When markets move, you may make choices that are not always in your best interest. Instead, focus on financial goals based on your age, risk appetite and the amount of time to invest — not what’s happening day-to-day in the markets.
4 areas to think about when you invest and plan your financial future
1. Your goals
What do you want to do with your money?
A GIC might be the right choice if you need your money in a year or two for a major purchase, like a car or house.
Medium to long-term goals, such as funding a child’s education or saving for retirement, are often better served through investments like mutual funds that can offer greater opportunities for growth over time.
2. Your timeline
Just starting out? Preparing for retirement?
If you have a longer timeline, consider longer-term investments such as mutual funds that have the potential to grow over time. That way you can enjoy the potentially higher returns that come with taking on more risk because you have more time to ride out the market’s ups and downs.
If you need your invested money sooner–especially if you’re approaching retirement or a major purchase—consider less volatile options like money market funds or other conservative options.
3. Investor risk tolerance
How well can you handle the market’s ups and downs?
You should have a realistic understanding of your ability and willingness to tolerate potentially large swings in the value of your investments. Investments with a high return potential come with higher risk. You may not be okay with how much the value of your holdings can change, even overnight.
Think about whether you prefer an investment that may offer lower, but more stable, returns compared to a more volatile option.
4. Taxes and inflation
Are you aware of how taxes and inflation may affect your investments?
Depending on the investment, you may have to pay tax on the interest or capital gains. Talk to a tax professional to ensure you understand how these costs may lower returns over time.
Inflation, or more simply the idea that a dollar’s value today does not equal a dollar’s value in the future, can also erode the value of your money.
Higher risk products like mutual funds have higher return potential that can cushion the effects of inflation. Lower risk products, like GICs, may provide safety of your principal, but cannot easily help maintain your purchasing power.
Consider the best investment options for your goals
- Adapt your strategy as your financial needs and goals change over the course of your life.
- Shorter-term goals, like saving for a home renovation, can be well-served by shorter-term investment options that offer stable returns.
- Medium and longer-term goals, like saving for a large purchase, retirement or a child’s education, are typically a better fit for investments that have more exposure to the markets through diversification
Short term goals
Medium term goals
Longer term goals
These options are usually lower risk, and therefore offer a lower potential rate of return and may not keep up with inflation.
|These options have exposure to various markets without too much risk; they’re the middle-ground and good for a wide range of purposes.
||These options typically offer the highest return potential, but with a higher level of risk. That’s one reason why they’re suited for longer terms.
GICs & Term Deposits
Money Market Funds
Moderate Conservative Funds
Aggressive Growth Funds
Why should I invest?
The chart below shows the impact investing can have on your savings
Returns from $100,000 invested in equities, bonds and savings over time
- The value of your cash probably won't grow at the same rate as inflation, so your money actually buys you less over time
- Investing is a way to help your money work harder than it does in a savings account. You can seek higher growth than inflation, by investing over the long term
- More risky investments such as shares in companies (equities) typically experience higher short-term fluctuations in value, but tend to produce higher long-term returns
Source: Bloomberg as at December 31, 2018. Indices used: Equities –S&P/TSX Composite Total Return Index. Bonds –FTSE Universe Bond Index. Cash –FTSE Canada 91 Day T-Bill Index. Inflation –Total Consumer Price Index. All returns are denominated in Canadian dollars.
Past performance is not an indication of future returns. The performance may go down as well as up.