101 Stocks And Etfs
July 14, 2020
By: Hanson Feng
DISCLAIMER: The information in this article is not provided by a certified financial advisor or financial planner. Returns expressed in this article are not guaranteed and The Written Revolutions takes zero responsibility for lost capital. Please speak with a certified financial advisor, financial planner, or investment planner regarding products best fit for you.
The other day I was out with a friend doing a socially distanced homework/work session on the field and we started talking about investing as we both hold relatively well-paying jobs with good hours. We are now “investment buddies” and talk about our portfolios and our moves in the market.
I Remember in most cases
Higher Risk = Higher Returns
Any non-government insured investment has some form of risk associated with it. For example, in 2008, no single person predicted that the Lehman Brothers would collapse. However, with a diversified portfolio and smart risk mitigation, you’ll likely come out with a profit, even a modest return as an inexperienced trader. Let’s settle what a stock is, it’s a share of a company; when you purchase it you have ownership. This means you have the ability to vote for board members, access certain company information, and receive quarterly profit payouts called dividends. Here are a few tips:
- Buy too big to fail companies: In Canada, the most reputable organizations to buy stocks from are big banks. Most Canadian equity funds are 30% to 40% of banks. In American funds, technology dominates as their technology industries are more developed. Another option is buying companies with exclusivity in a certain industry in Canada; an example of this is Air Canada AC.TO – there’s no other airline big enough to replace it and the government owns significant shares of it.
- Learn the indicators of stock: this is the time to learn what things like a P/E ratio, EPS, Dividend, and Market Cap are. Learn how to read a company’s balance sheet that looks at profitability, revenue, expenses, assets, liabilities, etc. Remember when comparing ratios like P/E and EPS, you should only compare those of similar industries (You should compare RBC (TSX: RY) to TD Bank (TSX: TD), not to Air Canada (TSX: AC)).
- The Stock Market goes off of the economy of tomorrow: If you’re buying a stock for the economy of today, you’ve bought it too late. This is the reason why markets are up amid protests, record unemployment, COVID, etc. Remember Wall Street isn’t Main Street.
- Develop an investing style: Environmental enthusiast? Invest in a zero-fossil fuel portfolio. Feminist? Invest in a women leadership portfolio. Keen on social responsibility? Invest in an SRI (Socially Responsible Investment Funds). There are almost 7000 ETFs that cover almost every industry, market cap, style, and niche.
I Want instant diversification? Try ETFs or Mutual Funds.
For those who have less access to capital, ETFs are a great option to be able to invest in a diversified portfolio without having to put large amounts of capital down. Buying stocks is expensive, between buying and selling it costs $19.95 at most big banks. This may sound little, but most investors don’t buy one or two hundred dollars of a certain company, people put down thousands if not tens of thousands. ETFs (Exchange Traded Funds) like mutual funds, take a variety of stocks, fixed income, derivatives, and cash and bundle them together. ETFs have risen to be more popular as their management fees are far lower and are sold like stocks on the market. There are a variety of types, but the most general type of ETFs are those which replicate composite indexes. A composite index ETF replicates the overall market.An example is an S&P 500 ETF, these cost between $30 to $70 per share. When you purchase that ETF, you’re buying into the largest 500 companies on the NYSE.
There are ETFs that cover industries; from banks to travel to energy. ETFs also come in the form of fixed income, they bundle a variety of debt (corporate, government, and consumer) and sell them to you, this is beneficial as it finds a medium between risk and returns (remember higher the risk = higher the return).
It is important to note that ETFs and Mutual funds both have management fees as they’re considered “managed investment funds”. ETFs are typically managed by AI technology to mirror an industry or market, so their management fee (called a MER) is far lower (under 1% of your investment annually) than a mutual fund. Mutual funds are managed by an active portfolio manager, the management fees for mutual funds typically range between 1% to 3%. Along with that, MER fees are charged in the entirety of the balance NOT the annual gain. This means if this year you lost money in the fund; you’re still charged.
Most banks and investment brokers offer free practice accounts in which they provide $100,000 in “play money,” this means you can get your feet wet with no loss to your own assets. Your bank may have the option to open up a practice account, if not go to Questrade.
A Great Resource is TD Ameritrade’s YouTube Channel, they cover a great variety of investing basics.
Open a Practice Account (RBC)
Open a Practice Account (Scotiabank)