So last year, I contributed about 15k into a self directed RRSP account. And when the market took the plunge, in fear, the account remained in cash. To this day, it still is in cash not earning anything or working for me. I'm just worried about investing, wondering if this is a M curved recession. Another stock market crash may be on the horizon after the stimulus money runs out.
There is a metric ton of advice that could be offered here, and by virtue of the fact that I don't want to type too much, I will invariably end up omitting some salient tidbits.
But I have a few general pieces of knowledge that I would impart:
(1) Your first goal is to get educated. Read a copy of
The Intelligent Investor. Surf over to
Bylo,
Canadian Capitalist, and
StingyInvestor. Pick up a copy or two of
Canadian MoneySense and
Canadian Moneysaver. Consider this to be the "required reading" portion of your homework.
(2) Based on (1), you should get reasonably acquainted with your objectives -- that is, your risk exposure, your desired asset mix, and how much stock/bond investing is for you.
(3) (a) After all of that, you should re-assess if you are still interested in (and up to the challenge of) pursuing the self-directed RRSP. If not, don't be discouraged or feel bad -- at this point, you simply need to be truthful to yourself. If you can't stomach the possibility of, say, 50% losses, perhaps do-it-yourself stock investing isn't right for you, and an ETF or fund-based approach, such as the
couch potato portfolio, may be more to your liking. At this point, you should possess a sufficient understanding of your own personality to gauge whether or not you can execute the actions that will be required to buy and manage your stock portfolio without allowing your emotions to (detrimentally) take control. (This is a key concept, and something that many investors trip over.)
(3) (b) Assuming that you wish to continue with the self-directed RRSP, reflect on what both Ben Graham and Warren Buffett have suggested -- it is neither the economy nor the market that should concern you. Rather, focus on the quality of the prospective individual companies in which you are hoping to invest, as they are (individually) easier to evaluate, understand, and predict. (For all intents and purposes, ignore the wider markets.)
(3) (c) Be fearful when others are greedy, and be greedy when others are fearful.
(3) (d) With investing of any sort, adopt the viewpoint that you are intending to become a part-owner of a company, and plan your actions accordingly. Always be sure to read the most recent annual and quarterly report front-to-back, and ensure that you fully understand what the company does, how it makes money, how it will grow, and what makes this company "special".
So, if you want some practical suggestions, you may wish to do something like the following. Standard disclaimers apply (do not construe this as financial advice, I am not a professional investor, your mileage will vary, don't sue me if this doesn't work, you need to do your own diligence, and so forth).
( Many people will suggest that, with $15k or as a beginner, you ought to avoid individual stocks. I don't really agree; this strategy worked fine for me when I was starting out, but then, I am both very methodical and also stubborn.
)
Formulate and run stock screens (based on the defensive investing criteria outlined in "The Intelligent Investor" and/or the screens on the Stingy Investor website) for Canadian markets. To do this, I use my brokerage account's stock screening features, which I quite like. (US markets are fine, too, but keep in mind that there exists potential for additional losses due to currency exchange fluctuation.)
Using the summarizing information offered in things like the "Financial Post Investor Report" for each stock, narrow down your selection to a couple of companies that interest you, have a long history of >= 10% RoE per year, low debt, and good cash flow, and which you understand. Then read their annual reports and widdle-down your list. Do a quick search on websites like the
Financial Webring Forum,
StockChase, and
StockHouse to see what other people are saying about these companies.
With $15k, I might consider investing $5k per stock, for a total of 3 stocks, and incrementally keep adding new stocks to my portfolio (in similar amounts) as time went on. (I would do this until I had built up a reasonably balanced portfolio, at which point I may wish to start taking larger positions.) This ensures that your "overhead" (trading costs) are a reasonably small (< 1%) portion of the purchase for each stock.
When buying any stock, always use limit prices which
you define (i.e., do not use market prices). Run your ideas past a friend or spouse, as it's easy to get caught up in the excitement of a purchase and lose sight of "the big picture".
--Kris
