When it comes to investing, 'learn before you leap' is the best policy, say experts. Fortunately, new tools are available to make achieving investment goals easier than ever. "It's not just about making as much money as you can, but about diversifying across asset classes so that you can meet your longer-term investment objectives," says Jason Storsley, president and CEO of RBC Direct Investing.
"People sometimes jump into investing without thinking about why they're investing, and it can cost them," says certified financial planner and money coach Sheila Walkington. "For example, some of my clients recently came into some money and put it into their RSP to save for a house they plan to buy within a year or so. They wanted to invest it in a single, volatile asset class that's done well lately, but I encouraged them to re-evaluate. In the short term, you never know what direction market investments will go in."
In other words, investing in just one volatile asset class may have resulted in high returns - but over just one or two years, it was every bit as likely to result in high losses.
Working with a financial planner or tapping into new online resources can help investors avoid painful and expensive errors.
RBC Direct Investing provides an asset mix calculator, for example, that guides investors through the process of setting up a sound, long-term investment plan. "Whether you are a novice investor or are very sophisticated, we recommend this tool as an essential starting point. It will help you understand your investment objectives, investment horizon, cash-flow needs, the possibility of having to make a withdrawal, and risk tolerance," says Mr. Storsley.
Through a comprehensive information-gathering process, the calculator provides an investor profile along with an appropriate asset mix.
Tools and resources are also available to help identify suitable investments to fulfill the asset mix, he says. "Self-directed investing does not mean you do it on your own. We offer our clients expert research from Standard and Poor's, Morningstar and other research leaders (in addition to) RBC Capital Markets and RBC Dominion Securities, to help you validate investment decisions."
For those who wish to invest in mutual funds or exchange-traded funds, model portfolios are available for each investor profile. Investors who wish to invest more actively have access to 'screeners' that narrow the investment product universe according to selected criteria; alerts keep them informed about their investments via e-mail.
From the simple to the complex, tools are available to provide guidance. "Our 'show me' videos are available to walk investors through everything from reading a stock quote to investing in options. We've recently launched practice accounts, which take the risk out of getting started in self-directed investing or learning about products you may not understand," says Mr. Storsley.
Working with a financial planner or with online tools to develop a comprehensive financial plan can help potential investors become aware of their cash flow needs, now and in retirement, says Ms. Walkington. "Investing is just one component of a financial plan. It often seems like the most fun and perhaps the most urgent when it comes to managing one's finances, but I would encourage everyone to have an overall financial plan in place before they begin to invest."
Whether you work with a planner or on your own, it's critically important to use the tools and resources available to educate yourself prior to investing, she says. "These are some of the biggest financial decisions we'll make in our lives. It's better to do it right the first time."
Save first. Then invest.
In order to invest successfully, we must first save successfully. But according to a recent RBC/Ipsos Reid poll, 70 per cent of Canadians find reaching a savings goal to be the biggest challenge.
RBC offers the following tips to help meet that challenge:
- Pay yourself first. This is the golden rule of saving. Get in the good savings habit of setting aside some money from each paycheque.
- Have a savings plan. A step-by-step plan will have financial milestones to strive for and make you more likely to continue saving if the going gets tough. Decide what you want, and commit to it. Whether it's for a vacation or an emergency fund, setting goals helps you save for what's important to you.
- Make savings a habit. Set up automatic online transfers to your savings account to help you save a portion of each paycheque. You won't have to think about it, and you can control how much and how often a transfer is made.