Diversification: A strategy to reduce your investment risk

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Investing has become more popular than ever, with news outlets, online forums, and maybe even your friends and family discussing the next big stock, sector or industry to invest in. Investing entirely in one thing can be tempting when all you hear about are high returns, but it also means the value of your entire portfolio can drop based on the movement of one stock or sector. Learn more below about how diversifying your investment portfolio can help you manage risks that could impact your returns.

Investing in the stock market always carries two inherent risks that comprise your total risk. The first, called systematic risk, is derived from broad market factors that impact the entire market and are something investors can’t control. These include interest rate changes, inflation increases, war, recessions, and even a pandemic like the world is currently facing. The second, called unsystematic or residual risk, is the risk inherent to the investment in a particular company, industry or market. This can include a new competitor in a company’s space or changing laws or regulations on an entire industry that impacts all the businesses within it. While investors cannot entirely remove unsystematic risk, they can take steps to reduce it and lower the total risk of their investment portfolio.

How do I diversify my investment portfolio?

Diversification is the act of spreading risk across your investments so that when some investments or sectors in your portfolio are performing poorly, you’ll have others performing well. Investors should look at their entire investment portfolio and evaluate the weighting of their investments across companies, industries, sectors and markets. Are most of your investments located in one country? You may want to explore investing in global stocks. Are you invested in too many technology companies? Consider broadening out into other sectors like financial services, energy or consumer staples. By creating what’s called a balanced portfolio, you can minimize the substantial losses you might experience if you were heavily invested in any one stock or market. If you’re having difficulty building a balanced portfolio, you may want to work with a registered financial planner or registered financial advisor to create a portfolio right for you.

Why diversify my investments if they are doing well?

It may be difficult to justify diversifying your investments if they are doing well, but remember that no security or market will altogether avoid downturns. Regardless of the investment, company, industry or market you choose to invest in, there are various unsystematic risks. These include business risk, financial risk, strategic risk and legal and regulatory risk. Each of these can impact your returns. Without diversification of your investments in different markets, industries and companies, your investment returns could feel the full effects of all this risk.

You can’t predict the future, but you can hedge against risk.

Even when you thoroughly research your investments, you still can’t foresee all the risks you may encounter. Diversifying your investment portfolio won’t protect you entirely from losses, however, it can help drive steadier returns in the long run and help you achieve your investment goals.

Robo-advisers: The best way to invest?

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First launched in the early 2000s, robo-advisers were used as an online interface to assist investment managers in handling their client’s assets efficiently. Since 2008, robo-advisers have become publicly available, providing beginner and experienced investors with a simple and relatively low-cost automated investing service. As with any investment product, it’s essential to understand how a robo-adviser works and if it aligns with your goals, risk tolerance and investing needs before diving right in.

How do robo-adviser’s automate investing?

At the core of any robo-adviser platform are complex mathematical rules and algorithms designed in collaboration with investment managers, financial advisers and data scientists. These algorithms’ common goal is to provide investors with a standardized investing portfolio aligned to their desired risk preference, time-horizon and expected return range. The portfolios can include any mix of securities, including exchange-traded funds, stocks and bonds, which are auto-rebalanced over time to maintain the right amount of risk and diversification. Investors can contribute to the portfolio whenever they like and can change their portfolio risk level as they see fit, but they can’t change the individual investments held within their standardized portfolio.

Robo-adviser fees

Considering robo-advisers do not require an investment manager or financial adviser’s assistance in managing the portfolio or meeting with the client, the fees are generally lower. The fee structure for most robo-advisers includes two main components, an account management fee for using the platform and an investment expense ratio for the securities held within the portfolio.

Is a robo-adviser right for you?

Robo-adviser’s may sound like the ideal investing service, but there are a few considerations to keep in mind before opening an investment account or changing your current investment strategy. When it comes to personalization and risk, robo-advisers are designed to provide a relevant portfolio by asking you a series of pre-determined questions when opening an account to help meet your preferred risk tolerance and investing goals. While this does help to suggest an optimal portfolio, robo-advisers do not compare to the comprehensive and personalized services a registered investment manager or financial adviser can offer. Registered investment professionals can develop a tailored investment strategy that helps you achieve your current financial goals and adjust your investments as your risk tolerance and priorities change in life. Human interaction with a registered investment professional can also grow your understanding of investment products, your investment portfolio and enable you to stay focused on your goals.

