Tag Archives: BNS

What does it take to be a Good Investor?

In contrary to popular belief, you don’t need to be a great investor to do well in investing, which is to set an attainable income or returns goal and be able to achieve it over the long run.

For example, it’s very reasonable to expect total returns of at least 10% from stock investing.

Some investors require a concrete monetary goal to work towards. For example, you may aim to generate $50,000 of dividends a year or work towards a $1,000,000 portfolio. If that’s the case, break it down — initially, aim for $1,200 of dividends a year or a $10,000 portfolio, respectively. It all starts with saving and investing regularly.

Here’s what it takes to be a good investor:

  • Stick with what you know
  • Be patient
  • Build your risk tolerance

Sounds simple enough, right?

saving, investing, and compounding
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Stick with what you know

When investing in a stock, you’ve become a part-owner in a business. So, especially for new investors, I highly recommend sticking with profitable businesses that generate stable earnings or cash flow growth over time. These tend to be stocks that pay a growing cash dividend over time to its shareholders.

Some big bank stocks in Canada have become quite attractive lately, including Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) or Scotiabank. Banks are traditional businesses. In fact, Scotiabank has been around since 1833!

You know what banks do — at a basic level, they accept deposits, offer interests on those deposits, and lends out those deposits (up to a certain level) for higher interests to make a profit. Later on, they also helped their customers invest their money. They also make money from their investment platforms when retail investors (like you and me) make trades on their own.

If you know what you own, you’re more likely to hold on to your shares through thick and thin. Of course, it helps that Scotiabank pays a regular dividend. In fact, the dividends of the Big 5 Canadian banks, Scotiabank included, are known to be some of the safest in the world. They maintained their dividends even through the last financial crisis.

They all have payout ratios of about 50%, which leaves a big buffer to keep their dividends secure in bad economic times when earnings are reduced (temporarily).

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How to Better Invest Your Money

Some people like the security of their principal and guaranteed returns from Guaranteed Investment Certificates (GICs), which are equivalent to Certificate of Deposits (CDs) in the U.S.

Currently, a five-year term results in an interest rate of about 3%. That’s roughly keeping pace with the long-term inflation rate. So, people are able to maintain their purchasing power that way.

grow a money tree

Invest in the stock market

Investing in the stock market, investors can get markedly better returns. After all, the long-term average stock market returns are about 10% in the United States. The Canadian stock market tends to underperform due to the large exposure to the energy sector.

The simplest way would be to buy periodically in a market-wide fund, such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). For example, if you can save $200 every month for investing, you can invest $1,000 every five months to invest for the long run.

Invest in dividend stocks

For people who’re interested in investing, going with proven businesses that pay dividends is a great way to start. By buying these stocks when they’re relatively cheap, it’s entirely possible to get returns of more than 10% per year in the long haul.

The Big 3 Canadian banks are proven businesses with stable growth. Among the three, both Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) are trading at modest discounts. According to the analyst consensus from Thomson Reuters, both stocks have 12-month upside potential of more than 11%.

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