Yahoo Finance New Year, New Financial Goals: How to Start Investing in the Stock Market
Written by Tony Dong, MSc, CETF® at The Motley Fool Canada
This is the perfect time to set fresh financial goals. If your money has been sitting in savings accounts, you might be enjoying some risk-free interest, but the truth is, these options offer limited growth potential in the long run.
To truly grow your wealth, it’s essential to embrace some level of risk — and the stock market is one of the most effective places to do that. However, diving into stocks doesn’t mean you have to spend hours researching and picking individual companies.
There’s a smarter, more straightforward approach: betting on the global stock market as a whole to rise. This method spreads out your risk across a vast array of companies and industries, making it a more balanced way to step into the world of stock market investing.
Open a brokerage account
If you haven’t already, one of the first steps to start investing in the stock market is to open a Tax-Free Savings Account (TFSA). The TFSA is an invaluable tool for Canadian investors, offering a unique blend of flexibility and tax efficiency.
In a TFSA, your capital gains, dividends, and other investment earnings grow completely tax-free. This means you won’t have to pay any taxes on the money you make from your investments inside this account. Additionally, each year you get new contribution room; for 2024, it’s $7,000.
When it comes to opening a TFSA, there are several brokerage options available. One particularly user-friendly option is Wealthsimple. I personally like it it because it offers zero-commission trades on Canadian stocks and exchange-traded funds (ETFs).
Buy the right ETF
When you’ve opened your TFSA and are ready to invest, a great ETF choice for beginners in my opinion is Vanguard All-Equity ETF Portfolio (TSX:VEQT).
VEQT’s appeal lies in its extensive diversification, as it includes over 12,000 global stocks from a variety of sectors. This level of diversification is a significant advantage, as it spreads your investment across the global economy, mitigating the risks associated with investing in individual stocks or specific sectors.
Additionally, VEQT is known for its affordability, with a management expense ratio of only 0.24%. Finally, another key benefit of VEQT is the simplicity it brings to stock investing. It eliminates the need to research and choose individual stocks, as it offers broad market exposure in one investment.
Practice good behaviours
Finally, as you embark on your investing journey, it’s essential to adopt good investment behaviors that can significantly enhance your long-term success. Here are a few key tips to consider:
Setting up automatic dividend reinvestments: Many ETFs, including VEQT, pay dividends. By setting up a Dividend-Reinvestment Plan (DRIP), you automatically use these dividends to purchase more shares of the ETF. This strategy harnesses the power of compounding, allowing your investment to grow more efficiently over time.
Buying consistently at a set time: Implement a strategy known as dollar-cost averaging. This involves investing a fixed amount of money at regular intervals, regardless of the ETF’s price. This approach can help you avoid trying to time the market, which is often a futile exercise and can lead to more disciplined and consistent investment habits.
Avoid panic selling: The stock market can be volatile, and it’s natural to feel uneasy during periods of market downturns. However, panic selling during these times can lock in losses and disrupt your long-term investment strategy. It’s important to stay focused on your long-term goals and not react impulsively to short-term market fluctuations.
The post New Year, New Financial Goals: How to Start Investing in the Stock Market appeared first on The Motley Fool Canada.
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Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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