You know you have to do it. But, you’re not sure how to do it. No, I’m not talking about finally talking to the hot girl eyeing you in your condo, which you awkwardly smile at. I’m talking about investing – taking charge of your personal finances.
So how do you do it? It’s a question I get asked a lot by friends when I tell them about my relative investing success. Other questions follow. How did you get started? What should I invest in? What are you going to do with all that money? I made up the last one. Furthermore, when looking at the world economy, it’s in shatters. Words such as “austerity”, “bailout” and “contagion” (which was a kick ass movie) are constantly talked about by economists on TV, acknowledging our unstable global financial predicament. It’s all a lot to take in and you don’t know what it means. So I’m here to get you back to the basics of investing and help you take the leap in uncertain times.
1. Start small
Now John will make fun of you because you’re saving such a small amount. But he has a girlfriend who he panders to by taking her out for expensive dinners, so don’t listen to him.
Before you get concerned about chasing the huge returns, you have to start somewhere. You’re just new to the game. Like any game, it’s time to learn the rules in the beginning. So start small.
Firstly, starting small means a few things. It means setting aside a small amount, in the form of a pre-authorized contribution (PAC) into your investing account. You can contribute as little as $10, $25, or $50, from every pay cheque. It’s basically just one dinner outing every two weeks you’re letting go. As these savings build up, and trust me they will, you’ll soon have quite a storage of savings, the first success of starting small.
Next, it’s about investing small. Say you like a stock such as Microsoft, because you’re not into the whole Steve Jobs watching your investment from the grave thing, then buy shares in Microsoft (this is not investment advice silly, just a column). Buy a small position, a few couple hundred dollars investment in Microsoft, to get your feet wet. This will allow you to see the ebbs and flows of the market while you get invested in a company you like, with a good dividend yield (2.7%) for the technology space, which also happens to have a fairly scary looking CEO in Steve Ballmer. Mission accomplished.
2. Buy and hold
I know it’s hard but this is what you have to do. We have a tendency to think that we can time the market, getting in at the lowest lows and selling at the highest highs. Sometimes you’re able to do it and that’s sweet, but it’s not the norm. A better strategy, is to take a buy and hold approach to your portfolio.
What buy and hold means is exactly that, you buy then hold your position through the rough times, like we are in now. The benefits are obvious. You get to forget about the daily price fluctuations. You’re able to rest easy because over time things tend to average out. Although the headlines are bad, money has to go into something, which it always does…so relax. If you play your cards right by picking stable, blue chip companies listed on the S&P 500 or NYSE, which have good dividend yields that compound over investment over time, it will actually pay to wait. Quoting one of the greatest minds of our times, Albert Einstein, it was he who said: “The most powerful force in the universe is compound interest.”
3. Be realistic
Know that you’re not going to make a 10% return in a month. It’s rare and more indicative of a riskier investment. While these types of investments can be rewarding, it can put you at a disadvantage if it goes the other way. So, you have been warned.
Being realistic is also about having a purpose for what you want to do with your investment dollars, whether it be that vacation getaway, new tech toy, or bigger items like a partial down payment on a home or condo. It’s all about your time horizon, so if you have a short one, one to three years or a longer one (three years plus), be sure to keep this in mind when picking your investments. .
Talking about your finances isn’t the most sexy topic, but it’s a necessary one. If you follow these three steps: start small, buy and hold, and be realistic, it will put you in a better position for financial success as you get older.