Now that we're in a brand new year, it's time to figure out what you can do to build wealth this year and for the future. With the new year, there are many new opportunities for investing, and improving your finances.
One of the best ways to improve your overall financial situation is to invest. It's the best way to build wealth over time. Using a more traditional savings account won't help you get the returns you need to build a nest egg or provide you with adequate income now. Plus, inflation will erode your real returns over time. Investing is really the way to go — as long as you are smart about it.
If you are looking for a way to revamp your investment portfolio for a new year, here are a few things to consider:
Build Your Income Portfolio
A good income portfolio can provide you with a way to boost your long-term savings since you can reinvest your earnings, essentially building your portfolio for free. Once you have grown your portfolio to a certain point, you can actually use your income from investing for some of your regular expenses.
One of the best things you can do to build your portfolio for income is to take advantage of dividend bearing investments. Some of the best stocks to buy when looking for returns are those on the dividend aristocrat list. These are stocks that have consistently raised their payouts over time. While you won’t receive a guarantee that the payouts will keep rising, there is a good chance that they will.
Another strategy is to invest in funds that pay dividends. There are a number of dividend ETFs, including those that follow high-yield stocks. You can also balance your portfolio out with a little safety when you invest in bond ETFs that offer payoffs.
You can also invest in companies that offer dividends, but might not be on the aristocrats' list. Many of these companies have decent payouts. QBE Insurance and AWE Limited both offer dividend payouts while also providing the possibility of solid capital appreciation over time.
Don't forget that qualified Canadian companies that pay dividends come with tax benefits. Your dividend earnings from certain companies are taxed at more favourable rates, so your efforts are more efficient over time.
You can also invest in companies like Apple, which may not pay regular dividends, but occasionally pay out. But these stocks are considered good values, and there is a good chance the value will improve over time, dividends or not.
Another way to invest for income is to consider bonds. You won't receive the same level of payout, but in some cases the returns are safer. Adding some bonds to your portfolio along with dividend stocks can be a good move. You can also consider REITs if you want to improve your earnings from real estate, but you don't want to buy property outright.
Long-Term Investing with ETFs
If you aren’t that interested in stock picking, it can make sense to invest in ETFs. These trade like stocks on the exchanges, but come with the diversity of a mutual fund. This can be a great way to start investing and to look for solid capital appreciation over time.
Many stock brokerages allow you access to ETFs, and it makes sense to consider them (we recommend Questrade), especially if you don’t have a lot of money to invest with. Most of the time, the on-going expense ratios are quite low, and you can save on transaction costs if you choose proprietary ETFs offered by the brokerage.
One of your best options is to consider an all-market ETF. These ETFs follow the performances of specific markets. You can get an all-market ETF that follows the performance of all of the stocks listed in the United States, or choose one that follows Australia, New Zealand, and Asia. You can even find all-world ETFs. You don’t need a lot of money to invest in these ETFs, and you can get access to some of the best companies in the world.
It’s also possible to diversify your portfolio with the help of ETFs. There are ETFs that focus on commodities and currencies, as well as on real estate and bonds. You can build an almost completely diverse portfolio without the need for stock-picking, and without the need to worry about individual investments.
If you don't even want to pick ETFs and rebalance your portfolio, look into investing with a robo-advisor. We recommend Wealthsimple for most users, but there are some other great options depending on your situation.
You still need to choose carefully, though. ETFs can still lose value, and you might find yourself in trouble if you aren’t careful.
Boosting Your Investment Contributions
The new year is a great time to boost your investment contributions. You can use dollar-cost averaging to buy what you can with the cash you have available each month. Automate so that you don't have to think about making your contributions. Look for ways to free up more money each month so that you can put more toward your future.
Building your investment portfolio in the new year also includes considering how much contribution room you have for your RRSP and TFSA. You can even increase what you put into an RESP for your children. The important thing is to keep looking for ways invest more so that you can build your savings more efficiently. Using tax-advantaged accounts only increases your ability to build for the future.
Think about what you can accomplish if you increase your investment contributions by even another $100 per month. Whether you cut expenses or work to make more money each month, the idea should be to increase the amount that you invest. That way, you take advantage of compounding interest. Over time, it can mean extra hundreds of thousands of dollars in your nest egg.
As always, it makes sense to create an investment plan that suits your needs and then stick with it. Make sure you vet your new investments for the new year and invest in diverse assets so that you aren't devastated if one type of investment fails.
With the right approach, you can create a more secure financial future through smart investing and consistency.