“The wise lender wishes not the risk of losing his gold but to preserve it safely, earning liberally for its use.” – The Richest Man in Babylon
Preview:
49% of Canadians who don’t invest say it’s because they don’t know enough about it, according to a survey by the Investment Industry Regulatory Organization of Canada (IIROC). But the truth is, anyone can learn how to invest successfully by following some fundamental principles. Whether you’re a student like me or someone interested in building wealth for the future, understanding these foundational strategies can set you on the right path. In this post, I’ll share my journey with investing, including how I achieved a 50% return on the TD U.S. Equity Index ETF and why investing in ETFs, major indexes like the S&P 500 and TSX, and large, stable companies like Google and Apple is a smart, low-risk strategy for long-term financial growth.
Why Long-Term, Low-Risk Investing Is the Best Strategy
To attain financial freedom, it is essential to learn the best strategies for consistent returns. Investing alone won’t make you rich overnight, but it is a tool that can assist you in reaching your financial goals.
For those with limited capital to invest, it is even more important to focus on strategies that offer stable, long-term growth. ETFs and major indexes are ideal because they provide a diversified portfolio with minimal effort and lower risk. Unlike individual stocks, which can be highly volatile, ETFs spread out the risk across multiple companies, reducing the likelihood of significant losses.
Additionally, investing in well-established indexes like the S&P 500 and TSX ensures you’re putting your money into companies with a proven track record of success. These companies have weathered economic downturns, adapted to changing market conditions, and continued growing. So rather than trying to beat the indexes, invest in them —you’re essentially betting on the long-term success of the broader economy—a bet that has historically paid off.
ETFs and Major Indexes
The sheer number of options can be overwhelming when starting your investment journey. The possibilities range from individual stocks to bonds, commodities, and cryptocurrencies. However, if you’re looking for a stable, low-risk way to grow your wealth over time, Exchange-Traded Funds (ETFs) and major stock indexes are excellent starting points. These investment vehicles provide diversification by bundling a variety of stocks together, reducing the risk of investing in individual companies. Studies show that 95% of actively managed U.S. equity funds underperform the S&P 500 over ten years, making ETFs that track these indexes a smarter choice for reliable, long-term returns.
Visual – S&P 500, TSX, and NASDAQ Growth
What Are ETFs and Index Funds?
An ETF is a collection of stocks or bonds you can buy as a single investment. Think of it as a basket that holds different types of assets, allowing you to invest in various companies simultaneously. This diversification spreads the risk—if one company in the basket underperforms, the other companies can offset that loss. The S&P 500 and TSX (Toronto Stock Exchange) are two major indexes that track the performance of the largest companies in the United States and Canada, respectively. By investing in an ETF that tracks these indexes, you’re buying a small piece of all the companies within that index, giving you broad market exposure with just one purchase.
Historically, the S&P 500 and NASDAQ have averaged about 10% and 12% annual returns, respectively, while the TSX has delivered around 8% over the past 30 years.
Proof: My Experience with the TD U.S. Equity Index ETF
Now, let me share a personal example highlighting the benefits of investing in ETFs. A few years ago, I invested in the TD U.S. Equity Index ETF, which tracks the performance of the S&P 500. This decision was rooted in my understanding of the U.S. market’s stability and growth potential—insights I gained from reading the Wall Street Journal. Over time, this ETF has given me over 50% return on my investment, demonstrating the power of long-term investing.
This experience isn’t unique to me. Anyone can achieve similar results by following the same principles of diversification and long-term investment. While individual stocks can be more volatile and riskier, ETFs that track broad indexes like the S&P 500 or TSX offer a safer, more predictable return. The companies within these indexes are typically large, well-established firms with a history of growth and stability, making them a solid choice for new investors.
Investing in Giants: Google, Apple, and Companies “Too Big to Fail”
In addition to ETFs and major indexes, another prudent investment strategy is to consider putting your money into large, well-established companies often called “too big to fail.” Companies like Google and Apple have become household names due to their dominance in their respective industries, innovative products, and strong financial performance.
