Category Archives: Investing Basics

Could Learning to Invest Make for an Easy Second Income?

By: GenXinvestor

Could Learning to Invest Make for an Easy Second Income?Can learning to invest make for an easy second income?  For those just starting out on their investing journey, I can’t emphasize enough the importance of increasing our financial education and learning about what investment options are available to the average investor.  What follows is a sponsored guest post from financial writer Justin Duke.  

Learning to Invest

Learning to invest can help you make money even while you sleep.  It can bring you passive additional income that has nothing to do with your regular 9-to-5 job.  Gone are the days when people would consider getting a part-time job to meet those extra bills.  Today’s savvy thinker is constantly looking for different ways to make money that generate income without much effort.  Want to know more?  Check out these investment options:

1. Algorithmic Investing

If you don’t have much time to sit and monitor your investments, don’t worry as robot investing can do the work for you, keeping your portfolio balanced.  You don’t have to deal with brokers and other third parties if you don’t want to.  Using algorithmic investing, you can dabble in stocks, investments, index funds, mutual funds, and a plethora of other investment options.

Algorithmic trading uses a set of algorithms programmed to automatically place trade orders. These algorithms are configured based on various mathematical models.  There’s no human involvement in the process, which keeps the trading systematic and more liquid.  You can buy pre-configured algorithms for your preferred form of trading, and monitor them a few times a day.  You’ll find that your trades are executed at the best possible rates, instantly and accurately, bringing you excellent results.

2. Real Estate

If you have the funds to invest in a property, consider how you can leverage the most from it. You can sell, rent, or lease your property to make money in the real estate market.  Partner with professional property managers who’ll manage your properties on your behalf.  Buy smart, sell smart, and rent smart.  Learn to analyze real estate opportunities in different areas.

A Real Estate Investment Trust (REIT) is a sort of mutual fund comprising real estate projects. REIT funds are managed by professionals.  This means you can make money without getting involved.  One fantastic thing about REITs is that they pay higher dividends than you can get from stocks, bonds, or other investments.  Plus, you can buy and sell your REIT shares on the open market at any time, which provides liquidity compared to owning tangible real estate investments.

3. Other Investments

Stocks:  Investing in stocks that pay hearty dividends is a good way to make money regularly.  To know which companies pay great dividends each year, take a look at the S&P 500 Dividend Aristocrats list.

P2P:  Peer-to-peer lending requires proper screening to succeed. Make use of P2P screening tools and watch your portfolio settings to monitor investment gain.  You don’t have to invest too much – even $50 per loan will do.

Deposit Certificates:  Investing in fixed deposit certificates is absolutely low-risk.  No matter which bank or credit union you use, you can pick up one of these.  You deposit your money for a length of time and earn a sum of money in interest along with your capital.

Treasury Bonds:  Treasury Inflation Protected Securities (TIPS) is an investment bond that carries the lowest risk.  TIPS offers a fixed rate despite rising inflation rates.  Your investment value, whatever the purchase value, will grow with growing inflation rates and bring you higher returns over time.

Money Market Funds:  If you are looking for something safe where you don’t lose any of your original investment, go for money market funds.  Your funds won’t be affected by market fluctuations and you’ll also earn some interest.

Annuities:  Annuity contracts can be full of if’s and but’s; best to find yourself a good financial advisor first.  With an annuity, you’re basically investing money and taking a fixed or variable rate of interest in terms of return.  There’s also the equity-indexed annuity that is dictated by stock market ups and downs.

Conclusion

Learning to invest can definitely help you earn a good passive income that can help make your dreams come true.  Not all of us can manage to achieve everything we dream of, with our job salaries.  Sometimes, it’s necessary to get creative and branch out a little.  However, the object is to ‘learn to invest’ and not just go nuts putting money into every this, that, or the other. Learning to invest means doing your research with regard to investment options and being savvy with your cash and your time.

For more information about investing options that generate income check out My Favorite Income Generating Assets.

Image credit: Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Low Cost Investing

By: GenXinvestor

low cost investingWelcome to my post on low cost investing.  When it comes to investing, many people think that success comes from buying the right stock and selling it at the right time.  That it’s all about timing market to get in at just the right time, or selling out of the market when news breaks that there’s gonna be a big drop.

The reality is that nothing could be further from the truth.  The only thing that really matters is understanding that to be successful, all one has to do is to follow the low-cost approach.       

