Your first investment: Where to start?

Your first investment - Where do you star?

RRSPs and mutual funds may have been your first investment, but you want to control your money and investments now.

You hear about your friends who may be in real estate or stocks and now you’re intrigued.

You have funds ready to go in your RRSP, savings account and TFSA, but where do you start when it comes to investing?

First you need to know what your investing goals are. So let’s start there, then dive into some investing opportunities for beginners.

What do you want out of your first investment?

Start at the end and work your way backwards. Do you want:

  • Passive income: You want to see a deposit in your account each month without needing a whole lot of work.
  • Replace your job income / early retirement: You’re ready to put in the work necessary to collect extra monthly income and retire as soon as possible.
  • Comfortable retirement: You like your job and you’re in no rush to retire, but when you do, you want to live as well as, if not better than you do now.

Knowing what you want your investments to do for you will help you decide where to start.

Investing in private mortgages

Private lending is a way to invest in real estate without buying, selling, or maintaining properties.

You lend money to reliable borrowers, maybe a house flipper with a proven track record, and you collect interest cheques every month.

It’s passive until a borrower defaults on their payments. Then lawyers are involved. If you have a trustworthy broker facilitating the deal, though, they may be able to solve non-payment issues quickly for you. 

One advantage of lending on a private mortgage is that you can lend from an RRSP and TFSA. 

Private loans are typically short term, between 6 – 18 months. They can return between 5% and 15% interest, plus a 1% – 3% lender fee that you also collect.

The more yield you collect, the more risk you take. And if the borrower defaults on the loan, your money could be stuck for months, if you get any of it back.

Investing in rentals

Owning a rental property is work. But if you have an agent that can find good deals fo you, they can put cash in your bank account every month.

You’ll need at least 20% of the purchase price as a downpayment, plus closing fees. So the initial investment can be heavy.

Then you need to strictly vet your tenants. One destructive tenant can wipe out all of the cash flow that property can produce for years. That being said, it’s still real estate, so as long as you hold it long term, historically, you’ll end up on top.  

If you have quite a bit of cash ready, a lucrative strategy is to turn a bungalow into a duplex. This lets you collect more rent and increases the value of the property. 

Typically you will be able to refinance the property, take out extra cash, then go buy another property and do the same thing all over again. This is the quickest way to build wealth that we know of. 

Returns for rentals vary widely depending on the market you’re in. Make sure you’re accounting for all your monthly and contingency expenses when you analyze the income potential of a property.

Investing in stocks

You can start investing in stocks with as little or as much as you like. You don’t have to go all in right away if you don’t want to. And you can invest directly in your TFSA and RRSP.

If you’re looking for cash flow, dividend stocks pay cash quarterly. Many income funds pay dividends monthly.

Or if you just want relatively safe appreciation until you’re ready to retire, investing in an S&P 500 fund has returned 460% since 2009. 

Now, stocks are more volatile than real estate. If things go sideways, you can get your cash out within a couple days and mitigate your losses. Or you can continue to hold and buy at the cheaper prices, improving your performance long term.

As I write this, the stock market is going through a massive correction. It can be scary when you first look at it. But for anyone with cash ready to invest, these prices are very attractive.

Can the market drop further? Yes. So maybe don’t dive in all at once. But a few shares here and there. But when you’re confident that it’s starting to recover, then you can get some really good deals.

What do I do with this information?

Once you pick your preferred investment type, dive into education. Learn as much as you can about that investment strategy. Get comfortable with the risks.

Then take the leap.

If you’re still not sure, check out these two resources as well:

That’s all for now.

Happy trading,

Your fellow Stock Hackers,

🍒Cherry & Erwin

P.S. The market dropped almost 20% between January and June this year. Many are worried it could keep going. Will the market crash? What are you supposed to do if it does crash? We unpack all of these questions in our latest FREE report, “What to do if the Market Crashes in 2022.” Download your free copy now!

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