Robo-advisers have skyrocketed in popularity, providing many investors with a low-cost, diversified and hassle-free approach to wealth management. If you are interested in a robo-adviser, consider the level of investment guidance you need and whether a standardized portfolio is a right tool for your investing strategy.

Considerations before investing in meme stocks

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You may have heard or read about a series of select companies discussed heavily on social media and Reddit, surging in value seemingly overnight. Referenced as “meme stocks” in the news and online, these companies are a select but growing assortment whose significant growth in price is fueled by the excitement and hype generated on social media and online forums like Reddit, and may not always accurately reflect underlying fundamentals. While the idea of buying into these companies with the expectation of huge returns may sound enticing, there are a few things you should consider before investing your money.

FOMO can lead you to risk far more than you’re comfortable with

FOMO, or The Fear of Missing Out, is one of the most challenging obstacles investors can face, especially when investment opportunities are championed on social media by seemingly everybody. While some investors have made money from meme stocks, many others lost substantial amounts due to the volatile spikes and dips in their values. As concluded in the Stanford Encyclopedia of Philosophy, people have a strong tendency to want to avoid losses, and when it comes to investing, that can mean both wanting to get in on the next “big thing” or holding on to a stock that is losing significant value with the hopes that it will change. Before investing in any stock online, contemplate if you’re able to stomach a high level of risk and the possibility you may lose most or all of your money.

Investing in social hype instead of fundamentals can expose you to fraud

Investing in stocks can be a powerful tool to grow your wealth but requires you to do considerable research into the company, the products and services it offers, the experience of its leadership and the industry landscape it competes in. Doing your due diligence enables you to assess whether the company is legitimate, has the potential to grow in value and whether the investment is suitable for you and your risk tolerance.

Online forums for investors to meet up and discuss investment opportunities have led to a blend of both speculation, hype and in some cases, inaccurate analysis. Online forums and social media can also quickly become an echo chamber of a particular positive sentiment towards a stock with little or no fundamental business reasoning. This can result in wild swings of the stock’s price that make it virtually impossible to make sense of the stock’s real value as it no longer corresponds to the company’s performance.  While not all investment opportunities hyped up on social media are fraudulent, scam artists also use this avenue to promote fraudulent investment scams to excited investors.

When it comes to your investing strategy, never let social media channels be your sole source for investing information and research. Before investing in any company, research its fundamentals and legitimacy to avoid the heartache of an unsuitable or, worse yet, fraudulent investment.

Investing in meme stock can derail your investment objectives and financial plan

Developing a financial plan and objectives for your investments is an important first step for any investor. By considering your age, life goals, time horizon, and level of risk tolerance, you can develop a meaningful plan of action that may combine various securities like exchange-traded funds, mutual funds, and stocks to meet your goals. While helping you achieve your goals, a financial plan also helps you evaluate any new investment opportunity against those goals.

Meme stocks are a relatively new phenomenon that can quickly derail your financial plans if you let them. The hype of massive returns echoed by other investors online can blind you to the age-old fact that high returns in the investment world come with higher risk. The speculative nature of these investments and the hype that social media brings to them does not guarantee wealth. If you plan to incorporate meme stocks into your financial plan, seriously consider if you can absorb a loss of some or all of your investment.

The foundation for long-term investing success relies on the core concepts of diversifying your investments, maximizing the power of compounding interest and always sticking to the right level of risk for you. With the rising popularity of meme stocks, it may sound like an appealing way to start investing or a relevant strategy to integrate into your financial plan, but it could end up doing far more harm to you than good.

Learn about the factors to consider when investing in meme stocks →

 

 

Understanding investment accounts

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Just as it’s important to select the right type and mix of investment products (e.g. cash equivalencies, fixed income securities, equities and investment funds) to meet your financial goals, so too is choosing the appropriate type of account to hold them in. Understanding the different types of accounts available to you can help you maximize your gains and reduce the amount of income taxes you owe. 

You can use several types of investment accounts in Canada that are broadly categorized as either “registered” and “non-registered”.

Non-Registered Investment Accounts

Non-registered investment accounts are the most flexible, with no restrictions on how much you can contribute or withdraw. They can be opened at any financial institution or registered firm.

