…. if you’re doing it right.
Investing can be an integral part of household financial strategy in Canada. Afterall, investing can bring expedient growth to our savings like little else.
We’re not talking about the shout-y, stressful, high stakes investing that we see on TV.
We’re actually talking about the opposite. If you ask us, investing should actually be kind of… boring.
Let us explain.
Investing is Boring
We want to see Canadians empowered to make smart, informed financial decisions for themselves. But there are so many finance topics that are shrouded in mystery, and made opaque by confusing or misleading language.
Investing is one of those topics.
In fact, investing doesn’t need to be as scary, intense, or high risk as it seems on TV (it can be, though, if you’re into that kind of thing).
Playing the Long Game
Watching the stock ticker scroll by on the bottom of a cable news show makes it seem like investors must be glued to their stock performance every second of every day. Some people are. But not everyone needs to be.
Insofar as investing fits into the financial strategy of average Canadians, it’s not about the second-by-second, or the minute-by-minute, or even the year-by-year, necessarily. For a lot of us, our investment time frame spans over decades.
We’re playing the long game.
Why? Because global financial markets fluctuate—sometimes a lot—but over the course of decades, the markets have consistently trended upward.
Some years are bad years—think of the fallout that came with the 2008 recession. But generally, with enough time, losses can be earned back and then some.
When investing smaller amounts of your income every month for decades, it’s more likely you would see a slow, steady growth in your returns.
Diversifying Your Portfolio
The stock market can be a stressful place when you’re only buying one stock, or when you’re trying some sneaky maneuvers, like trying to short a stock (remember GameStop?). Yeah. That stuff? Not boring. Very stressful.
But if you’re instead investing in a diverse portfolio of financial instruments, including fractional shares in baskets like exchange-traded funds (ETFs), you’re way less likely to see such crazy fluctuations.
If you invest all of your money in Stock A, and it goes bust, you go bust, too.
But if you’re invested in Stock A all the way through Stock Z, and Stock A goes bust but the other 25 stocks in your portfolio stay about the same, you’ll be hit with proportionally fewer losses.
Diversifying is all about balancing your risk. Balanced, more predictable, boring? Sign us up.
The other crucial consideration in investing (the boring way) is compound interest. Playing the long game not only makes it more likely your investments will rebound from any temporary setbacks over the years, you’re also taking advantage of compound interest.
It’s said that Albert Einstein actually called compound interest the “eighth wonder of the world.” Not easy to fact check that, but in any case, we agree with the sentiment.
Compound interest occurs when you are assessed interest payments on your principal contributions in addition to all of the interest you’ve earned from previous periods.
This might not seem like much, but over time, compound interest can literally make average Canadians into millionaires.
The secret to capitalizing on your compound interest? Starting to invest early. The longer you invest over the course of your life, the greater advantage you’ll be able to take from this financial “wonder”.
With any luck, your foray into investment may only be as exciting as it is to watch your savings grow over the course of decades, always creeping closer to your retirement goal.
But if you want a little excitement, you might consider investing a little bit into a speculative asset like cryptocurrency.
Crypto is extremely volatile, so we’d never recommend putting all of your eggs in that single basket. But if you’ve got a spare $5 here or there, and you want to follow the market more closely with a bit of skin in the game, it could be a worthy financial instrument.
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Investing is a super powerful way for Canadians to build up their wealth and financial knowledge. Starting early, being consistent, and ensuring diversity within your investment portfolio are key to having a boring—but satisfying—run as an investor in our global financial markets.
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