If you are new to investing, staying calm when the stock market feels frantic can be a challenge. Even experienced investors can struggle to keep their composure. Psychologists have discovered that the pain of losing money is twice as powerful as making money. It demonstrates how the market can easily play with an investor’s mind.
Fortunately, investors can do several things to invest more calmly.
Diversify your investments
Firstly, you can diversify your investment holdings. This is a way of hedging your bets and hedging your risks. You are not going to be 100% right on all your investments. Some will flounder, and some might even go to zero. However, by diversifying, you will likely get some winners that can more than make up for your underperformers.
I like to hold a mix of stock investments across exchanges, geographies, sectors, and strategies. A mix of 10 to 20 investment holdings is considered the optimum level of diversification.
Every portfolio should have a few blue chip and dividend stocks
Secondly, it is smart to invest in some lower-risk investments inside a diversified portfolio. These are stocks that may not grow the fastest. However, they provide lower volatility and tend to pay you an income stream through the market’s ups and downs.
Dividend stocks and blue-chip stocks are a great place to look. Canadian Pacific Kansas City (TSX: CP) is a great blue chip stock idea. This company has been in business for over 145 years. It operates an essential transport network that extends across Canada, the United States, and Mexico.
The company is generating strong cash flows and has attractive low-teens growth opportunities. The company has been active buying back stock and growing its modest dividend.
Speaking of dividends, Fortis (TSX: FTS) is another ideal low-risk stock to invest in. It has a 52-year record of consecutively increasing its dividend. This is one of Canada’s largest pure-play regulated utility stocks.
With a solid $5.7 billion per year capital plan, it expects to grow by about 7% annually for the coming five years. It has a strong balance sheet to support its growth plan. Fortis pays a 3.2% yield today.
Invest in your TFSA to stay on top of taxes
A third way to protect your money is to invest inside a Tax-Free Savings Account (TFSA). If you don’t like giving money to the Canada Revenue Agency (CRA), simply start investing inside a TFSA. All your investment income earned in the account is tax-free. That means 15–25% more of your returns stick with you.
Invest with a long-term mindset
A final way to invest more calmly is to think very long-term. Trading is emotionally exhausting. Investing is more of an anchored practice. By investing, you buy stocks that have real businesses. Look for companies that keep growing profits and cash flows. If it keeps executing, why trade in and out?
Aritzia (TSX: ATZ) is a great example. Over the past three years, this stock has risen 594%. The company has executed an incredible growth plan. Its “Everyday Luxury” clothing is resonating with consumers across North America and the world. Yet you’d think these gains came easy. Nope.
Aritzia had seven drawdowns of -15% or worse in the past three years! Two of those were -30% or worse. Volatility is the price you have to pay for access to substantial gains.
If the company keeps executing, the smartest thing you can do is turn off the ticker screen and sit on your hands. If you want true peace in investing, you need to be incredibly patient.
