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When it comes to investing in the financial markets, this guy had a point:

October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.

Mark Twain

I think if history has taught us anything, it’s that financial markets will go up and down and we, as investors, are simply passengers on this crazy roller coaster ride. What’s more, is that if you decide to try your hand at investing without having the necessary tools/advice by your side, you are essentially riding at your own risk.

Fast forwarding history to the present and getting off this amusement park analogy, I get asked all the time from friends and family members about investing either personally or through their business. While not a financial planner/broker, per se, I do have a professional designation in the field and have over 10 years experience in investing.

So what’s my point? It’s really quite straightforward, actually. To share.

Given the amount of questions I’ve received from all types of people and in all types of places, I thought I’d write down some of the investment tools and resources that I’ve been happy using over the years.

I hope what I have to say will help you take a little of the ‘voodoo’ out of the whole ‘investing thing’, particularly after seeing the results from the annual TD Waterhouse Female Investor Poll this week. When you get down to what you need to know in order to get going, it isn’t all that complicated and can actually be a lot of fun!

So here we go:

1) Start yesterday
One of the most basic concepts in personal finance is investing early and investing often. I won’t bore you with the details, but suffice to say that a dollar today is worth more than a dollar tomorrow. Kind of reminds me of when my grandfather used to say ‘one in the hand is worth two in the bush’. Any connection? I doubt it. He also used to say ‘may you be in heaven a half hour before the devil knows your dead‘. I digress.

2) Look out for #1
Old Irish proverbs aside, I recall waking up one morning when I was a young lad and discovering that my mother had bought me a copy of David Chilton’s (then new) book, The Wealthy Barber. If you don’t have it…get it. If you haven’t read it…read it. It’s FULL of great tips on how to develop the internal discipline behind personal finance. One of those points is ‘pay yourself first’. I couldn’t agree more.

The idea behind it is simple. Essentially, it involves putting aside a portion of your income (he suggests 10%) every month straight off your paycheque (or paycheck, depending on where you’re reading this) and invest it for the long term. He goes on to demonstrate that with a decent rate of return, your ‘portfolio’ will explode over time (like tens of thousands, even hundreds of thousands, of dollars). The trick…and the key…is doing it automatically. Trust me, once you get into the habit, you probably won’t even remember or notice you’re doing it!

Thanks to lazyinvestor, you can take a quick spin through the Wealthy Barber book review…nicely done.

3) Adopt a long-term view
It’s a fact (that isn’t necessarily all that well known off of Wall Street or Bay Street, I’ve discovered) that stock markets have trended upward over time. Consequently, an investor who makes a conscious decision to take a longer term perspective and not overreact to short-term market volatility will most likely outperform those who don’t. Outperforming is a good thing.

For instance, an investor who stuck to this principle over the past 10 years would have been a very happy person as opposed to an investor who gave-in to panic-selling whenever the markets declined during the same time period.

For instance, a $1,000 investment in Canadian equities (as measured by the S&P/TSX Composite Index - a fancy name for something that basically measures an ‘average’ level of all the stocks available to the public markets in Canada) in June 1997 would have been worth almost $3,000 10 years later. I like that math…

4) Balance is a good thing
If you’re familiar with the phrase don’t place all your eggs in one basket, you’ll appreciate that investing in the stock and bond markets will always involve some degree of risk. However, by spreading that risk among several asset classes, the chances increase that when one asset declines, others will help to offset those losses.

A balanced investment strategy is a fancy term for doing something quite simple. Essentially it means investing in different types of unrelated investments (like stocks or bonds) and markets (like domestic or international) in addition to selecting the individual securities within each of them. I thought that millionairemommynextdoor had some good points on this as well, including starting early and diversifying through a balanced portfolio.

5) Choices choices choices

In order to be able to sift through the galaxy of choices you have out there, you should probably know what’s what. I thought that sherry did a great job of that with her mutual funds 101 post.

If you have a good grasp of the terminology and a basic understanding of how it works, it’s time to start the fun part…screening and selecting!

For the analytical out there, I have used the globefund fund selector in the past and think it’s a great place to look for all kinds of funds, fund managers. For instance, here’s a great place to start when looking for a global balanced fund. Morningstar’s Fund Quickrank is also a great place to go…particularly around tax time and their RRSP Calculator. There are loads of others out there, but these two are a great place to start.

6) Don’t be afraid to put your hand up
It is never a bad thing to admit you need some help or guidance. My advice is that if you are still are uncomfortable with any of this, or you simply just need to test some of your views or things you’ve discovered, I’d consult a financial advisor or someone who is close to it. Why do I say this? The friends and family members who have approached me have come with some very good questions and I’ve very much enjoyed answering them. The fact of the matter is that there are people out there to help…and if you trust that person through whatever circumstance…even better!

That’s it!

Hope you enjoyed what I had to say…if you did, please Shout it Out Loud (buttons below).

Darren

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