So what is low-cost investing?  Well, low cost investing is all about making our hard earned money go as far as possible.  Following a low cost investing approach is important because there’s so much research out there about how high fees suck the returns out of our investments over time.  

If you want to learn more you can read about the impact that high fees have on investments in my piece on the Danger of Mutual Fund Fees.  Suffice it to say that seemingly small fees of 1%-3% can cost you hundreds of thousands in potential investment returns over a 25 year period.  So here is a post on how to take a low-cost approach to investing.

Low Cost Investing: How to Get Started

When it comes to opening a discount brokerage account, I feel that Questrade is still the best choice for Canadians, which is why I promote them on this site.  They offer low $4.99 commissions to buy and sell stocks, which is half price compared to the usual commissions at TD Waterhouse and other big bank discount brokers.

What Types of Investments Should I Buy?

As far as I’m concerned, the best feature about Questrade is that they offer commission-free ETF (exchange-traded fund) purchases.  This is great news because ETFs are excellent products for old and new investors seeking diversification at the lowest possible cost.

For those who are unfamiliar with exchange-traded funds (ETFs), they are similar to mutual funds in that they hold various securities which offer diversification, while unlike mutual funds, they can be bought and sold like stocks on the exchange and have much lower fees.  Personally, I like the low-cost ETFs offered by Vanguard so I encourage everyone to visit their website for more information on their products.

How to Set Up a Basic Investment Portfolio?

A person can easily create a well-diversified, low-cost investment portfolio by making regular monthly ETF purchases.  Creating a broadly diversified portfolio doesn’t have to be super complicated.  It can be as simple as selecting the Vanguard index ETF below:

30-50 % in an S&P 500 ETF index (VFV)

25-30% in a Global ETF index (VIU)

10% in a TSX ETF index (VCE).

10-25% in a Bond ETF index (VAB)

5% in a REIT ETF index (VRE).

How Do I Manage My Investment Portfolio?

A portfolio like the one above can be set up and forgotten about.  Just revisit the percentages once a year to see where money needs to be added or trimmed to return them to their original allotments.  That’s called rebalancing and it’s a way to sell some of your winners (sell high) and buy the losers (buy low).  This is exactly what every investor tries to do, but very few actually succeed in doing due to human psychology.

Where to Hold Your Investments?

Should you open a Registered Retirement Savings Plan (RRSP)?  What about a Tax-Free Savings Account (TFSA)?  Will I get taxed on my investments if I hold them outside of those accounts?  These are some common questions that people have when it comes to investing.

To figure out where to keep your investments you need to figure out why you’re investing in the first place.  If the purpose is for retirement and you earn over $50k a year, then it makes sense to use an RRSP.  If you make less than $50k a year or you just want to be able to access your money without any penalties, then a TFSA makes sense.  Just remember that if you hold investment outside of these accounts they will be subject to income tax.

Registered Retirement Savings Plan (RRSP)

RRSP contributions give us tax refunds that can be used to make more investments in our RRSPs which will generate further tax refunds and so on.  Or they can be used to invest in a TFSA.  While TFSAs don’t give us tax refunds they do shelter dividends and capital gains from the tax man.  If we follow that 2-pronged investing approach then, over time, it will provide for a more secure retirement and provide a strong financial position more generally.

Personally, I consider an RRSP as “dead money” until I retire because of the penalty for early withdrawals.  For those who don’t know, a person can withdraw money from an RRSP but doing so will trigger an automatic withholding tax, plus the loss of the contribution room.  So it’s really not worth it and will hurt rather than help your finances.

Tax Free Savings Account (TFSA)

The TFSA, on the other hand, is great because you can withdraw money at any time.  If you’re in a pinch for cash you can access money in the TFSA.  It can provide a nice cash cushion or emergency fund.  For more information about the TFSA see my article here.

Investing Outside of Tax Sheltered Accounts

It only makes sense for someone to consider investing outside of an RRSP or TFSA, once they have maxed out their contributions for those accounts.  Holding investments outside of tax-sheltered accounts will most definitely have tax consequences.  

Investors pay taxes on capital gains if they sell an investment that they’ve made a profit on, or when they receive dividend income.  Dividends from eligible Canadian corporations get favorable tax treatment.  Interest, on the other hand, is the worst type of investment income to receive outside of a tax sheltered account because it is the most heavily taxed (at your marginal rate).

Thanks for reading my post on low cost investing.

Image Credit: Image courtesy of Stuart Miles / Freedgitialphotos.net