Interest income in a non-registered account is fully taxed at your marginal tax rate, with some special considerations for dividends and capital gains. Dividends are taxed based on the province you live in, while capital gains and losses are calculated on a net basis with taxes at your marginal rate paid on 50 per cent of its value. While this account may seem like a logical first step for new investors, it’s worth understanding the benefits and characteristics of registered accounts before opening a non-registered account. In order to learn more about the different investing accounts available to Canadians, visit CheckFirst.ca and the Government of Canada website.

Registered Investment Accounts

Tax-Free Saving Accounts (TFSAs)
TFSAs, launched in 2009, have unique features that allow you to shelter your investment gains from most taxes. Without the tax implications found in a non-registered account, investment gains in most cases can be fully realized once withdrawn. As a result, TFSAs are becoming increasingly popular among Canadians.

Another unique feature of TFSAs is the contribution room limit. Every year the Canadian government provides additional contribution room to all Canadians. If you were 18 or older in 2009, you are eligible to contribute the full amount of $75,500; if you were younger than 18 in 2009, your contribution room would have started when you turned 18. For the 2021 tax year, every Canadian 18 and older received an additional $6,000 contribution limit in their TFSA. It’s important that you don’t over contribute to your TFSA however, as the excess amount will be subject to a one per cent per month penalty tax.

Registered Retirement Savings Accounts (RRSP)
RRSPs were introduced to Canadians over 60 years ago in order to encourage and reward them for building a nest egg for retirement. By using them strategically, they can benefit you now and in your retirement. For example, contributions you make to your RRSP allow you to reduce your income tax in a specific year by your marginal tax rate applied to your contribution and, if contributions are invested, can even grow tax-free. Additionally, you can use the money in the RRSP account to purchase or build a first home (Home Buyers Plan) and for post-secondary expenses (Lifelong Learning Plan) tax-free if paid back within 15 years. Once you retire, any withdrawals from your RRSP will be taxed at your retired tax bracket, which in theory should be lower than when you contributed during your working years.

While an RRSP can help you grow your wealth for retirement, special rules do apply. You may only contribute up to 18 per cent of your earned income from the previous year, and if you withdraw funds from the account early, immediate withholding tax is applied and your contribution room is permanently reduced. Once you reach 71, your RRSP is automatically converted to a Registered Retirement Income Fund (RRIF) and you can no longer contribute to the account. Instead, you must withdraw a calculated amount each month, which will be taxed at your marginal tax rate. If you withdraw more than the allotted amount, you will be subject to the same withholding taxes as if withdrawn prior to retirement.

When it comes to investing, where you invest is just as important as what you invest in. With a better understanding of the different accounts and their unique benefits and downsides, you may find that one or a mix of different types of accounts can help you better realize your financial goals and grow your wealth for retirement.

2021 Top Investment Risks

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The year 2020 will long be remembered for its challenges. Global crises, like the COVID-19 pandemic, can create great investment opportunities, but can also create emotional and stressful situations that are often exploited by fraudsters looking to scam you out of your hard-earned money. As you consider your financial planning for the year ahead, it’s important that you research any investment to ensure it’s right for you and have the information necessary to protect yourself from the common tricks of scam artists.

To inform and help empower you to make the right investment choices and to protect yourself, the Alberta Securities Commission (ASC) released its list of the top investment risks and possible scams to look out for in 2021. This list is based on investor complaints, ongoing investigations and current enforcement trends.

1. Investments related to COVID-19

A common scam is a pump and dump scheme, where fraudsters promote the opportunity to invest in new products or services to (in the case of COVID-19) aid in the battle against the pandemic. In reality, their claims are false and misleading. After they have heavily promoted (“pumped”) the “opportunity” and the stock prices get artificially inflated, the fraudsters “dump” their stock at the high price, leaving investors with nothing once the truth is revealed and the price of the stock falls dramatically. When investing, do your own homework and carefully research the company and the investment. Make sure you are comfortable with the risk associated with the investment you are considering.

2. New and emerging industries

New and emerging trends/industries make it easier for fraudsters to build investment scams and promote them with false information. There is usually limited information surrounding emerging industries and plenty of hype and excitement for their future potential. So while the new industry may be legitimate, be wary of anyone offering you an investment that seems to have vague or confusing details and sounds too good to be true.

