If you’re looking to start investing this year, experts suggest a number of approaches to help new investors make the most of their capital. (Getty Images) ·onuma Inthapong via Getty Images
2024 was a good year for investors. The S&P 500 (^GSPC) broke 50 record highs in 2024 and ended the year up approximately 23 per cent, while the TSX (^GSPTSE) gained 19 per cent. Tech giant Nvidia (NVDA) made titanic gains, soaring nearly 170 per cent last year. On top of equities swinging for the moon, gold prices (GC=F) rose nearly 27 per cent in 2024.
“You couldn’t make a mistake in 2024. It was a recovery year. All the interest rates were coming down from the highs of 2022 and the markets were more favourable,” Tab Pollock, a financial advisor with Neil & Associates, said in an interview with Yahoo Finance Canada.
Record-breaking years can impel swaths of new investors to the market with hopes of gaining massive returns, but investing in any fashion has its fair share of risks. If you’re looking to start investing this year, experts suggest a number of approaches to help new investors make the most of their capital.
Before deciding on what or how to invest, financial advisor and general partner at Edward Jones Jonathan Rivard recommends new investors start by understanding their own risk tolerance and timeline for their capital.
“I always advise clients to take a look at what [their] risk tolerance looks like, and if they can accept their portfolio dropping 10 per cent, 20 per cent, 30 per cent,” Rivard said in an interview.
“Those are the conversations that people need to be comfortable having, either internally or with the financial advisor they work with.”
Rivard says new investors’ ability to stomach volatility should line up with their goals and timeline. For example, investors who have short-term goals like buying a home in a year might not be best suited to fill their portfolio with tech stocks if they can’t “accept volatility,” he says. A guaranteed investment or fixed-income investment might be better.
Overall, Rivard recommends new investors find a balanced approach, at least to start.
“What I often suggest new investors do is consider looking at a balanced mutual fund or balanced [exchange-traded fund] product that’s going to have a mixture of fixed income investments and equity investments in it. That way, you start to build a comfort level… [and] start to gain a comfort level with what volatility can look like,” he said.
Pollock echoes Rivard’s sentiment on ETFs, saying that they are great for younger Canadians and come with lower fees and help investors “spread their risk out.”
According to Pollock, deciding where to allocate your funds is just one piece of the puzzle. The other is deciding what type of investment vehicle to use. Tax Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) are just some of the tools investors can use to invest their funds, each with their own tax benefits and consequences.
Pollock recommends investors get well acquainted with these accounts, either with an advisor or on their own, so they understand the tax implications that come with investing.
“For lower incomes, RRSPs aren’t necessarily the best thing sometimes, whereas a TFSA might be, [though] there are limits, of course.”
Pollock also advises that self-managed investors should closely consider the expenses that come with investing.
“There might be penalties on the back end, for moving the account, for closing the account, he said. “So those things sometimes end up in the small print if people don’t realize those loads or fees that can be on the back end of a fund.”.
Pollock says that while the “Magnificent Seven” tech giants dominated the market in 2024, new investors shouldn’t follow trends and put all their capital in tech stocks.
Instead, Pollock — along with many other advisors — advocates for diversification through different sectors. Self-managed investors can “lower their risk” by spreading their portfolio across manufacturing, resources or financial sectors, or even geographical locations, he says.
Investors who use mutual funds or portfolio managers also should be diversifying their allocations by using multiple funds or managers.
“I’m not a fan of having all my eggs in one basket,” Pollock said.
He notes that some managers have good years and bad years, so investing with multiple portfolio managers can help with the downside risk that comes with each manager’s ability and the market’s inherent volatility.
He offers similar advice for mutual fund investors.
“Every fund has a mandate. So if you decide that you want to buy a mutual fund, and it’s Canadian equity, it’s going to hold… big Canadian companies. If you just buy that [fund type], you’re only getting that [type of exposure],” he said.
Newer investors often feel the pressure that they need to invest at the right time and time the markets, for fear of missing out.
Rivard says that shouldn’t be a concern for investors. Instead, he advocates for a dollar-cost averaging approach.
“Every single month, you remain disciplined on how much money [you are] going to put into a specific investment on a monthly basis. And that way, you’re not buying in at a high. You’re not necessarily buying in at a low,” he said.
Over a period of time, such a plan allows investors to buy into investments at average costs rather than buying a large amount of the investment all at once. Rivard adds that it “eliminates the emotional desire to try and time the appropriate entry or exit point on a specific investment.”
“Dollar-cost averaging is a great way for somebody to get started given around January, to avoid trying to time the ideal entry point,” Rivard said.
Brett Surbey is a freelance journalist and corporate paralegal based out of Grande Prairie, Alberta. Follow him on X @SurbeyBrett
