Investing 101: Understanding how to better grow your money
Have you been saving? That’s great! But what do you do with it? Did you know you should also invest your savings to make money with them? Investing, now there’s a big word. Stocks, RRSPs, returns, TFSAs, risk… It can all get very confusing. Here are some basic concepts you can use early on in your financial journey.
When you start investing, take the time to learn about investment products and feel free to reach out to an advisor for help. This may seem complex at times, not to mention the fact that emotions may influence your decisions. An advisor has the objectivity and knowledge needed to make recommendations that meet your needs.
Key words to learn before you begin
What’s an investor profile? This serves as the basis for your investments. You have to know who you are as an investor. It will determine where and how your money will be invested. Determining your investor profile is the first step: are you more cautious or a risk taker? Several factors can influence your investor profile (e.g., age, investment knowledge, proportion of investment in relation to total value held, outlook and ability to manage risk).
Now that you’ve determined your investor profile, you want to invest your money to get a good return.
That’s the expected return on your investment. As a general rule, performance depend on the type of investment product. Some investment products pay interest or dividends, while others must be sold for capital gains (the difference between the sale price and purchase price) to increase performance.
There are several types of investments, for example:
- Term savings
- Market-linked guaranteed investments
- Investment funds
- Exchange-traded funds
Each product has features you need to understand to determine whether it’s right for you. Just because your friend likes a product doesn’t mean it suits your needs. You have to understand the characteristics of each product, the risk involved, the availability of funds and the potential return. Is the capital protected? Could it decrease? Is performance known, and is it guaranteed? Do you have to invest for a set or minimum period?
RRSPs (registered retirement savings plans) and TFSAs (tax-free savings accounts) are examples of these, known mainly for their tax benefits. You contribute to an RRSP and a TFSA, but to grow your money, you have to choose investment products based on your project, investor profile, investment objective and horizon, and risk tolerance.
You invest for a vehicle, a house, your studies or even retirement. The investment vehicle and product you choose may differ for each project. The important thing is setting a personalized investment strategy. We’ve come full circle!