OK, so you want to learn to fly. You save some money, place a down payment on a Boeing 747, and take the plane out for a spin with the intention of experimenting with different leavers and knobs until you know how to fly. Does that sound reasonable? That's how a lot of people learn the stock market. I would contend there are established paths to success with investing. They are pretty clear. Phase 1 (2~6 months): - save money - store money in a high interest savings account - learn about GIC ladders and the couch potato strategy Phase 2 (12~60 months): - save money - by now, you will probably have a preference for GIC ladder or couch potato. Set yourself up in one or both. - learn what you can about technical analysis, swing trading, day trading, value investing, index investing, and generally make it your business to become familiar with as many investment strategies as you can find. - make yourself aware of market corruption: front runners, dark pools (not specifically corruption but potentially), HFT, etc. - study yourself to learn your capabilities. If you can last 5 years with your stock at 1/2 the price you paid for it, you may be suitable for value investing. Most can't. Be honest with yourself. Consider carefully your personal strengths and how well suited you are for any given investment plan. - Make yourself aware of how much time is required for each investment strategy. Some strategies require more time input than others. How much time are you prepared to invest? - You may come to the conclusion you are best suited to stay with a GIC ladder and/or couch potato strategy. This is not a failure and is likely a good decision. Phase 3 (variable up to 2 years): - save money - If you have selected a strategy that requires significant research, get at it. Don't invest until you have the research under control. - example: If you have selected value investing, don't buy anything until you've read the financial statements for a few years for a significant number of companies. Consider the financial statements from similar organizations, particularly if they have known trajectories, and compare them to the company you are courting. - example: If you have selected technical analysis, spend some time in a fantasy pool to see if you have the chops to play with your own money - Remember: it's more profitable to be familiar with a company than it is to be familiar with a market - Pay attention to the people who predict macro factors (interest rates, economic growth, market trends, etc.). You will know you've studied macro factor predictions enough when you come to the conclusion it's impossible to predict macro factors. Phase 4 (the rest of your life): - save money - be aware there are people making money in most of the other strategies. The strategy you selected isn't necessarily the best but it's important it be the best for you. - be critical when evaluating your own performance. "Almost making a lot of money" is not a success. - the more objective you are, the more you will make with any strategy. Strive for objectivity. - ignore your gut. It's a moron. - be aware you aren't the chosen one. You don't have a better cosmic position than the next guy - keep reading about other strategies. You never know when you may want to graze a different pasture. - be aware that people who are making a ton of money, really are not. Everyone will explain to you how successful they are, why you should shut up and listen to them. You're on your own. You are responsible for your own program so everyone else is your peer, including Warren Buffett. Make your own decisions. You are the one who has to live with them. - Keep in mind, for every 100 online people who declare themselves to be wildly successful, perhaps 0~3 are actually successful. This isn't to say there isn't a world of great information out there but it's your job to be skeptical and analytical about what you believe. - In order to be successful, you will need to be optimistic but you must always beware of snake oil. The standard life trajectory is for younger people to believe everything and older people to believe nothing. The correct balance lays between these. You will never achieve it but a successful investor will work hard on a program of self awareness in attempt to achieve this balance.
I had long planned to write this but hadn't gotten around to it. This is pretty rough but I can add information to fill in the areas I've missed, over time. I will add resources and information, as my oversights are pointed out or I notice them. Any of these ideas need to be researched further by using this site and Google. Phase 1 GIC Ladder: The idea is to create a series of serially maturing GICs such that you are always chronologically near a maturing investment. GIC ladders are one of the most conservative financial strategies. They offer low returns but high security and extreme low risk. Eg: You have $25,000 You purchase 5 GICs, as such - $5000 -> 1 year GIC $5000 -> 2 year GIC $5000 -> 3 year GIC $5000 -> 4 year GIC $5000 -> 5 year GIC In one year, the first GIC will mature and convert into cash. At that point, you would buy another 5 year GIC with the proceeds from the 1 year GIC (will be $5000 + interest) plus any additional money you wish to inject. Every year, there will be money to invest and the opportunity to add to the investment loop. Please notice, this is a 5 year loop but a GIC ladder can be any length of time. Right now, in Canada, I believe Oaken Financial has the highest GIC rates over 3%, based on term. I'm not familiar with American GICs but I'm sure plenty of other members are. The highest rates will vary over time so use a resource like www.ratehub.ca, or a forum like this, to find the best rates. Not every GIC is available from every institution so you will be somewhat limited in choice, based on your broker. You can either transfer your money for the best rate or select the best rate of the options you have. If you are a committed GIC ladder investor as a primary investment vehicle, I suggest you consider the difference even small differences in rates make over a long period of time. You will pay a huge price for the convenience of staying with your broker. If the GIC ladder is part of a hybrid strategy, relocating money to follow the best rates may be less desirable. Couch Potato: The theory behind couch potato investing is that global and national economies grow. Periods of depression and recession are relatively rare. By buying a broad index, representative of a national economy, you will be tied to the fortunes of the country in which the index is based. While you will have off years, there will be far more good years and the gains significantly outweigh the risks in most cases. This is an extremely broad synopsis. Implementing a couch potato strategy is a bit more nuanced but it's something that is easily learnable, understandable, and takes extreme little time to maintain. This last trait is why it is called "couch potato". Use Google to find in-depth couch potato resources. For Canadians, I think https://canadiancouchpotato.com/model-portfolios/ is one of the primary sites with examples for multiple brokerages and discussions of allocation ratios, etc. Other basic strategies: There are also mutual fund options, including mutual funds which basically implement a couch potato strategy. You can simply purchase one fund and they do the work, what little there is. Keep in mind, whenever someone else is managing your money, they are not doing it for free. As always, you pay for convenience. Still, almost any program of saving and investment is better than none at all.
