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.
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.
See what goes on behind the scenes when stocks, bonds and other securities are bought and sold in Canada.
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.
For information about the compensation structure of the different series or classes of mutual funds, please see the Ontario Securities Commission’s Get Smarter About Money page here: Mutual Fund Series
The Canadian Securities Administrators (CSA), the umbrella organization of Canada’s provincial and territorial securities regulators, are making changes to the rules governing mutual fund sales practices to prohibit the sale of mutual fund products that pay trailing commissions to investment dealers that are not required to make a suitability determination for securities purchased in their clients’ accounts. These investment dealers are known as Discount or Order-Execution-Only (OEO) dealers.
Effective June 1, 2022, clients of OEO dealers will be unable to purchase mutual funds that include trailing commissions paid to those dealers and existing holdings of such mutual funds will either need to be switched to another series of funds, if available, or moved to an advisory account. Speak to your investment dealer about how this may affect you.
For additional information, please see the CSA notice here.
In addition, also effective June 1, 2022, the payment of upfront sales commissions to investment dealers will be prohibited in all provinces except Ontario. This will result in the discontinuation of all forms of the deferred sales charge (DSC) option, including the low-load option. Prior to the ban taking effect dealers will still be able to sell DSC funds and their redemptions schedules will run to their conclusion. The Ontario Securities Commission is proposing a different set of restrictions for mutual funds with DSC options.
Please see the CSA notice here.
Please see the OSC notice here.
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.
TFSA (Tax Free Savings Account)
The TFSA program began in 2009. It is a way for individuals who are 18 years of age or older and who have a valid social insurance number (SIN) to set money aside tax-free throughout their lifetime.
Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.
Administrative or other fees in relation to a TFSA and any interest on money borrowed to contribute to a TFSA are not tax-deductible.
The maximum amount that you can contribute to your TFSA is limited by your TFSA contribution room.
All TFSA contributions made during the year, including the replacement or re-contribution of withdrawals made from a TFSA, will count against your contribution room.
See the CSA's TFSA information
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.
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.
For more information, read the CSA brochure Investment Products at a Glance.