Introduction to Investing
You may be surprised to know it, but investing is not that complicated. Taking the time to learn the basics of investing will be worth the effort. After all, having worked so hard for your money, your money should work for you. Your first investment is an investment of time to figure out what investing is all about.
How we choose
How people choose to invest their money is largely a function of three things: their individual goals, their tolerance for risk and their budget.
There are many investment instruments on the market. Each has a different level of risk and expected return. The "safer" investments offer a better chance of preserving your original outlay of funds, but the rate of return will be low. If you're willing to take more of a gamble, there's an abundance of investments whose returns may be higher, but which come with the risk of losing it all.
Investments fall into three principal categories:
- Cash and cash equivalents (like savings accounts, treasury bills and money market mutual funds) are generally the safest category of investment, but produce the lowest returns.
- Fixed-income investments (like Guaranteed Investment Certificates- GICs, bonds and income mutual funds) generally offer higher returns and provide a regular source of investment income.
- Equity investments (like stocks and equity mutual funds) are high-risk assets, which can grow in market value if the holder has the tenacity to wait it out.
How we invest (according to the Canadian Banker's Association)
- 40% of Canadians have mutual funds
- 20% have Canada Savings Bonds
- 18% have individual stocks
- 17% have GICs (for terms of more than one year)
- 15% have GICs (one year or less)
- 11% have provincial savings bonds
- 8% have other bonds issued by government or corporations
- 7% have offshore investments
- 6% have T-Bills
- 4% have index-linked GICs.