This article will help you understand how to invest your money independently, and you will learn about different investment accounts and types of investments.
How to invest your money
Do you feel confident about your success in other aspects of your life, and want to take on a new challenge?
Learning to invest can mean different things to different people. It can tap into your own limitless possibilities and spark dreams you didn’t even know you had. When you take charge of your investments, you can motivate yourself by what you learn and what you can potentially achieve on your own terms.
Why invest your money?
Whether you’re saving for retirement, to buy a house, for education or simply for the future, investing can help you make your money grow. If you keep your funds in a savings account, they may not accrue enough interest to keep pace with inflation over time.
Having the basics of investing helps you lay the foundation for establishing your financial goals and deciding what types of investments will help you achieve them.
Invest independently
Self-investing refers to an investment approach where you can manage your investment portfolio on your own using sophisticated trading platforms or a simplified, goal-oriented app.
Here are some of the reasons why someone might consider managing their investments independently, as a self-directed investor:
Other factors to consider include your level of investment knowledge, the amount of time you can devote to investing independently, and your risk tolerance.
There is a wide range of educational resources, tools, market intelligence, studies and analyzes that can help you.
Plan before investing
Planning your investment horizon, risk level, investment objectives and account types can help make your investing journey much simpler. Before considering investment types, ask yourself the following questions:
How long will I invest?
Your investment horizon depends on your financial goals and how long you will invest before you need the money. When you invest for the long term, to achieve a retirement goal, for example, you may consider reinvesting investment income to achieve a compound annual growth rate, which can make your money grow faster.
How much risk can I assume?
Your risk tolerance can be defined by whether you are a conservative, moderate or aggressive investor. Your tolerance can be used to determine the types of investments you choose. For example, if you have a short-term goal, you could favor low-risk investments (conservative approach). For long-term goals, your tolerance for market volatility may be higher (bold approach).
What is my goal?
You need to have a specific goal in mind before you start making investment decisions. Consider your lifestyle and that your goals will likely change over time. For example, your current goal may be to invest X dollars in your Registered Retirement Savings Plan (RRSP) or to save for a specific purchase. However, life is full of unexpected events, priorities change, and your goals can change too.
What types of accounts suit your different needs?
Once you have defined your financial goals, you can choose different account types depending on the goals you are saving for.
Which investment account is best suited to my needs?
Opening the right investment account can help you achieve your financial goals. Here are some highlights on the different accounts:
Registered retirement savings plans (RRSPs) are usually used to save for retirement. Contributing to an RRSP can allow you, on the one hand, to defer tax on the income you accumulate from the investments held in the account and, on the other hand, to access the funds during your retirement, when you could find yourself in a lower tax bracket.
A Tax-Free Savings Account (TFSA) can be used to save for short- or long-term goals because savings grow tax-free. It can be used to save for different projects, such as a vacation or a major purchase.