Your account is open. Now comes the question that stalls most new investors: what actually goes inside it?
There is a whole range to choose from. At one end sit high-interest savings accounts and GICs, where the money does not move. At the other end sits full exposure to the stock market. Everything else is some mix of the two.
Choosing where you land on that range is not a test of how brave you are. It comes down to one question: when do you need the money?
"It's important to align the goal and the time frame with the investment option chosen."
Under three years? Stay low.
If the money has a job coming up soon, a car, a move, first and last month's rent, the only thing that matters is that it's there when you reach for it. That means a high-interest savings account or a GIC.
You will not get rich this way. You also will not go to withdraw it two weeks before you need it and find a chunk of it missing.
Longer than that? Time changes the math.
If you will not touch the money for ten years or more, the calculation changes. A single weak year carries less weight when there are decades behind it, though no recovery is guaranteed. For investors with longer time horizons, greater exposure to equities may be appropriate in certain circumstances. However, investment decisions should always take into account an individual's objectives, financial situation, investment knowledge and tolerance for risk.
"New investors often have different comfort levels with risk, and suitable investment strategies will vary from one person to another."
One factor worth weighing alongside your comfort with fluctuation: money held in cash over long periods may not keep pace with inflation, even while the balance itself goes up.
The part nobody should skip
There is no guarantee in market-based investing. Some years your account will be worth less than what you put in. That is not a malfunction; it's the normal texture of it.
The illustration demonstrates that market returns may vary considerably from year to year, even when long-term averages appear similar. You have to be comfortable with some degree of fluctuation, because it is a normal feature of market-based investing. If a 20% drop would make you sell, that belongs in the plan from day one, and there is nothing wrong with saying so.
Not sure which rung you belong on? That's a fifteen-minute conversation, not a commitment. Heidi and her team can help you explore investment options and discuss approaches that may be suitable for your goals, time horizon and personal circumstances.
Mutual funds are offered through Investia Financial Services Inc.
Insurance solutions provided in Ontario and New Brunswick, through Heidi Blondin Financial / Qualified Financial Services.
The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This article was prepared by Heidi Blondin who is a Certified Financial Planner (CFP) at Heidi Blondin Financial a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this presentation comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.