How to invest

If you're considering investing, you're in the right place. Investing simply means putting your money to work for you with the expectation that it will increase in value in order to meet future financial goals, such as retirement income or a large purchase. There are many different ways to invest to meet your financial goals, but understanding the fundamentals of investing and the risks involved can help you take the correct first steps.

Investor Basics Guide

Why do people spend more time buying a new car or planning a vacation than investing their life savings?

Most people know they should play a more active role in their investments but they often don't know where to start.

We’re here to help. The Canadian Securities Administrators (CSA) have put together this guide to help get you on your way.

What is a security?

When you start investing, there can be a lot of terms you might not be familiar with. Stocks, bonds, options, shares or mutual funds are all examples of securities. Anytime you give money with the expectation of a return, you are dealing with a security, and there are rules around them.

The Alberta Securities Commission administers securities laws to foster a fair and efficient capital market and protect investors like you. They also maintain the integrity of the market by investigating and prosecuting people and companies who break those laws. It is always advised to check the registration of any person or company offering you an investment opportunity and conduct the proper research before buying a security.

Learn more about checking registration

The three concepts of investing

Investing is a great way to grow your money for the future, here are three concepts to understand before you start:

1

Compound interest

There are no reliable methods to quick riches but there are proven methods to build wealth slowly. Compound interest is money you earn on reinvested interest from a previous period and essential to growing your wealth over time. By starting early, investing regularly, and being patient, you can maximize your returns through compound interest.

2

Diversification

Ever heard "Don't put all your eggs in one basket?" The same rule also applies to investing and it means dividing your money across different investments with the hope of steadier returns in the long run. By creating what's called a balanced portfolio of investments, you can't avoid loss, but you can minimize substantial losses like you might experience with a singular investment.

3

Risk vs. reward

The bottom line is every investment has some degree of risk. The general rule is if an investment is offering higher returns, like a stock or mutual fund, there is also going to be a higher risk involved. Vice versa, if it offers a lower return, like a GIC or savings account, the risk is lower. By determining the right mix of investments, you can create an investment portfolio that meets your financial goals, and more importantly your comfort and risk tolerance.

Kelley Keehn Video "Basic Financial Concepts"

Working with a financial adviser

Just as picking the right investment for your money is important, choosing a financial adviser that's registered and right for your needs is critical if you decide to enlist their services. A good financial adviser helps you navigate the overwhelming number of investment choices available and manage your wealth to build a sustainable future based on YOUR risk tolerance, goals, experience and stage in life.

As a key member in your investment journey, here are seven questions to ask when looking for the right financial adviser. Want to learn more on choosing the right adviser for you? Read our how-to blog.

Are you registered?
What is your background?
How are you paid?
What kind of products and services do you offer?
Who are your clients?
How will you help me reach my goals?
What level of service can I expect from you?

Once you have made sure your adviser is registered and matches your needs, be honest when they are gathering information about your financial situation and what you are, and are not, comfortable with. At the end of the day, think of your relationship as a partnership with both of you working to achieve your financial goals.

Learn more about choosing the right adviser

Starting an investment account

When you have finished planning your investment goals and have identified the investment products right for you, you will need an investment account. An investment account holds money and investments (stocks, bonds, ETFs, Mutual Funds, etc.) that you buy and sell to reach your financial goals. A registered investment adviser can help you set up your own individual investment account.

When opening your investment account be sure to:

Verify what types of investments you can purchase through your account and your adviser. Some advisers are limited to selling only certain types of investment products.

Identify the different types of fees and charges related to the investments you purchase in your account. Investment advisers must outline all fees and charges you might pay to your adviser's firm or bank for operating your accounts and making transactions.

Compare the fees and charges at other firms and banks to ensure you open an investment account with a fee structure that meets your financial needs.

Now that you understand the basics of investing and what it can do for you, check out the types of investments available and how to begin planning your investment strategy.