Investing: Fake it ’til you Make it

Scared to lose money by investing? Try a practice run first.

Investing can be terrifying…seriously! I’ve been working in finance for a while, and the actual picking and choosing of investments has never been (and likely will never be) my thing. Need to know the ins and outs of RRSP’s, TFSA’s, pensions, whatever….I’m your girl. But want to chat analyst reports and company fundamentals, and you can keep right on walking past my office. Here comes the but though….investing is important, and if you really want to hit your long-term saving goals then you better go and make it your best friend (or we’ll settle for acquaintance). Saving up your hard earned dollars is amazing but leaving it sitting in a bank account (even a high interest one) is not going to do too much for getting you to your goals. You need to get those funds in the market and working for you. The longer your time frame, the more you can take advantage of investing and compound interest will be working in your favour.

Whether you decide to go it on your own or enlist the help of a financial advisor, it’s important that you at least know the basics of investing. It’s crazy to me that we go through 12 years of school and never have to take one class on managing your money, it really should be a requirement for all high school students. Investing, building credit, student loans, staying out of debt…these are essential skills for being an adult. You know what isn’t? Advanced algebra, studying poetry, and knowing the date Archduke Franz Ferdinand was shot have been zero use to me since I wrote the respective high school exams. Sidebar over, back to the point. Investing – like it, love it, or hate it….you need to know how to do it.

Where do you start?

Probably the hardest part about investing is actually getting started. You can’t just pick some random company, invest all your savings in their stock and hope for the best. Right? Nope…well not exactly. I am not telling you to actually put your money into anything before you’ve done your research, but there’s no harm in practicing. One of the best ways to get a feel for you risk tolerance, learn about the volatility of the markets and what characteristics to look for in a stock is to build yourself a fake portfolio and watch what happens. This doesn’t even have to cost you anything. There are free services available where you can build a mock portfolio and track the results. I like Google FinanceΒ but Yahoo Finance will also fit your needs, and if you want access to additional research and tracking software you can look into paying for Globe Investor Unlimited or Morningstar.

To get started you’ll need to set up a Google account (but really, who doesn’t have Gmail at this point) and then go to Google Finance. Click on ‘Portfolio’ on the right-hand side of the page and you’ll be able to start adding holdings to your portfolio. Stocks are an easy place to start as you can begin with adding companies you know. Maybe you’re a coffee addict? Add Starbucks. Have a cell phone plan? Buy Rogers, Bell or Telus. Like to travel? Go for Westjet. You get the point. With Google Finance you also aren’t limited to just adding stocks; they also have mutual funds and ETF’s in their database so you can watch in real time how they compare. Here’s a look at a quick fake portfolio I did up using some popular Canadian stocks:

To get this data, I added each company to my portfolio and used the same purchase date (February 1, 2016) and bought 100 shares of each. I looked up the historical price (search for the company using the main search bar, then click on ‘company’ and ‘historical prices’ on the right-hand menu) for that particular date so that I could see a full year of performance. You can absolutely skip this step and use the current date and price to track going forward; adding the historical data just gives you instant results. There’s also a graph you can look at to track performance, it’s not anything special but does give you an idea of how your fake portfolio has done. Check off the S&P/TSX option so you can compare it to how the market has done over the same time period. As you can see below, my portfolio has tracked the S&P/TSX Composited Index pretty closely but is currently lagging behind. That makes sense because almost all of the companies I chose are on the index.

Train Your Emotions

You’ve probably heard people talk about how investing is emotional and to really be successful you need to keep your emotions in check and not let them rule your decisions. It’s not easy to watch a stock you own drop in price day after day but, as long as the company is still stable, that’s the last time you want to sell. A loss isn’t actually a loss (and a gain isn’t actually a gain) until you push the button andΒ sell. Same thing goes for if you’ve had your eye on a stock that just had a big jump in price and is trading at record high levels…probably not the best time to buy-in. By tracking a mock portfolio and watching your investments go up and down day after day, you will be training your brain to not over-react when you’ve got real dollars at stake.

You’ll also get some insight into how much risk you’ll be willing to take. For your first mock portfolio, I suggest adding a diverse range of investments. I wrote about some of the most common types of investments here if you are just getting into investing or need a quick refresher. Pick a few big Canadian companies from different sectors (think energy, banks, communications, retail, etc), a couple of various mutual funds with different risk levels (aggressive growth, income, balanced, etc.), some ETF’s (iShares, Vanguard, and BMO all have offerings), and top it off with random stock picks you think might hit the jackpot. Maybe a friend of a friend was talking about this penny stock (medical marijuana is all the rage in Canada right now) that is going to make them a millionaire, add it in and see what happens. You’ve got nothing to lose at this stage (except maybe your ego) so do it all. What you want to focus on is how you feel when one of your holdings loses a bunch of money…you are NEVER going to be right on all your picks, so you need to know what it feels like to be in the red. If it makes you feel sick and like you are going to lose sleep then that sector is not for you. Figuring out what sort of volatility you can handle in your accounts is half the battle and will really narrow down your investment choices.

Start NOW!

The best part about building a mock portfolio is that there is no reason you can’t go and do it right this second. Google Finance isΒ free, and you won’t need to use any of your own money until you are ready, so even if you’re still struggling to pay down your debt and have no spare cash you can still participate. This way you’ll be even better prepared when you actually do have the money to invest, and it might even help to motivate you to save faster.

What do you guys think? Do you find mock portfolios helpful when you’re just getting started with investing?Β 

Scared to lose money by investing? Try a practice run first.
This post was proofread by Grammarly.

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  1. I definitely agree with your view that the Canadian education system is not offering any money management courses at the high school level. I think the government should make it a mandatory course. Great job with the encouragement for young people to start investing early.

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