Investing in these companies can be considered a safer bet for those looking to minimize risk while still achieving steady growth. These corporations have a long history of weathering economic downturns and continue to thrive due to their massive market share, diversified product lines, and global reach. For instance, Apple’s consistent innovation in consumer electronics and Google’s dominance in digital advertising make them resilient to market fluctuations. As a result, investing in such companies often leads to more stable and predictable returns compared to smaller, more volatile companies.
By adding stocks of these large-cap companies to your portfolio, you’re not only benefiting from their stability but also gaining exposure to sectors likely to continue growing. For new investors, this can be an excellent way to balance out the more volatile aspects of your portfolio.
How to Analyze Market Trends
Successful investing isn’t just about choosing the right funds—it’s also about staying informed. One habit that has greatly benefited my investment strategy is the daily reading of financial news, particularly publications like the Wall Street Journal and the Globe and Mail. These sources provide valuable insights into market trends, economic data, and global events that can impact investments.
Visual – Wall Street Journal article and data
Proof:
For instance, I found a piece in the Wall Street Journal about Taiwan Semiconductor Manufacturing Company (TSMC) through my daily reading. As the world’s largest dedicated semiconductor foundry, TSMC plays a critical role in the global tech industry, supplying chips for a range of devices, including those used in AI. Recognizing the growing demand for AI technology, I saw TSMC as a prime investment opportunity. By analyzing the data and trends presented in the article, I made a well-informed decision to invest in TSMC.
This decision paid off significantly, as my investment in TSMC saw a 20% growth. This experience underscores the importance of reading financial news and understanding how to interpret the data and trends presented. For example, the increasing investments in AI would likely drive-up demand for TSMC’s chips, making it a strong bet for future growth.
Continuous Learning:
To stay informed of changes in the market, it would be useful to subscribe to newspaper app or extension such as PressReader. To get the most value for your money, purchasing the news articles on Saturdays would be best as it includes a summary of events from the entire week.
Moreover, being aware of broader economic trends is crucial. For instance, understanding the impact of bad employment data on the stock market or increases in interest or inflation can help you make informed decisions about when to buy or sell. A report showing a significant drop in employment might lead to a market dip, presenting a buying opportunity. Conversely, anticipating sectors that are poised for growth, like AI, can guide you toward investments with high potential returns.
Fractional Shares: A Solution for Limited Capital
For those with limited capital, investing in individual stocks, particularly high-priced ones like Google or Amazon, can seem out of reach. However, fractional shares offer a practical solution. Fractional shares allow you to invest in a portion of a stock, meaning you can buy a small fraction of a share rather than needing the capital to purchase a whole one. This approach enables you to diversify your portfolio across multiple companies, even if you only have a modest amount to invest.
Several platforms make it easy to invest in fractional shares:
Robinhood: Robinhood offers fractional shares with no commission fees, making it a popular choice for new investors. You can start investing with as little as $1.
Wealthsimple (Canada): For Canadian investors, Wealthsimple allows you to buy fractional shares with no trading fees, and it’s tailored to those who are just beginning their investment journey.
Charles Schwab Slices™: This program allows you to buy fractional shares of any company in the S&P 500 for as little as $5.
These platforms make it easier than ever to start investing, regardless of how much capital you have, allowing you to build a diversified portfolio that can grow over time.
Final thoughts: Start Your Investment Journey Today
One of the most important messages I want to convey is that investing is not reserved for experts or those with a financial background. While my economics and finance education has helped me make informed decisions, investing principles are accessible to anyone willing to learn. Anyone can build a robust investment portfolio with the right resources, discipline, and a commitment to continuous learning.
If you’re looking to start investing, begin by exploring ETFs, major indexes like the S&P 500 and TSX, and large-cap companies like Google and Apple. These investment vehicles offer a low-risk, high-reward strategy for long-term growth. Commit to staying informed by reading financial news and learning how to analyze market trends. Over time, you’ll gain the confidence and knowledge needed to make more advanced investment decisions.
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About the Author:
Ethan R:
I am pursuing a degree in Economics at York University, with a strong aspiration to be an entrepreneur dedicated to positively impacting people’s lives. Additionally, I have a deep passion for fitness and nutrition.