If you pack your lunch for work every day, skip out on buying that pricey Starbucks latte, and pay for items with cash to avoid overspending, congratulations you’re a saver! However, the reality is saving alone isn’t enough to grow your wealth. It’s time to take the leap into investing. For those ready to enter the world of investing, the question becomes: where do you begin? From mutual funds to stocks, investing can be difficult to wrap your head around. Have no fear! Familiarizing yourself with the basics can help you increase your financial knowledge so you can invest with confidence from day one.

What is investing?

Ever heard it takes money to make money? That’s where investing comes in. Investing is the simple act of committing money with the expectation of receiving a financial return. Canadians can put their money into a variety of investment vehicles to help them reach their financial goals.

What type of investments can you choose from?

Mutual funds: With a mutual fund, money from many investors is pooled together to purchase a portfolio of different securities. Think of mutual funds as a suitcase – they hold a bundle of different securities including stocks, bonds, money market funds, and other securities. With this investment vehicle, you can diversify your investments and have your fund professionally managed by a licensed financial advisor.

Exchange-Traded Fund (ETFs): An exchange-traded fund holds different assets such as stocks, commodities, or bonds. ETFs are traded daily on a stock exchange, and the value of a fund can change throughout the day. 

Stocks: When you purchase a stock, you buy a unit of ownership in a company in the form of “shares” or “equities”. Investing in stocks allows you the opportunity to own a little slice of the companies you value. For instance, if you are a tech enthusiast and purchase two shares of your favourite technology company, you can reap the financial benefits if their stock rises. Now, remember the stock market is not for the faint of heart. While you can win big if a company performs well, you risk losing big if they underperform. This is because financial markets are volatile and can cause the value of a stock to change unexpectedly. For instance, your stock in a coffee brand might be worth $50 per share in the first quarter, but a sudden economic downturn could cause its value to decrease to $35. Consult a financial advisor from your local credit union to help determine whether adding stocks to your portfolio is the best financial option for you.

Bonds: With bonds, investors loan money to governments or companies with the promise that they will receive their money back in a specific number of years, plus a little interest.

Just like building your own home, when you start investing having a blueprint to follow can set you on the right financial track. This is because having a holistic picture of your financial situation can help you create an effective investment strategy to meet your short and long-term needs. So, before you invest your hard-earned cash, ask yourself these important questions:

What are your financial goals and objectives? 

So, you want to invest – but why? Before you kickstart your investment journey, it is vital to understand your goals and objectives for your money. Are you looking to fund a summer vacation or your retirement? Clearly outlining your investment objectives can help you determine what investments are right for you. Start by making a list of your short and long-term goals to help you assess the amount of money you will need to achieve each of the goals in your financial timeline. Remember though life happens, priorities change, and so can your objectives. Be sure to adapt your investing strategy to match your needs throughout your investment journey.

What is your risk tolerance?

Investing can be a risky business. How would you feel if your $5,000 investment suddenly was only worth $2,500? Did your heart sink for a moment? Risk tolerance refers to your ability to tolerate fluctuations in your financial return. Understanding how much investment risk you are comfortable with can help you determine your investment style and ability to withstand financial losses.

Your financial timeline can also influence your risk tolerance. For short-term goals where you will need the money sooner, you might not be able to stomach seeing substantial losses to your financial nest egg, making your risk tolerance low. On the other hand, if you are decades away from retirement, you may be open to incorporating higher-risk investments into your portfolio. But remember, all investments carry risk so start small. Start by investing modest amounts regularly to help dip your toe into the investing waters. These contributions may seem insignificant, but they will add up over time. As you become comfortable with the ebbs and flows of the investment landscape, you can increase your contributions to enhance your potential returns. Ultimately, starting small is always better than not starting at all.

What is your time horizon?

A time horizon marks how long you intend to hold an investment to achieve your financial goal. It’s important to select investments that align with your time horizon to ensure you can reap the benefits of your investment when the market improves. Your life stage and personal financial situation are key determinants of the level of risk you may be open to taking with your investments. If you need the money in just 5 years to fund your child’s education, you may not be able to recover from losses and should invest conservatively. Alternatively, if you have a longer investing window, you may have more wiggle room to explore high-risk investments since you will not need to access these funds for a longer period. Now before you start investing, consider building yourself an emergency fund. Saving a little extra money can help you create a financial cushion you can tap into during emergencies, so you can stay the course with your investments during turbulent times.

Start investing journey in your future today… become a credit union member

Investing can be an onerous endeavour, but you are not in it alone. Credit unions are a great option to help you build an investment portfolio that is suitable to reach your financial goals. Not yet a credit union member? Find your nearest credit union, click here.