Investing can be overwhelming, especially when there are so many opinions on how to do it. But it doesn’t have to be. I’m going to share what has worked for me: practical, sensible steps to invest your hard-earned money safely, with a focus on the long term.
If you’re like me, you want your investments to be secure. You want them to grow steadily without taking huge risks. My main concern is that my investments are safe (that is, they don’t go to zero or never recover from losses), diversified, and invested for the long term—at least ten years.
This guide will take you through everything you need to know, from opening an investment account to sticking with your plan over the long term. Let’s start with the basics and work our way up.
Step 1: Open an Investment Account
The first step to investing is to open an investment account. This may sound complicated, but it’s no harder than opening a bank account. You can do this through your bank, a credit union, or an online brokerage.
Within your investment account, you can have different types of accounts, including:
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RRSP (Registered Retirement Savings Plan):
A tax-deferred account meant for saving towards retirement. The money you put in is tax-deductible, and you only pay tax when you take it out, usually in retirement when your income is lower.
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TFSA (Tax-Free Savings Account):
A tax-free account where any growth or income from your investments is not taxed, ever. You can withdraw money from a TFSA at any time without penalty.
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Non-registered Account:
This is a regular investment account. It doesn’t have the tax advantages of an RRSP or TFSA, but there are no limits on how much you can contribute.
Once the account is open, I prefer to manage it online. This gives you quick access to your investments anytime, anywhere. But if you’re more comfortable with a financial advisor helping you, that works too.
Step 2: Transfer Money Into Your Investment Account
Now that your account is set up, it’s time to transfer money into it. You can easily link your bank account to your investment account to make transferring money fast and simple.
Here’s how to do it:
- Log into your online banking or investment platform.
- Select the option to transfer funds.
- Enter the amount of money you want to transfer into your investment account.
- Confirm the transfer.
You’re now ready to invest!
Step 3: Choose Your Investments
With money in your investment account, it’s time to decide what to invest in. For me, the easiest and most sensible choice has been Exchange Traded Funds (ETFs).
Why ETFs?
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Low Fees:
ETFs generally have much lower management fees than other investments, like mutual funds. This means more of your money stays invested, helping it grow over time.
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Diversification:
ETFs are baskets of stocks. They give you exposure to a wide range of companies, spreading out your risk. If one stock doesn’t perform well, others might do better, balancing things out.
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Long-term Focus:
ETFs are ideal for people who want to hold their investments for the long term. This makes them a great fit for retirement accounts like RRSPs or TFSAs.
I avoid individual stocks. Why? Because betting on a single company is risky. If that one stock performs poorly, it can take a big bite out of your money. ETFs, on the other hand, are diversified. This helps smooth out the ups and downs.
Step 4: How to Buy ETFs
Once you’ve decided on an ETF, it’s time to place a trade. You can do this online or over the phone. Here’s a step-by-step breakdown of how to buy ETFs online:
- Log into your investment account.
- Look up the ETF you want to buy by its symbol (for example, VCN or XIC).
- Take the amount you want to invest and divide it by the price of one share. This tells you how many shares to buy.
- Place a trade order for that number of shares. Select “market order” to buy at the current price.
- Remember to account for the trading fee, which is usually about $10 per trade.
- Confirm your trade.
Most ETFs are traded during regular stock market hours (Monday to Friday, 9:30 am to 4:00 pm). Once you place your order, it will go through as long as the market is open.
Step 5: Contribution Limits
If you’re investing in an RRSP or TFSA, you need to be mindful of contribution limits. These limits change yearly, and going over them can result in penalties.
Current Limits:
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RRSP:
The limit is 18% of your income from the previous year, up to a set maximum (currently $31,560 for 2024). Any unused contribution room from past years can also be carried forward. Read about RRSP rules and limits here How contributions affect your RRSP deduction limit.
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TFSA:
The TFSA limit for 2024 is $7.000. If you’ve never contributed to a TFSA before, you can catch up on unused contribution room from past years, up to a lifetime limit ($95,000 in 2024). Read the rules at TFSA contributions.
It’s important not to exceed these limits, as there are penalties for doing so. You can always check your contribution room online through the CRA’s My Account portal.
Not sure which account to deposit your money into? Read – RRSP vs TFSA: Which Is Right for Your Retirement Plan?.
Step 6: Confirm Your Trade
After you’ve placed your trade, make sure to confirm that the order went through. Your platform will usually send a confirmation email or show a notification on the site. Double-check that the number of shares and the price match your order.
If you made a mistake or want to make a change, you can usually cancel the order before it’s fully processed.
Step 7: Understanding Market Fluctuations
Now comes the tricky part: ignoring the noise. The stock market goes up and down. That’s normal.
When you invest, the price of your ETFs might go up or down right after you buy them. Sometimes, the market will drop significantly—like it did in March 2020 when COVID-19 hit and the market fell by about one-third.
What to Remember:
- Focus on the long term. You’re investing for ten years or more, so short-term fluctuations don’t matter.
- Set it and forget it. Don’t constantly check your account, and don’t react to every little change in the market.
- Stay calm. The market has always recovered from downturns in the past, and it will again.
By focussing too much on the short term, you risk making emotional decisions. For example, many people panic when they see a big drop and sell their investments, locking in losses. The key is to stay calm, stick to your plan, and avoid reacting to short-term market moves.
Step 8: Don’t Want to Trade Online? Get Help!
If the idea of trading online makes you uncomfortable, there’s always help available. Major banks and brokerages have toll-free numbers where you can talk to a representative who will help you place your trades.
They’ll walk you through each step of the process, making sure everything is done correctly. There’s no need to worry about making a mistake.
Step 9: Rebalance Once a Year
Once your investments are in place, there’s no need to spend hours managing them. In fact, I only review my portfolio once a year to rebalance.
What is Rebalancing?
Rebalancing means adjusting your investments to make sure you’re sticking to your original plan. For example, if one ETF has grown much faster than the others, your portfolio might become unbalanced. You can rebalance by selling some of that ETF and buying more of the others, so everything is in proportion again.
Doing this once a year should only take about 15 minutes. It’s a small step that can make a big difference over time.
Step 10: Stick to Your Plan
Finally, the most important part of investing: sticking to your plan. You’ve put in the effort to open your account, select investments, and ignore short-term noise. Now it’s all about patience.
Key Points to Remember:
- Hold onto your investments for the long term. Selling too early can mean missing out on future gains.
- Continue contributing to your RRSP, TFSA, or non-registered account over time. Whether it’s monthly contributions or lump sums, every little bit helps.
- Trust the process. Compounding—the growth of your money over time—works best when you leave your investments alone for years.
The stock market can be unpredictable in the short term, but over the long term, it has historically gone up. By staying disciplined and avoiding emotional decisions, you’ll give your investments the best chance to grow.
Final Thoughts
Investing doesn’t have to be complicated or stressful. By following these simple steps, you can build a strong, long-term investment strategy that helps you reach your financial goals.
Open an account, transfer money, invest in diversified ETFs, and then sit back and let time do the hard work for you. The key is patience and consistency. Stick to your plan, avoid getting caught up in short-term market swings, and trust that over time, your investments will grow.
With just a little effort, you can take control of your financial future. You’ve got this!
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
The Money Reservoir, a system for managing irregular income. A Smarter Way to Manage Your Finances and Harness the Power of Reservoirs to Break the Paycheque-to-Paycheque Cycle and Build Financial Stability. For more information please visit The Money Reservoir on Amazon
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, we are not a qualified financial advisors. We just relate financial management to our own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of ours came from expensive experiences.
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