has a healthy growth rate, growing over 500 per cent in the past 20 years. They continue to show growth through the acquisition of other companies and recently have begun to expand their business into more environmentally-friendly options, meaning there’s definitely room for a comeback—and then some.
Brookfield Asset Management (BAM-A.TO)
Brookfield Asset Management oversees stock and trade management. It also invests in many different sectors. However, some of the most extensive holdings are in real estate and renewable energy sources.
The company is currently down roughly 10 per cent due to the pandemic. Nevertheless, it has seen strong growth over the past 10 years and remains one of the biggest companies of its kind in Canada, ranking seventh in market capitalization at the time this blog was written. Limited risk is shown with regards to investing in this company and it continues to demonstrate the ability to grow, even through a pandemic.
Featured graphic by Pascale Malenfant.
