There are many ways to invest. Your choices will depend on your goals, your timeline and your tolerance for risk. It’s important to know some basics.
Investing puts your money to work to achieve your financial goals. One way is to earn interest on a sum of money you invest. Another way is to make a return by purchasing an investment at a certain price with the goal of selling it later at a higher price. An investment advisor can guide you in choosing the type of investment that best meets your financial goals.
Mutual Funds A mutual fund is a pool of investments. It allows you to hold a portion of many more investments than you could normally purchase on your own. A professional fund manager decides where to invest the money and when to buy and sell investments for the mutual fund. Investors hold units of mutual funds. The price of your units will go up if the investments in the fund do well. If they are not doing well, the unit price falls.
RRSPs: A Registered Retirement Savings Plan (RRSP) lets you save or invest for your retirement. Contributions are usually deductible and can help reduce your income tax. The amount you can contribute to an RRSP depends on your work income. Any money you earn in the RRSP is usually exempt from tax while it remains in the plan. However, you generally have to pay tax when you cash in, make withdrawals, or receive payments. In a self-directed RRSP, you can buy and sell different types of investments.
RESPs A Registered Education Savings Plan (RESP) is an account used to save for college or university education. Parents often invest in RESPs for their children`s education. You can open an RESP for a child, yourself or another adult. Unlike Registered Retirement Savings Plans (RRSPs), you can’t deduct RESP contributions from your taxes. But money earned inside the account is usually exempt from tax until it is withdrawn. An investment advisor can tell you which investments are allowed in an RESP.
Bonds: A bond is a fixed-income security offered by governments and businesses. You lend them money for a set time period and at a fixed interest rate. A bond normally pays back your money plus the interest at the end of the lending period, the maturity date. Bonds and other fixed- income securities have a range of interest rates and risk levels. Many investors use an investment advisor to help them decide which bonds to buy and when to sell.
Equity Investments: An equity is a direct investment in a business, purchased through a stock or share. Investment advisors often help investors in choosing which stocks to buy based on their risk tolerance, investment objectives and other factors. You can make money on a stock if the stock itself increases in value or if the company pays a dividend to shareholders like you. However, the stock price can also go down and the company may not pay a dividend. A stock’s value depends on factors from the size of the company to its profitability and financial stability.
The Canadian Securities Administrators (CSA) offers
investing basics to help consumers set investment goals and understand risk.