Where can I invest (Canadian edition)

This post is sponsored by Equivesto. 

So, you want to start investing but you don’t know where to start?

You hear about investing in the stock market, or maybe in real estate but how do you know which one is the right fit for you? Maybe it’s one or the other, or maybe it’s a combination of both. 

But these two options are not the only ways to invest. You can also invest in private businesses, private mortgages and other alternative avenues. 

Where you invest depends on a few factors including your knowledge level, your risk tolerance and your time horizon. 

Let’s explore how you can invest in stocks, real estate and businesses so you can decide which one(s) make sense for you. 

Investing in stocks

The stock market is a combination of exchanges from around the world. 

To invest in the stock market, an investor needs to open a brokerage account. This can be done through a bank, a robo-advisor or an investment firm. Within their account, they can buy stock, bonds, and other securities. To buy a collection of stocks, an investor may choose to buy Exchange Traded Funds or Mutual Funds in order to diversify their portfolio. Essentially when you invest in the stock market, you buy a piece of a company. You make money if that company pays you dividends or if you sell your stock at a higher price. 

Many people have reaped the benefits of investing in stocks, most notably; Warren Buffet, the third richest man in the world. Mr. Buffet started picking stocks when he was just 11 years old, and by the time he was 16 he had the equivalent of $53,000 in today’s dollars. When you invest your money, you put your money to work. Returns are not guaranteed, but the stock market has been on a steady rise since its inception despite eras of volatility. On average, investing in the S&P 500 index “has returned a historic annualized average return of around 10% since its inception through 2019” (Investopedia)

Unfortunately, many people have also been negatively affected by the stock market. There have been dozens of bear markets where investors saw catastrophic effects. In 1929, the stock market had a massive crash that marked the start of the Great Depression. Millions of people lost their jobs and this period lasted 34 months! Most recently, the stock market was heavily affected by the housing crisis in 2008/2009 and the Coronavirus in early 2020. 

Investing in stocks comes with risks but if you are prepared, and patient, it can be quite rewarding. 

Investing in real estate

Making money with real estate comes in a few different ways. The two main methods you can use to make money are appreciation and cashflow. Appreciation is when the value of the property increases and you sell it or refinance it at a higher price. You can increase your property value by holding in a desirable area, renovating the house, and/or adding amenities. Cash flow is the process of making a profit after all expenses are made. Properties can cash flow each month through rent if the rent is priced accordingly. 

Real estate is a winning strategy for many millionaires including Barbara Corcoran, Grant Cardone, Dottie Herman and more! 

Buying real estate can be more difficult than buying stocks because the cost is typically higher. Traditionally, investors need to come up with a down payment which can be in the tens of thousands. Investors often need to qualify for a mortgage which requires proof of income, employment and good credit, among other factors. 

While it’s true that real estate investing can make you a millionaire, it’s also true that there are nightmare stories for investors who choose this path. Tenants can wreak havoc on properties, illegally withhold rent, and cause you headaches. The reality is: leaks happen, things break down, issues with neighbours arise. Investing in real estate is not for the faint of heart. 

Investing in private businesses 

Investing in private businesses is a lesser known strategy for many people and it deserves more attention. One of the ways private businesses can raise money for their operations that also benefits investors is through Equity Crowdfunding. According to Equivesto, a Canadian Fintech company, 

This is a new type of fundraising that allows private companies to raise money by issuing small portions of ownership to a large group of investors.  This allows many more people to participate in the higher risk, but higher return private investment market.  Now, smaller investors can participate in venture deals which had traditionally required high minimum investments and limited to those who are considered wealthy.

Traditionally, when investors contributed to start up companies, the angel investors or partners put in thousands of dollars of capital and equity. Now, there are platforms that offer a lower barrier to entry. With Equivesto for example, you can invest in local companies for as little as at $100 CAD. To learn more, visit their website. 

There are dozens of ways you can invest. But before you choose whether you pick real estate, the stock market, private business, or a combination approach, it’s key that you know your risk tolerance, time horizon and goals. 

Risk tolerances vary from low to high. Often, there is a correlation between risk and reward. The “safe” options like cash, guaranteed investment certificate GICs, and bonds often provide lower returns. Alternatively, investing in real estate, the stock market, and/or private business has a higher return potential.

To learn more about investing in private businesses check out Equivesto; a platform that works to connect innovative, driven, inspired Canadian businesses with the capital they need to succeed through their community-focused equity crowdfunding platform.