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Step 4 – Select the investments that are right for you
You're now on the final step of your investment approach: choosing the investments that best meet your investment objectives and your investor profile.
When it comes to investments, diversification is the golden rule. Diversification consists in having a portfolio with investments with different features. These are:
- type of investment (e.g., stock bond)
- maturity date (e.g., 1 year, 5 years)
- issuer (e.g., governments, private corporation)
- liquidity
Example
Let's say you have $20,000 to invest. If you put it all in an international equity fund, your portfolio then becomes vulnerable to foreign market fluctuations. If, on the other hand, you spread the amount out among several types of investments—term savings, bonds, dividend funds, Canadian and foreign equity funds—you increase your chances of obtaining a good overall return no matter what the market conditions.
It's important to understand that the major investment categories (liquid assets, bonds, shares) do not all earn value the same way, nor at the same rate. That's why it's wise to diversify and have a wide variety of investments. This way, you always make the most of market fluctuations.
Which investment should you choose?
Use our Savings and investment product selector help you determine which investment best meets your needs.
If you'd like some help
A financial planner can provide a structured action plan to help you meet your personal and financial objectives. To find out if a financial planner is trustworthy, get the answer to 3 specific questions. See Choosing a financial planner.
Did you know?
Leveraging consists in borrowing to invest. You can, for example, borrow to invest in your RRSP. If you can get a higher return on your investments than it is costing you to borrow, then leveraging can be to your advantage. On the other hand, high-yield investments have a higher level of risk. Consequently leveraging becomes riskier. Before you borrow to invest, be sure to discuss it with your financial planner.
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Money question
Are you afraid you might not have enough money when you retire?
Suggested links
A few statistics
According to an August 2008 Léger Marketing poll on behalf of the Journal de Montréal, 36% of respondents had not made an RRSP contribution in 2007 and 15% had contributed less than $1,000.