3. Great expectations

Be wary of high-risk investment opportunities, especially if they promise high returns resulting from a proposed deal involving a letter of intent. Proposed deals can fall through, so if it’s being promoted as a sure thing, you should be wary. Before you invest, research the company, the deal and the parties involved. Even if it’s not fraudulent, make sure you’re comfortable with the risks associated with the investment.

4. Affinity fraud

Affinity fraud occurs when victims are introduced to scams by someone they know, such as family members, friends or co-workers. Fraudsters often target ethnic communities, religious organizations, social clubs or professional groups. They pretend to be part of the community and take advantage of the trust and relationships that exist within. They often flaunt their success or wealth and use unsuspecting people to promote the scam to others who trust them. Even if you trust the person encouraging you to invest, protect yourself by researching the person and/or company selling the investment, and make sure they are registered to sell it.

5. Non-registered people selling investments

Generally anyone selling investments in Alberta must be registered with the ASC and lack of registration is a key red flag of fraud. Be sure to check the registration of any adviser or organization and be wary of anyone who tells you that registration isn’t required for the products being offered.

6. Fraudulent ads to work from home as a day trader

Ads that claim you can make good money by working from home as a day trader are popping up more frequently. They say no experience is necessary and all you need to do is pay a fee for the training. However, often, the firms offering these services are not legitimate and the goal is to steal the money you paid as a “fee”. It’s important to remember that, to trade securities, you need to be registered. Also, trading stocks or foreign-exchange is inherently high-risk and complicated.

Protect yourself in 2021. Do your research. Keep an eye open for the red flags of fraud and report any suspicious investments to the ASC’s public inquiries office. The free resources on CheckFirst.ca will help you stay informed, and the new Fraudster’s Playbook “Don’t be Fooled by Fraud” outlines steps that scam artist take so you can recognize and avoid them.

How financially fit are you?

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The New Year has arrived and while health and fitness resolutions easily come to mind, have you considered how financially fit you are? Undue stress from your finances can have a negative impact on your health and wellbeing, but there are several actions you can take right now. Check out our tips to help set out your 2021 financial goals on the right foot!

1. Review and refresh.

Blue Monday gets its name for a reason. The holiday cheer has worn off and your first post-holiday credit card statements have arrived. Check what you spent against your budget and make a plan. The New Year is a fresh start and you can take this opportunity to assess your budget, revise your financial goals and create a plan to repay any debt. CheckFirst offers a wide variety of calculators, quizzes and worksheets that can help you evaluate and set your 2021 budget no matter where you’re starting.

2. Don’t let new goals overwhelm you.

If you’re setting out with new investment goals in 2021, don’t let them consume you. It can be easy to get lost in the sea of investment options, unfamiliar language and complex mathematical equations by yourself. If you’re looking for a crash course in investing that’s taught in plain language and easy to digest, consider the wealth of resources, quizzes and videos at CheckFirst.ca so you pick the right investments for you and your financial goals.

3. Find the right fit. 

The root cause of financial stress can often be linked to a lack of information. If you aren’t working with a financial adviser, take some time to consider it. A relationship with the right financial adviser can help make you a more informed investor who is comfortable with their investment decisions. Before you work with anyone new, always be sure to check their registration and ask key questions to make sure they are right for you. With few exceptions, securities industry professionals are required to be registered with the securities regulator in the jurisdiction where they conduct business. Registration helps protect investors because securities regulators will only register firms and individuals if they are properly qualified, helping you to rest easy.

4. Break up with bad relationships.

Another big source of stress can stem from distrust in your investments or financial advisers. This year, once you’ve evaluated your finances and goals, don’t be afraid to end relationships that aren’t working for you. If an investment, financial partner or financial adviser isn’t providing what you need to feel comfortable and successful, don’t be afraid to speak up. Remember, they’re supposed to work for you.

5. Nothing is set in stone.

While goals can help you clearly define where you want to be, the path to get there isn’t cut and dried. Don’t be afraid to pivot on your financial plan, or change direction throughout the course of 2021 as needed. Your finances should be arranged so as to help you achieve your goals. If something is bringing you undue stress, now is the time to change it!

As you embark on your financial journey in 20121 don’t forget to visit CheckFirst.ca for free, unbiased resources. Wherever you are in your investment journey, CheckFirst is your go-to website for financial knowledge and investing wisely.

