Investing – How to Invest Your Money for the Biggest Benefit
Why Invest your Money? Get started investing today with this easy guide.
Learn the basics to help get you started on your investment journey.
What is investing and how does it work?
Investing can be an exciting journey but start now with monthly deposits into an investment. But even for the most intrepid investors, knowing what’s best for your investment goals and risk tolerance can be daunting. That’s why we’ve covered the basics to help get you on the right track.
Invest your money for long term success
On this page:
- What is investing?
- What is Stocks and Shares?
- What is Dividends?
- What is Exchange – Traded fund?
- What is Mutual Funds?
- What is Bonds?
- What is Guaranteed Investment Certificates (GIS)?
1. What is investing?
Investing simply means putting your money into an asset, such as property, bonds or stocks, with the aim of it growing over the long term.
There is a wide range of financial products you can invest in. One of the simplest is a TFSA where your interest grows tax-free.
Deciding what’s right for you will depend on your circumstances, investment goals and your appetite for risk.
2. What is Stocks and Shares?
Stocks and shares, also known as equities, offer the chance to buy shares of ownership in a company. You may own just a tiny slice, but the company’s fortunes will affect the performance of your share.
Share prices rise and fall depending on several factors, such as interest rates and the wider economic outlook. However, the biggest influence on the value of your shares is the performance – or expected performance – of the company you’re invested in.
So, as a shareholder, the value of your investment rises and falls with the share price. If the company performs well, your investment has the potential to grow. However, if the company performs poorly, your share price will fall in value, and you may get back less than you invest.
3. What is Dividends?
Dividends are a common way for investors to earn a return from investing in stocks. Dividends are the portion of a company’s profits that are distributed to shareholders. It’s important to note that not all stocks pay dividends — if you’re interested in investing for dividends, you’ll want to choose dividend stocks.
4. What is Exchange – Traded fund?
Exchange-traded funds, or ETFs are a low cost way to diversify your investments. But unlike stocks, which focus on a company’s performance, an ETF tracks an index, a commodity, bonds, or a basket of securities. This means they offer flexibility to active investors while offering an easy way to get broad exposure within a particular market, especially for investors still growing their market knowledge.
5. What is Mutual Funds?
Mutual funds bundle a variety of assets, such as stocks, bonds, and other securities into a ready-made basket of investments. They offer a simple and efficient way to invest in a diversified portfolio without too much research or the need to make complex trading decisions. This means you take on less risk than with individual stocks – but may also have less potential for your money to grow.
6. What is Bonds?
Bonds represent a slow, steadier opportunity to make returns, especially when interest rates are low. A bond is a unit of debt issued by companies or governments, usually at a fixed interest rate. When the bond matures, the original sum of money invested – the principal – is paid back in full. However, if the bond issuer defaults, the investor can lose part, or all, of the original investment and any interest that was owed.
Bonds tend to be viewed as a safer long-term investment in an uncertain economic outlook as they tend to go up in value when interest rates fall, although they can be sold earlier than their maturity date.
7. What is Guaranteed Investment Certificates (GIS)?
Guaranteed investment certificates or GICs are a very low-risk form of investment that acts much like a savings account with a fixed maturity date. You deposit money on a regular basis for a fixed period – effectively loaning it to the bank for a fixed rate of interest. When the investment matures, you’ll get the original sum of money you invested, known as the principal, back with interest.
Like bonds, these are a relatively safe and steady investment. With GICs you’re covered even if the financial institution where you bought your GIC closes down or is unable to pay you when the GIC matures. Coverage depends on the value and type of GIC you hold and is protected by CDIC. www.cdic.ca
With lower risk comes less potential for growth, so, as with any investment, consider your investment goals and risk tolerance before you commit. You should do a Risk profile yearly to know your current risk and risk tolerance level.
Things to consider before investing
Start with an emergency fund
Before you invest your money, you should have an emergency fund to pay for the peaks of your monthly living costs. That’s because you want to avoid needing to access your investments earlier than planned in case of any unforeseen expenses.
Take a long-term view
In general, the shorter the period of time you invest, the higher the risk that you’ll get back less than you put in. That’s because there’s less time to recover from any decline in your investment’s value. Over time, capital investments tend to grow in value. A long-term investment strategy is one that entails holding investments for more than a full year.
Investing always carries the risk that you might get back less than you put in. There are also different costs associated with different types of investments. Trading fees vary, and some funds will have additional charges, so it’s important to understand the costs involved before you decide to invest.
Diversification
Diversification can help you minimize your risk because you aren’t putting all your eggs in one basket. It’s important in investing because markets can be volatile and unpredictable. By diversifying your portfolio you can be in a better position to offset the volatility of individual investments.
Key tips for starting out with investing
- Have a Personal Budget plan so you know how much you can save monthly after all your expenses are paid before you invest.
- Be prepared to invest your money for at least 5 years.
- Investing is a long-term plan.
- Start small and invest regularly – that way, you’ll average out your buying price. (Dollar-cost averaging)
- Start simple – consider starting with simpler investments, TFSA using mutual funds or ETFs within it before moving on to more complex investments.
- Consider taking independent financial advice to help you decide what’s right for your circumstances also working with an advisor will earn you more returns as proven by historical data.
This table shows the relative risk, cost and flexibility of each of the investment options at a glance.
Type of investment | Risk | Cost | Flexibility |
---|---|---|---|
Stocks and shares | Higher | Medium to high | High |
ETFs | Medium | Medium to high | High |
Mutual Fund | Medium | Medium to low | Medium |
Bond | Lower | Medium to low | Low |
GICs | Low | Low | Low |
More About Investing
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