Introduction
If you’re new to the world of investing, the sheer volume of information can feel overwhelming. Take it from me—when I first started, my head was spinning with everything from P/E ratios to advanced tax implications. But over time, through my experiences at the CRA, the University of Waterloo, and personal trading, I’ve narrowed down a few foundational concepts that every investor should grasp.
Key notes
- Risk vs. Reward
- Asset Allocation
- Fundamental vs. Technical Analysis
- Diversification
- The Power of Compounding
- Continuous Learning
1. Risk vs. Reward
• The Basics: Higher risk often promises higher potential returns, but can also lead to greater losses. Striking the right balance is key.
• Personal Note: In my own Python-based backtesting system, I learned that chasing high returns without proper stop-losses can quickly sink a portfolio.
2. Asset Allocation
• Why It Matters: The mix of stocks, bonds, real estate, and other assets in your portfolio has a bigger impact on your long-term returns than any single stock pick.
• CRA Perspective: Tax considerations for different asset classes (like dividends vs. capital gains) can also influence how you allocate your assets.
3. Fundamental vs. Technical Analysis
• Fundamental Analysis: Focuses on a company’s financial health, competitive landscape, and intrinsic value.
• Technical Analysis: Looks at price patterns, volume, and momentum indicators to predict market movements.
• My Experience: Combining both—say, using fundamental metrics like earnings growth alongside technical signals such as RSI—can give a more holistic view.
4. Diversification
• Don’t Bet It All: Spread out your risk across various sectors and even geographies.
• Hackathon Insight: My team’s factor-based strategy won out in part because it diversified across multiple factors (value, size, momentum, quality, and volatility).
5. The Power of Compounding
• Long-Term Growth: Reinvesting your profits and dividends can yield exponential growth over time.
• Practical Tip: Even modest monthly contributions, started early, can lead to significant gains down the line—something every college student should remember.
6. Continuous Learning
• Stay Curious: The markets evolve, and new financial instruments emerge regularly. Keep educating yourself.
• Certification & Training: Courses I’ve taken on Udemy, advanced Excel, and SQL have all helped me adapt to the changing demands of financial analysis.
Conclusion
Investing 101 isn’t about knowing every complex formula; it’s about building a strong foundation in risk management, diversification, and continuous learning. Whether you’re a student or a seasoned professional, these core principles remain constant. Embrace them early, and you’ll be well on your way to achieving your financial goals.