Investing Strategies

Read this before investing in 2024!

Recently, there has been a surge in interest from people seeking ideas on how to begin investing. Unfortunately, this has led some individuals to fall prey to professional salespeople who make investing seem overly complex, often with an agenda to sell subpar investment products.

Here are some essential investment strategies to consider:

Tax-Efficient Strategy

1. Maximize Employer Retirement Plan Contributions:

• If your employer offers a retirement plan (e.g., RRP in Canada or 401(k) in the US), contribute enough to receive the company match. It’s an immediate 100% return on investment.

2. Leverage Tax-Free Savings Accounts (TFSA or Roth IRA):

• TFSA (Canada): Contribute the maximum allowed amount to your Tax-Free Savings Account. Investments grow tax-free, and withdrawals are untaxed. In 2024, the maximum contribution is $7,000.

• Roth IRA (USA): Consider contributing to a Roth IRA. It offers tax-free growth, and qualified withdrawals remain tax-free.

3. Explore Registered Retirement Savings Plans (RRSP or Traditional IRA):

• RRSP (Canada): Contribute to an RRSP. Contributions are tax-deductible, but withdrawals are taxed. Use RRSPs strategically based on income and retirement goals.

• Traditional IRA (USA): If eligible, contribute to a Traditional IRA. Contributions may be tax-deductible, but withdrawals are taxable. Plan for the long term.

Things to consider before you start investing:

1. Know the Difference: Investing vs. Trading

• Understand that investing and trading are distinct. Investors typically buy and hold assets for the long term (usually a year or more), while traders engage in shorter-term buying and selling.
• Tax implications vary based on the type of income (dividends, interest, or capital gains) and whether you’re classified as an investor or trader.
• Tip: If you prefer passive growth and are employed full time, consider long-term investing using tax-advantaged accounts.

2. Define Your Goals and Risk Tolerance

• Clarify your objectives: Do you seek liquidity, capital preservation, income, or capital growth?
• Consider your time horizon (1, 2, 5, 10, 20, or 30 years).
• Understand that lower-risk investments (e.g., short-term deposits, bonds, preferred shares) often yield lower returns.
• Tip: Align your investment strategy with your goals and risk tolerance for better outcomes.

3. Harness the Power of Compound Interest

• Take a holistic view of your finances. Understand that compound interest affects both debt and investment.
• Einstein famously called compound interest the “8th wonder of the world.” It rewards those who understand it and penalizes those who don’t.
• Think exponentially: Compound interest multiplies wealth over time.
• Tip: Whether you’re borrowing or investing, grasp the power of compounding—it can significantly impact your financial journey.

4. Start Investing after you build an Emergency Fund

• Before diving into investments, establish an emergency fund. Life happens, and unexpected expenses (like a sick relative or expensive car repairs) can arise. Having an emergency fund prevents you from prematurely withdrawing your investments.

• > Once you’re financially stable, invest 10-15% of your household income in low cost ETFs or mutual funds with a track record of 10-12% growth over 10 years.
• Regular saving and investing allow compound interest to work in your favor.
• Start small and be patient – consistency matters more than the initial amount.
• Use tax-advantaged accounts like TFSAs or RRSPs (in Canada) or Roth IRAs or 401(k)s (in the USA).
• Automate your investments to match your payroll schedule for seamless execution.
• Open a low-cost investment investment account now. With a platform like Wealth Simple. You can use my referral code: TTO18Qand we will both get $25 when you fund your Wealth Simple account.

5. Finally, Avoid Combining Insurance and Investment

• Combining insurance and investment is a controversial topic. Mixing insurance and investment is complicated and in most cases a disaster waiting to happen. 
• The premiums cost more than 5x the amount for a similar term life coverage.
• They are expensive to maintain and if you can no longer afford the premium, you risk losing all your previous premiums and contributions. 
• They usually only benefit high net worth individuals, some business owners, and those with lifelong dependents may find it useful for advanced estate planning. 
• When you die, they usually only pay out either the face value of the policy or investment portion, not both.  
• Learn more about insurance and investing.

Tip: Keep insurance and investment separate. Choose a term life insurance (20-40 years) and invest the difference. This approach often yields better results.

The investing information provided on this page is for educational purposes only. I do not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. You are responsible for all decisions you make, or any actions taken based on this content. Some of the links in this blog are affiliate links. If you make a purchase through these links, I may earn a small commission at no extra cost to you. This helps support the channel and encourages me to keep making content like this. Your support is very much appreciated. Thanks for reading and watching.