Understanding and Planning for Investing
It is important to understand investing and how each investment tool works. Some investments come with set returns or set rates of return on the amount of money you decide to invest, some have more flexible returns. Some tools can give you larger returns than others, but some can also give you more risk. Investing doesn’t happen overnight, it is something that can take weeks, months and years to see substantial growth out of. It is important to plan for investing so you can have an idea of which method of investing you want to go with, how much money you want to put in an investment and how long you are prepared to lock down your funds.
It is also crucial that risk is understood in the terms of investment. Risk is when you have an expected amount of return on an investment, but the actual amount of return on said investment is different from what was originally expected. A good example of a high risk investment is buying, trading and selling stocks. Stocks are valued at different prices and they can drastically change at any given moment. Stocks are affected by many different economical, social, political and natural factors. They are high risk because they don’t offer a guaranteed return on investment, you could even lose money investing in stocks incorrectly. A low risk investment would be an investment with a guaranteed return. A high-interest savings account would operate as a low risk investment because you are investing the money into a service where you will collect the expected amount of return you intend to receive. Now let’s dive a little deeper into methods of investing!
Different Ways to Invest
There are many different ways to invest in Canada & they all come with their own risk and reward. Some ways to invest are fairly popular and well known, others are heard of less often. What is most important is that you always consider your own finances and do your research choosing a method of investment
Bonds: A bond is a certificate you receive from a company or the government when they take a loan from you, they are also known as the ‘issuer’. When the issuer takes the loan, they offer the promise of a set interest rate they have to pay the loan back at, and a set date that the loan is paid by.
Canada Savings Bond: A Canada Savings Bond, or ‘CSB’, is a bond that is provided and guaranteed by the federal government. They also offer a minimum assured interest rate. They mature on a 3-year term with the interest rate holding for that said term. After the 3 years is up, the Minister of Finance in Canada releases new interest rates, depending on the market conditions. CSBs can be cashed out at any time and they will continue to earn interest until they have been cashed.
Guaranteed Investment Certificate: A Guaranteed Investment Certificate, or ‘GIC’, is an investment you can make that protects your money and guarantees return. You won’t run the risk of losing any money. They come with interest rates that are variable or fixed.
Exchange Traded Fund: An Exchange Traded Fund, or ETF, is a n investment fund that houses other assets such as bonds, stocks or commodities. They trade on the stock exchange and hold around the same value as the assets that are included. They can either be low or high risk, depending on what risk each asset included has.
Security: A certificate of ownership that is transferable on investment products such as bond, stock, note, etc.
Mutual Fund: A Mutual Fund is an investment in which the money of multiple investors is used together to buy a portfolio of different securities. A professional in mutual funds with manage the investment. Things that can be included in a mutual fund can also be found in a security; notes, stocks, bonds, etc.
Stocks: A stock is essentially a percentage of ownership in a publicly trading company. Stocks have different values & can fluctuate rapidly and drastically. They tend to have high reward but they are also very high risk as there is no guarantee that if you buy a stock it will go up in value. The stock market itself can be volatile from time to time, and is influenced by a number of different factors in its environment.
High-Yield Savings Account: A high yield savings account operates the same as a regular bank account but the major difference between a regular account and a high-yield account is that the interest rate is higher so you will earn more profit on the money you have put into the account.
RRSPs, RESPs & TFSAs: Registered Retirement Savings Plans (RRSPs), Registered Education Savings Plans (RESPs) and Tax Free Savings Accounts (TFSAs) are all bank accounts you can acquire through your banking institution that makes it easy to save & invest at the same! Each account comes with its own use and benefits! If you want to learn more about these types of accounts, check out our savings blog here.
Resources to Start Investing
There are many resources to help start your journey towards investing! From apps, to education outlets and investment advisors, there’s an option for everyone! Here are some free and some paid outlets you can use to help you invest wisely:
An investment advisor is a great way to start your investing. They can create an investment plan for you and guide you on what type of investments are right for you, as well as how to get the most use out of your investments. They can recommend different investment tools and manage your investment portfolio. They generally charge a fee for their services, but there are some free resources for investment advisors. Here is a directory for pro bono financial planning:
Credit Union or Bank
Chances are, if you already belong to a bank, then you may have some free resources that they offer to clients. Reach out to your bank and see if they offer any free investment counselling or sessions to get you started!
Free Investment Apps & Online Sources
There are many different apps you can use to start investing as well! Some apps come with fees or a minimum amount needed to invest. Not only that but sites like YouTube are a great place to learn some tips for investing as a beginner. Not only that but some banks offer practice trading accounts with fake money to test your trading skills! Here are some apps that are free with the basic subscription & resources from the internet:
Investing can play a pivotal role in your journey to financial security. It is important to look at all options and educate ourselves on how to make the most out of what we earn. By learning even just the basics of investing, we can start to see the bigger picture behind it. Investing takes time, resources, research and dedication, but the great thing is that there are many different resources that can be used to aid with investing!
Investing doesn’t just start right away, budgeting and saving must be done to get to a point where you can comfortably invest large sums of money. If you are troubled by debt and want to start your journey towards investing, give us a call at 800-335-8176 and let us be of service to you in your path to financial freedom!