You don't need to be a financial expert or have a lot of savings to start investing, but you should have an idea of your risk tolerance, your investment goals and when you'd like to reach them.
If you're thinking about investing but aren't sure where to begin, you've come to the right place. Read on to learn more about your investment options and how to get started.
For many people, the idea of investing is overwhelming — but it doesn't have to be complicated. Your first step is to take a look at your finances so you know what you can afford to invest. From there, you can set your goals and decide what investments will best align with them.
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To figure out how much money you can invest, you'll first need to make a simple budget. You can use a tools like Scotia Smart Money by Advice+*, or a pen and paper to compare your monthly expenses with your income. Take into account your:
- Mortgage or rent
- Household bills
- Loan repayments
- Monthly savings
- Social spending
If you don't already have an emergency fund, it's also a good idea to direct savings towards building one. An emergency fund is your safety net for unexpected expenses, like car repairs and vet bills.
Once your budget is complete, subtract the combined total of your expenses and savings from your income. This is your discretionary cash flow—money that you can use as you wish without affecting your budget—and it's perfect for investing.
Everyone who invests has the same main goal — to make money on their investments. But not everyone is in the same situation. When you set your investment goals, look at how long you have to invest, which is called your time horizon, and how much risk you're comfortable with — which is called your risk tolerance.
You also want to consider what stage of life you're in. New graduates have far more time to invest before needing to access the money than someone who is close to retirement, for example. Consider other big milestones, such as whether you're looking to buy a home, and think about other spending you might want to do in the short-, medium-, and long-term. Your investments should work towards these goals.
You can set your goals using tools like Scotia Smart Investor via Advice+ (more on how that works later).
Next, you'll have to decide on your risk tolerance. Do you feel comfortable with changes in the market if these changes bring a possibility of higher rewards? Or would it be better for you to invest in more stable products that might have lower returns?
There are a number of factors to consider when you are trying to find out how you tolerate risk. Three key factors are your time horizon (when will you need to access the money you are investing), your investment experience and your investment objectives (what are you saving for). Learn more about risk tolerance here.
Investing typically involves taking on some risk in order to generate higher return potential. Too much risk could mean higher fluctuations in your investment performance. On the other hand, too little risk could result in returns too low to achieve your goals.
If you're unsure about your risk tolerance, you can speak with a Scotiabank advisor to work together on what is the right balance for you and your investments (this is also something you can explore through Scotia Smart Investor).
Once you know how much money you can invest and your investment goals, it's time to learn about the major types of investments available. Here's where to start investing in Canada.
Mutual funds are a type of investment where money is pooled from various investors and used to buy a portfolio of securities, such as stocks and bonds.
Mutual funds are one of the most popular investment options in Canada. By investing in a range of different securities, mutual funds help diversify risk, which is really another way of saying that you won’t be putting all your eggs in one basket. If one investment is down, those losses can potentially be offset by another of the fund’s holdings.
Guaranteed Investment Certificates (GICs)
Guaranteed Investment Certificates (GICs) work a lot like savings accounts since you can earn interest on your funds without the risk of losing your original principal investment. But unlike many savings accounts, GICs are not meant to be touched for a set amount of time (terms can range from 30 days to 10 years).
GICs are a secure way to save money and take advantage of a great interest rate. You can invest knowing that your investment is guaranteed for the term you choose. GICs also offer you flexibility as you can choose from a range of different options to find what works best for your needs and investment timeline.
With GICs, your principal and interest are guaranteed as long as you meet the terms of the deposit. Learn more about GICs here.
Exchange Traded Funds (ETFs)
Similar to mutual funds, ETFs are pooled investments. The difference is that ETFs are traded on exchanges, like the Toronto Stock Exchange, and priced continuously throughout the day. ETFs can be passively managed to track the performance of traditional market indices like the S&P/TSX Composite Index, or actively managed to achieve a particular investment objective. Visit here to learn more about Scotia Exchanged Traded Funds (ETFs) and visit the “Learning Centre” on scotiaitrade.com to learn about investing with ETFs.
When you buy stock, you're buying a piece of a company. Put simply, the value of a company is divided and sold as shares — or stock — on the stock exchange. You can buy stocks individually or you might own stock as part of a fund. Buying individual stocks is considered somewhat risky because market fluctuations, current events or even public opinion might affect the value of a company.
With bonds, investors lend money to cover corporate- or government-issued debt and receive interest payments in exchange. The riskier the issuer, the higher the payments may be.
Another investment choice is whether to put your money in a registered or non-registered account. Both can hold different types of investments, like mutual funds, or GICs, but a registered account is registered with the government and will have certain terms attached to it, such as maximum contribution amounts. It may also come with benefits such as helping you reduce your taxable income, taking advantage of compounded tax-free growth and additional government incentives.
You've likely heard of the most common registered accounts in Canada:
- Tax-Free Savings Account (TFSA)
- Registered Retirement Savings Plan (RRSP)
- Registered Education Savings Plan (RESP)
- Tax-Free First Home Savings Account (FHSA)
Non-registered investments are simply investment accounts that aren't part of these programs.
Canadians can work with an advisor or take part in self-directed trading.
Most financial institutions, like Scotiabank, have advisors who can help you make a financial plan with the investments that will work best to meet your goals.
With self-directed trading, you open an account and do the buying and selling of investments yourself.
Scotia Smart Investor via Advice+** is a platform that helps you set, track and manage your financial goals. To get started, simply sign up with Scotia Smart Investor and determine your investor profile. This means looking at the money you have to invest and deciding on types of investments you might choose. Scotia Smart Investor will walk you through the process. Next, you set your goals and link your investment accounts. From there, Scotia Smart Investor will provide you with articles and insights into the markets and your investments and flag your account if things go off-track. You can set, change and track your goals anytime, and even purchase select GICs, mutual funds and open High Interest Savings Accounts directly. Scotia Smart Investor is free and easy to use, so you won't be an investment newbie for long.
Once you've set up your investments, it's a good idea to watch how they're performing so you are always aware of your financial situation and can make changes when you need to. This is especially important if there are changes in your life such as buying a home or changing your investment goals.
Now that you've identified the amount of money you can invest, the factors that impact your level of risk tolerance, your investment goals and know some of the types of investment accounts available, you're ready to take the first step. Make an appointment with a Scotia advisor and, in the meantime, you can brush up on everything investment-related with Scotia Smart Investor.
This article is provided for information purposes only. It is not to be relied upon as investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third-party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly, and action is taken based on the latest available information.
* To access Scotia Smart Money by Advice+, you must have an active personal banking retail product, have transacted at least once on your account within the preceding 6 months and have logged into the Scotia Mobile Banking App.
** Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Scotia Securities Inc. is a mutual fund dealer and is a corporate entity, separate from, although wholly-owned by, The Bank of Nova Scotia ("Scotiabank"). ScotiaFunds are managed by 1832 Asset Management L.P. and are available from Scotia Securities Inc. 1832 Asset Management L.P. is a limited partnership the general partner of which is wholly-owned by Scotiabank. Scotia Smart Investor is a trade name of Scotia Securities Inc.
FR:Un placement dans des fonds communs de placement peut donner lieu à des commissions, des commissions de suivi, des frais de gestion et d’autres frais. Veuillez lire le prospectus avant de faire un placement. Les parts de fonds communs de placement ne sont pas garanties; leur valeur fluctue fréquemment et leur rendement passé n’est pas indicatif de leur rendement futur.