However, according to a 2022 report, only 47% of Canadians actually have a budgeting plan for their finances. Making investments is all well and good. But if you lack the discipline and know-how to keep them stable and thriving, employing certain techniques is important.
If you’re one of the many Canadians that have made an investment (or several), making “cents” of your financial affairs is tantamount to their success. Today, we’ll look at some tips for how to do just that.
Why Tracking Financials Is Important
Many people like to talk about building their investments and making more money. However, few have the experience and understanding necessary to bring that goal to life.
Personal investment management is not something you can pick up overnight. It is a serious life skill that takes real time and practice to get right. You not only need a solid understanding of how investments work but also of developing positive credibility for future investments.
However, once you know your assets from your profit margins, growing investments and building credibility becomes easy. Let’s dive into five basic tips (plus a bonus one) to help you get there.
1. Eliminate debt
If you want to get serious about investing your hard-earned money, paying off loans and eliminating debt is a good place to start. Investments are by nature volatile, which means you not only need to be careful about who and what you invest with. You also need to make sure you have a solid foundation underfoot.
Being in debt means that no matter how much you earn, you still aren’t making progress. It’s like filling up a bucket with a hole in it. In order to make big returns on big investments, you need to take care of your debt first. Besides, paying off debt is personal financial management 101.
Another good reason to get rid of debt is that investment opportunities prioritize those without it. The less debt you have, the more liquid your money is, and the better your portfolio will look.
2. Perform deep research
The world of investing is complex and ever-changing. Trends come and go, as do good investment opportunities. Therefore, it’s important that you stay up to date with current activities on the investment scene, and make financial decisions that are most in alignment with future goals.
The four most popular types of investments in Canada for 2022 are:
- Mutual funds
- Real estate
- Income trusts
Each of these investment types comes with its own positives and negatives. By performing deep, regular research, you can identify the type(s) of investments that work best for your budget and lead you closer to achieving your financial objectives.
3. The early investor gets the worm
It goes without saying that the earlier you start investing, the bigger your returns will be. This provides you with more time to grow your wealth and get those rookie investment mistakes out of your way before you start making the big bucks.
Early investments not only mean bigger returns but also increased interest on any savings you make in the process. In terms of long-term financial growth, an early start is the best way to ensure you reach your investment goals.
4. Diversify your portfolio
Diversification is a popular investment technique that involves spreading your money around to mitigate losses. By diversifying your portfolio, you significantly reduce the risk factor and ensure your investments remain as stable and prosperous as possible.
There are two ways to diversify your portfolio:
- Across asset classes – This approach to investing means spreading your investments across a wide variety of different assets. For example, someone who diversifies across asset classes might invest in stocks, real, estate, bonds, and other assets.
- Within asset classes – Opting for this route entails dispersing your money across different investments within the same type of asset. For example, someone who diversifies their investments within asset classes might have several investments exclusively in real estate or stocks. No mixing.
Both of these diversification techniques come with pros and cons. The across asset classes approach is great for reducing the risk of loss and makes the investment process more interesting. However, while the within asset classes option has a higher risk of volatility, it can be easier to access for new investors.
5. Automate investing
For most people, investing is a strategy for growing a nest egg that will carry them comfortably through retirement. But if you lack experience or don’t have the time to develop a robust investment strategy, the road to that nest egg can be challenging.
Automation is becoming an integrated tool for investors that allows you to focus on other responsibilities while still growing your wealth at the same time.
You can automate your investment plan by using a low-cost index fund that automatically tracks the stock market index and makes smart, intuitive investment strategy decisions on your behalf. It might sound risky, but automated investing has shown a lot of promise in terms of accuracy and prediction.
Bonus tip: Never invest your emergency fund
Your emergency fund is there for a reason. To protect you, your loved ones, and your assets in the event of an emergency. Should a disaster occur and you need access to substantial funds outside of your regular income or investments, you’ll need that fund to be there, untouched.
As the past few years have made us all well aware, the world is in a constant state of unpredictability and change. Making sure you have a solid financial backup plan for emergencies is the right call for anyone who has the capacity. Alternatively, ensure that your finances are always in order so that you qualify for a loan, should the need arise.
If you know what you’re doing, investing can be a great way to grow your wealth without doing much in the way of labour.
But like all business ventures, developing a strong understanding of what it is and how it works will ensure that your money is handled in the safest, smartest way possible.