 

Three ways to approach financial stress during the holiday season

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As we move into the holiday season and prepare to close out a year that has brought challenges for so many in Alberta, we at the Alberta Securities Commission wish you and yours a healthy and safe holiday season and a happy new year.

As always, we are a resource for you. Whether you would like to strengthen your financial knowledge or learn about avoiding and reporting investment fraud, the Alberta Securities Commission has free and unbiased resources on CheckFirst.ca to empower you through every step of your investment journey.

In the meantime, to help you make the best decisions for you this holiday season, we want to share a few tips to help you navigate your own financial well-being. These tips may even help you and your family better connect with the true meaning of the holidays.

1. Look for new ways to show you care

While buying things for friends and family may have been a prominent way to gift give during the holidays historically, it’s certainly not the only way. From butter tarts to frozen casseroles, baking and preparing ready-to-eat meals is an economical gift that’s sure to please friends and family who have a sweet tooth or are too busy or tired to cook. For those gift-givers who are terrible bakers and cooks, writing a few heartfelt words in a holiday card is another thoughtful gesture to connect with friends and family safely.

2. Develop a budget before you start shopping

Much like investing, attempting to holiday shop in stores or online without a plan can lead to bad gifts and, worse yet, unintended spending. When it comes to shopping without debt regret, start first by identifying who in your life really needs a purchased gift. Is there a way you can whittle that list down further? Your best friend did comment how much she loved your sourdough made with your famous starter named Clint Yeastwood; could you share a little jar of starter and some instructions? Once you have developed your list of gift recipients, try and set strict price limits on each gift and ensure it fits realistically into your budget. Once you’re ready, gift shopping can bring less anxiety if you consider supporting local businesses and avoid using credit cards.

3. Don’t let big sale days throw you off course

Black Friday and Boxing Day sales can be a double threat to your budget. With massive sales on practically everything, businesses push hard to get you to whip out your credit cards for the latest tech toy or kitchen gadget so you don’t miss out. The best way to avoid unnecessary spending during the holidays is to pause before any purchase. Weigh it against your financial obligations. Does a new mixer sound as appealing as eliminating $500 from your credit card balance? Do you really need a new 60” TV? If there was ever a year to focus on the essentials and minimize your financial stress, 2020 just might be that year. Avoiding big sale day impulse purchases can give your finances a considerable boost come 2021.

It’s easy to get wrapped up in your historical spending habits over the holidays and the financial stress that comes afterwards, but by making a few tweaks to your normal routine you can enjoy the holiday season with loved ones and ensure that you enter the new year on a stronger footing.  If you would like more information on refining or creating a budget, check out our Know your budget calculator at CheckFirst.ca.

 

Keeping your money safe while investing

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Investing can be part of a healthy financial future, enabling you to grow your money for retirement and financial goals like vacations or your child’s education costs. Making sure any investment opportunity fits in your financial plan or goals is important.  So is protecting yourself from market manipulation or investment fraud.

In a recent study by the Alberta Securities Commission (ASC), 1 in 4 Albertans believed they were approached with a possible fraudulent investment. As COVID-19 continues to affect our lives, associated scams have emerged as fraudsters try to exploit the crisis to profit from Albertan’s fears and misinformation. While the look of a scam may vary, fraudsters follow a series of steps that are easy to identify if you know what to look for. To understand those seven steps, the ASC created a new resource entitled “Don’t be fooled by fraud”.  It outlines the steps fraudster’s take, in addition to providing information on how to avoid a scam and protect yourself.

Step One:  Identifying a potential victim

A fraudster’s first step is to identify targets. They leverage current events like a pandemic or economic downturn and source vulnerable investors with common anxieties or fears about their money.

Step Two: Befriend and earn trust

Once fraudsters have found suitable targets, they move quickly to cultivate friendships and gain trust. They often do this through community groups, organizations, online groups and through your friends or family to establish themselves as a reliable resource and authority.

Step Three: Showcase the benefits of investing

As the targets become trusting, the fraudster will flaunt their wealth and success to establish credibility. They will casually mention the investment opportunity that brought them this wealth, telling them that it came at little to no risk.

Step Four: Offer the investment

With the potential target’s trust in place and the perceived credibility of his investor savviness solidified, fraudsters move fast to offer the “investment opportunity”. To ensure targets quickly buy-in and do little or no research, they will sell it as an exclusive or time-sensitive offer, private deal and promise high returns with little to no risk.

