The Beginners Guide to Low-Risk Investing

You’ve probably heard the older generation talking about investing your money for the future. Now, what that generally means, is putting away money as early as possible in your life, and while you’re working and years go by, you receive more money from your initial investment. While there are various ways to invest your money, the goal of investment is to have your money work for you over some time, short term or long term. Experts suggest you don’t have to have a large amount of money to start investing, and from as little as $10 a week, or a month, put it away. You may even have $1000 to be invested; here’s a beginners’ guide to help you navigate low-risk investing. 

Decide on The Kind of Investments

You need to answer a few ground questions before you commit your money, but the most important one is deciding what kind of investor you want to be. When signing up with a broker, you go through a series of questions and answers to determining your investment appetite and investment goals. This helps you and the broker decide on the kinds of investment to put your money in.

While many investors prefer to invest their money and forget about it for a while, some prefer a hands-on approach, where they get involved in managing the growth of their investment. Many online brokers allow investors to put their money in mutual funds, index funds, bonds, stocks, and the best Canadian ETFs (exchange-traded funds).   

Online Brokers

Online brokers have two types of services available to their customers, full-service and discount service. The difference between the two service packages is significant, and the fee difference is just as large. A full-service brokerage usually comes with the benefit of a personal financial advisor, covering all money-related issues like healthcare, retirement, and trust funds. This kind of service is exclusive to high-net-worth clients, who can afford the high charges and membership fees that come with the service.

A discount broker account is more popular, giving you the freedom to service your own transactions, with automated advisory services available. With no designated financial advisor at your disposal, the most common discount service is the set-it-and-leave-it, and keep viewing the account progress. However, investors should be aware of any additional charges when the account is below the minimum deposit amount. 

Retirement Plan

One of the best investment tools employees can take advantage of is a retirement plan through your employer. Sometimes budgets get a bit too tight, making it rather difficult to invest on your own. With as little as putting away 1% of your salary into your retirement fund, you are guaranteed an automatic deduction. After assessing your contribution to the plan, you can opt to increase the amount to a higher and still comfortable commitment. Another great benefit to this kind of investment is that work-based retirement plans are not taxed, and your salary tax is calculated after this contribution is deducted. 

Minimums to Open an Account

Investment accounts generally have a minimum deposit amount, which differs from many financial institutions. As part of your application, to be accepted, the minimum deposit amount is mandatory. Some financial institutions require a minimum deposit of no less than $1000. So, be sure to look around and weigh your options according to your financial needs and affordability; take your time. However, some firms do not require minimum deposit fees, and they too need to be vetted before opening an account; they may have other commission-based fees you need to be aware of. 

Commissions and Fees

Surely you’ve heard the economics saying; there’s no such thing as a free lunch. One way or another, investment brokers need to make money from each of their customers. Although many have tried different ways to eradicate or minimize commissions, each trade still bears a small commission. Brokers who boast about having no commission have other methods to make their money with customers, even though it may not be visible in each trade. One of the most significant ways brokers charge investors is through transaction fees, mainly withdrawals from the account.

The amount you pay depends on some criteria, your trade frequency, and profits earned. When making trades, keep your broker’s commission structure. When making a single trade, you buy a company’s shares in essence, and the broker charges you commission for that single trade. However, if you are to buy 3 to 5 shares concurrently, the broker sees each transaction individually, and you will be charged a full commission for each one. These charges apply for both buying and selling; for example, separate commission charges will apply if you were to sell shares concurrently. So, should your trades profit below commission rates, you would have made a loss from that particular position. 

Mutual Fund Loads (Fees)

Mutual funds are different from other investment options; however, the goal remains the same, to yield the best returns for investors. Mutual funds are investment funds that are managed in focused pools for large stocks. This type of investment incurs other costs to it other than trading fees, and beginning investors need to be aware of them. Management expense ratio (MER) is probably the most critical fee for mutual funds, ranging from 0.05% to 0.7%, based on the number of assets held in the fund. However, unlike commission-based investments, the most significant advantage to MERs is that you can invest as much as you want, and the fees will remain the same.

Also Read: 5 Essential Tips for Beginner Trades for Low-Risk Investing

Diversify and Reduce Risks

Diversification is nothing more than agreeing to say, “never put all your eggs in one basket.” To protect your overall investment, investing in a range of assets is a winner. Where one asset loses, other assets are more likely to perform better, and that way, you overall investment profits. In the beginning, diversification may be impossible with minimal investment due to your portfolio and commission rates tied to a single trade. This is where ETFs and MERs come into play.  With many stocks in these funds, they are more diverse and secure compared to a single trade.