Investing money in Canada for beginners—you can be highly successful, but you need to follow these important tips

We think that investing money in Canada for beginners—or even experienced investors—will be much more profitable with our stock tips. These pointers aim to help you cut risk and at the same time increase your long-term portfolio gains.

We’ve long recommended these tips for investing money in Canada, for beginners and seasoned investors

• Look beyond simple financial indicators
• Think like a portfolio manager
• Hold a reasonable portion of your portfolio in U.S. stocks
• Give your investments time to pay off

Let’s look deeper into each of these tips for investing money in Canada for beginners.

1. Look beyond financial indicators

Investing success comes from making more right decisions than wrong ones over a long period of time. Understanding money and investing requires looking beyond simple metrics.

When they first set out to formulate an investment strategy, many investors decide to focus their stock market research on a handful of measures. For instance, they may want to see a p/e ratio (the ratio of a stock’s price to its per-share earnings) below 15.0, say, along with an earnings growth rate of 20% or more a year, and perhaps a 2% dividend yield.

This approach worked a lot better in the pre-computer age, when investing was more labour-intensive. Few people wanted to dig through old newspapers, annual reports and other material to get at the data. So, more gems were left to be found by those willing to do the work.

Today, if you find a stock with this (or any comparable) combination of favourable ratios, it probably comes with some more-or-less hidden drawbacks not covered by your system. Instead of steering you away from investments that you don’t understand, or that harbour hidden risk, this system will steer you toward them.

2. Think like a portfolio manager

Investing money in Canada for beginners—or even experienced investors—means thinking like a portfolio manager. Portfolio management involves choosing investments for investor portfolios. These selections are based on stock quality, but also on investment objectives, risk tolerance, age and personal circumstances. Understanding money and investing from a portfolio manager’s perspective can greatly enhance your investment strategy.

Portfolio managers choose and monitor investment holdings for individuals or institutions. Portfolio managers choose from a range of investments, including stocks and bonds, to maximize returns for their clients.

At the Successful Investor Wealth Management, good portfolio management includes these 4 criteria:

1. Spread your money out across most if not all of the five main economic sectors (Finance, Utilities, Manufacturing, Resources, and Consumer). The proportions should depend in part on your objectives and the risk you can accept.
2. Balance aggressive and conservative investments in your portfolio, in line with your investment objectives, and the market outlook. Above all, avoid the urge to become more aggressive as prices rise and more conservative as prices fall.
3. Good portfolio management also means balancing your investments geographically. Avoid focusing your portfolio completely on any one country or region.
4. Market leaders and market laggards both deserve a place in your portfolio. Over long periods, high-quality stocks play leapfrog. Some of the lowest-risk, highest-profit buys you’ll ever find are overlooked or out-of-fashion stocks of high investment quality that are coming back into investor favour.

3. Hold a reasonable portion of your portfolio in U.S. stocks

We continue to recommend that Canadian investors diversify part of their portfolio (say, 20% to 30%) in well-established U.S. stocks. That’s because the U.S. market features major multinational opportunities that simply aren’t available anywhere else. As well, many U.S. firms are unique world leaders. Understanding money and investing in a global context is essential for building a well-rounded portfolio.

4. Give your investments time to pay off

Avoid excessive portfolio tinkering, especially when it comes to selling stocks that you feel have gone up too far and too fast. To succeed as a Successful Investor, you need a big winner in your portfolio from time to time. One key fact about big winners is that they tend to go up further and faster than most investors expect, and they keep doing it for years if not decades. If you sell them when they’re just getting started, you may never experience the joy or profit of having a big winner in your portfolio.

Resist the ever-present urge to buy and sell. A sound portfolio, built through careful research, needs surprisingly few changes over the years. Trading less frequently is a good thing, because it gives you fewer opportunities to make costly mistakes.

And as always, follow our three-part Successful Investor philosophy:

1. Again, invest mainly in well-established, profitable, dividend-paying stocks;
2. Spread your money out across most if not all of the five main economic sectors;
3. Downplay or avoid stocks in the broker/media limelight.

In summary, this article provides valuable insights for both beginners and experienced investors in Canada, emphasizing the importance of understanding money and investing. It outlines four key tips for successful investing: looking beyond simple financial indicators, thinking like a portfolio manager, holding U.S. stocks, and giving investments time to pay off. The article stresses the need to avoid relying solely on financial ratios and instead consider a holistic approach to stock evaluation. It emphasizes the importance of diversification across economic sectors and geographical regions, as well as balancing aggressive and conservative investments. The piece also highlights the benefits of including both market leaders and laggards in a portfolio. Additionally, it advises against frequent trading and encourages patience with investments. The article concludes by reiterating the Successful Investor philosophy, which includes focusing on well-established, dividend-paying stocks, diversifying across economic sectors, and avoiding overhyped stocks. Overall, this guide provides a comprehensive framework for Canadian investors to build and manage their portfolios effectively, emphasizing the critical role of understanding money and investing in achieving long-term financial success.

When investing money in Canada for beginners, what do you see as some of the worst mistakes a beginning investor can make? 

This article was originally published in May 2022 and is regularly updated.