Step Five: Receiving money for the investment

Leading up to receiving money, fraudsters will inundate targets frequently with communication, provide confusing and complex paperwork to establish legitimacy, and highlight the urgency of buying-in as soon as possible.

Step Six: Disappear (the Ghosting Act)

Once the target “invests”, fraudsters reassure the victim of the investment opportunity and even request more funds for a bigger payout. Following this, they will delay access to funds and eventually disappear and ignore the target when the scam can no longer be hidden.

Step Seven: Target the victim again ( the Recovery Act)

Fraudsters are hardly finished once a scam is complete. They will often sell the victim’s information to another fraudster or criminal organization, which will contact the victim acting as a credible agency that can reclaim their investment for a fee. This is ultimately another scam in which the victim is robbed again in their attempts to get their money back.

Understanding these seven steps is important so that you can recognize unsafe situations you or someone you know could be in. To learn more, read the fraudsters playbook entitled “Don’t be fooled by fraud”, accessible for free at www.checkfirst.ca/playbook. While visiting checkfirst, check out the other information and resources designed to help you increase your investing knowledge and keep your money safe when considering any investment.

What to consider before day trading

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The number of novice investors day trading has surged during the coronavirus pandemic. People stuck at home have turned to playing the stock market on trading platforms with the hopes of big returns on their investments. While it has made some savvy investors rich, day trading has left many others with massive losses and in worse financial shape than before.

Day trading is risky and different from traditional investing. Day trading involves rapid buying and selling of securities to take advantage of small movements in prices. As a day trader, hedging your bets across a variety of day trades comes with inevitable losses on some trades and gains in others, with the goal of ending the day in the green. Day trading isn’t for everyone, and it takes a particular type of person to ride day trading’s rollercoaster of volatility day-in and day-out. Most individuals do not have the wealth, the time, risk tolerance or the temperament to make money and to sustain the devastating losses that day trading can bring.

If you are considering day trading, make sure you understand its dangers:

Huge risk – losing money is part of day trading.

Don’t enter into day trading if you don’t have the money to lose and you don’t have the flexibility to sustain losses daily across multiple trades.

Quick wins don’t guarantee future success.

Be careful of unfounded confidence and emotional decisions – each trade is unique and a huge win one day could be a loss the next.

Be prepared to treat it as a full-time job.

Day trading is time-consuming – to be successful, you need to have the self-discipline to view it as a full-time job and conduct ongoing investment research and monitoring.

Watch out for claims of easy profits, hot tips or expert advice

Relying on investment advice from day trading firms or platforms, websites, social media like TikTok or charismatic day traders can be dangerous as they may be seeking to gain profit from their recommendations. Don’t believe any claims without checking sources thoroughly.

Remember that seminars, classes and books about day trading may not be objective.

Find out whether anyone offering advice about day trading stands to profit if you start day trading.

Beware of easy training sales pitches.

Day trading training systems are heavily marketed to make it seem like an easy, safe, fun way to make money. These commercials leave out details about the pressure, the importance of researching and testing, and the high levels of risk.

 

If you recognize this and are still determined to try your hand at day trading, make sure you do the following:

Understand the risks and then choose whether this type of investing is right for you.

Know yourself as an investor, your risk tolerance and your financial goals before you decide to day trade. Take our Check your risk tolerance quiz to see if day trading aligns to your investing style. > Go to quiz

Learn all you can about investing and day trading.

In order to increase your chances of success, you need expertise, so read and research all you can on it. Day trading is not ideal for those new to the investing world.

Assess if you have the right personality and discipline 

You need long-term dedication, a focused mindset and the ability to ride the stressful highs and lows of the day trading roller coaster.

Only invest what you can afford to lose.

Day traders typically suffer severe financial losses in their first months of trading, and many never attain profits. Set aside a set amount and don’t get caught up in the hype or panic to invest more as a way to make up losses. Think of it like gambling in Las Vegas – it’s never a good idea to double down at a table when losing. Get up and walk away.

Research a good trading system, and keep at it.

Day trading requires a lot of self-discipline and trust in your trading system and algorithms. It is more complicated than just following a hunch. If you don’t have a system and manage risk, you are more likely to lose money.

