Since the days where you could sock away money in a guaranteed investment certificate (GIC) and get interest rates in the teens are long, long gone, a lot of savers are looking at other ways to make their money grow.
And often, based on what people talk about on the putting green, in the curling rink, or at the gym, investing in stocks seems to be working out for some folks. Problem is it’s one of those things that we hear a lot about, but tend not to know a lot about.
Enter The Canadian’s Guide to Stock Investing by Andrew Dagys and Paul Mladjenvoic. This slim but fact-packed volume teaches you all the information you need to know to get started in stock investing.
The book explains that there is a difference between investing, saving, and speculating. Investing, the authors write, “is the act of putting your current funds into securities or tangible assets to gain future appreciation, income, or both.” That’s different from saving, “the safe accumulation of funds for a future use,” or speculating, “the financial world’s equivalent of gambling.”
The authors then explain the difference between “growth investing” and “income investing.” When you are investing for growth, they note, “you want your money to grow… if you bought a stock for $8 per share and now its value is $30 per share, your investment has grown by $22 per share – that’s appreciation.” Growth, they write, is probably the number one reason people invest in stock.
Income investors are looking more at ways “to invest in the stock market as a means of providing a steady income and preserving risks.” They aren’t, the book notes, looking for stock values to go through the ceiling; instead “they need stocks that perform well consistently,” and that pay dividends.
Dividends, the authors explain, are usually paid quarterly and aren’t the same as interest. Dividends are paid to owners (interest is paid to creditors), and when you own a stock you are a shareholder, or partial owner, of the company that issued the stock. “When you buy stock, you buy a piece of that company,” the authors point out.
So how do you pick a good stock, either for growth or income? First, the authors say, you need to think about supply and demand, “the relationship between what’s available (the supply) and what people want and are willing to pay for (the demand).” Is the company making or selling something that people want, the authors explain, or is it a company “that makes elephant-foot umbrella stands… that has an oversupply, and nobody wants to buy them anyway.”
Next, there’s cause and effect, or, as the authors explain, logic. If you read a news report that says sales of tables are plummeting, “do you rush out and invest in companies that sell chairs or manufacture tablecloths?” On the other hand, good news about sales may be a reason to consider buying shares, the authors explain.
Another factor to think about is “economic effects from government actions.” A government “can willfully (or even accidentally) cause a company to go bankrupt, disrupt an entire industry, or even cause a depression.” Pay attention to what the government is saying if it has an effect on something you are thinking of buying into as a shareholder, the authors note.
The book explains how to look at a company’s balance sheet to figure out its net worth, profitability, and performance.
Other general tips from the book include having “a cushion of money” for emergencies, cutting back on your debt, get as much job security as you can and be correctly insured.
On the investment side, the authors urge diversification – don’t put all your money in one stock, one industry, or one type of investment.
Final chapters explain some of the tax impacts of investing, whether it is within a registered retirement account or a tax-free savings account.
There is a lot covered here, and this book is a great help for any investor.
The Saskatchewan Pension Plan follows many of these principles. During the accumulation period you can choose a growth fund for your savings, and when you go to collect your SPP annuity, it is paid from a fund that is focused on capital retention and fixed-income investments. Be sure to check them out today.
|Written by Martin Biefer
|Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22|