Day trading requires expertise. If you do decide to pursue it, do your homework, and develop a financial plan to ensure it’s the right approach for you. Remember, all day trading firms must be registered, visit CheckFirst.ca to check the registration of any firm or call 1-877-355-4488.

5 Steps to Manage Financial Stress

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We are living in challenging times and every day Albertans face the unprecedented combination of economic uncertainty, ongoing COVID-19 dangers, volatile stock markets, a shaky job market and rising costs of living expenses. In a recent national poll by FP Canada[1], more than forty percent of people in Alberta ranked money as their biggest cause of stress in life and more than half said the pandemic had impacted their finances.

Financial stress can impact your health and relationships, while negatively affecting how you approach money and planning for your future. The good news is that you can take control and do what’s right for you. By taking these five steps you can reduce your stress level, optimize your expenses to weather the storm and avoid unwise investments.

1. Start with your budget

When it comes to your finances, there is no better ally than your budget in order to understand where your money goes and give you a plan of action that can relieve stress. If you don’t have a current budget or know how to make one, visit CheckFirst.ca  to build your own. Compare the money you bring in to the house, and your expenses. Consider looking for areas where you can reduce unnecessary costs and make a few changes if you’re spending more than you make. For example, maybe you can take that step you always talked about and cut your cable or stop using food delivery services and cook at home instead. Once you have built your budget, make sure you review it at the end of each month to stay on track. Take note though, a budget isn’t a dream scenario – use real numbers and take action based on what you learn.

2. Establish or strengthen your emergency fund

Unforeseen events happen. Whether your hot water tank goes on the fritz or you unexpectedly lose your job, unwanted expenses can strike when you least expect them. Saving and protecting emergency funds are a great way to hedge your bets against these unforeseen circumstances and avoid the financial impact and stress that can occur. A solid budget includes dedicating some of your income to an emergency fund. Open a separate savings account, ideally one with a decent interest rate and low or no fees, and start automatically contributing what you can. Even $40 every two weeks can net you $1,000 in savings within a year – the key is to consistently save the amount you are comfortable saving, no matter how small.

3. Defer payments

You are not alone in feeling the financial stress of COVID-19. Many Albertans are facing unprecedented challenges, which has made meeting financial obligations like paying mortgages, utilities, and other monthly expenses more difficult. Fortunately, many businesses, banks, service providers and municipalities recognize this and are providing payment deferrals for up to six months to help ease your financial stress. If you’ve reviewed your budget and removed all unnecessary spending, your next step is to identify bills that may qualify for a deferral. Try and pinpoint the smallest bills you can defer that will help you balance your budget.  Just remember that deferred payments still have to be paid – they do not cancel or eliminate the amount owed, but instead put them on hold to give you time to either grow your income, or further reduce your expenses.

4. Consider using an investment adviser or planner

Sometimes calling in an expert is a necessary step to help reduce the stress you might be feeling about your financial future. If you have investments, you are not alone in worrying about the volatility of the stock markets and the rapid changes in your portfolio. Making an appointment with a registered financial adviser or planner and seeking their knowledge and guidance can be a great way to review your investment portfolio against your financial plan, ensure you’re staying on track with your goals, and make any adjustments as needed. Learn how to ask the right questions and check the registration of your investment adviser by searching “Choosing the right financial adviser” on CheckFirst.ca.

5. Beware of “get rich quick” opportunities

Current economic conditions create a breeding ground for fraudsters looking to capitalize on the fear and vulnerability of hard-working people trying to make ends meet. Fraudsters use economic uncertainties and current trends to sell COVID-related investments, forex trading work-from-home opportunities, and too-good-to-be-true offers with the sole purpose of stealing your money quickly and efficiently. If you’re approached with a red flag of fraud such as an investment opportunity with the promise of significant returns with little to no risk, you could be dealing with a potentially fraudulent investment that could make your financial situation worse. Don’t make rash decisions with your money. Learn more about the red flags to be wary of, and always check the registration and disciplinary history of the individual or firm offering you any investment at CheckFirst.ca

Financial stress is an overwhelming reality for many households across Alberta. Take control of your financial security and relieve stress by taking action through these five steps. Visit CheckFirst.ca for free, unbiased resources to empower you through every step of your investment journey, detours and all.

[1] Seto, Steve, Financial stress biggest concern for Albertans during pandemic: survey, 660 News, Jul. 13 2020.