Investing involves commiting money in order to earn a financial return. This essentially means that you invest money to make money and achieve your financial goals. Investing can be a great tool in achieving financial freedom as long as you know what you’re doing.

As a beginner in the world of investing, you’ll have lots of questions, like how much to invest, where to invest, and how to even start investing in the first place. It can seem very intimidating for a beginner, due to the fact that you’re putting your money at risk and trying to learn about the stock market.

Every investor has to start somewhere. It’s never too early to start investing.

Determine Your Goals and How Much To Invest

How much you invest depends heavily on your financial situation, your goals, and when you would like to reach them.

For example, one of the most common investment goals is for retirement. Many workplaces offer RRSP matching between 3%-5%. This means that your work will match the same percentage you put into your retirement savings, up to a certain amount. All you need to do is  contribute to that account to earn the full match. That is essentially free money to go toward your retirement, that you don’t want to miss out on!

For other investment goals, consider when you would like to achieve them, and how much you want to achieve. Then, try and figure out what your monthly payments or weekly investments towards this goal would be. 

Open An Investment Account

In Canada, if you’re saving for retirement, you can open a registered retirement savings plan account if your workplace doesn’t offer one. 

If you’re saving for a different goal, there are several types of accounts or plans in Canada that are broadly categorized as either “registered” (TFSAs, RRSPs, RESPs) or “non-registered” accounts for investing. Each has unique features and considerations.

Before opening an investment account, remember to make sure to have clear investment goals. This will help you determine which account is best for you. You can learn more about the different kinds of investment accounts in Canada here.

Determine Your Investing Approach

To understand what types of investments are worth your time, you must know whether your goal is short-term or long-term. Saving for short-term goals is different from saving for retirement, so the type of investments you choose will depend on what you’re saving for and when you need the money.

The general rule is that money needed within the next three years should not be invested in the stock market. So, if you’re saving for a house down payment or another big-ticket purchase in the coming few years, keep that money safe in Guaranteed Investment Certificates (GICs) or a high-interest savings account.

Stocks, ETFs, and mutual funds are more suitable for long-term investments (think 10 years or longer). When you decide to start investing, it should likely be for retirement (or early retirement if that sounds more appealing).

Map out your financial goals over the next year, 3-5 years, and 10+ years. Prioritize or rank each of them. If you need the money in three years or less, it should not be invested in the stock market. Stick to guaranteed investments such as a high-interest savings account or GIC.

Understand Your Options

Once you decide how to invest, you’ll need to choose what to invest in. Every investment carries risk, and it’s important to understand each instrument, how much risk it carries and whether that risk is aligned with your goals. The most popular investments for those just starting out include:

Bond: A bond is a certificate you receive for a loan you make to a company or government (an issuer). In return, the issuer of the bond promises to pay you interest at a set rate and to repay the loan on a set date.

Canada Savings Bond (CSB): A Canada Savings Bond is a savings product issued and guaranteed by the federal government. It offers a minimum guaranteed interest rate. Canada Savings Bonds have a three-year term to maturity, with interest rates remaining in effect for that period. At the end of the period, the Minister of Finance announces the new rates based on prevailing market conditions. It may be cashed at any time and earns interest up to the date it is cashed.

Canada Savings Bonds are only available through the Payroll Savings Program, which allows Canadians to purchase bonds through payroll deductions.

Guaranteed Investment Certificate (GIC): A GIC is an investment that protects your invested capital. You will not lose money on the investment. GICs can have either a fixed or a variable interest rate.

Mutual Fund: A mutual fund is a type of investment in which the money of many investors is pooled together to buy a portfolio of different securities. A professional manages the fund. They invest the money in stocks, bonds, options, money market instruments or other securities.

Exchange Traded Fund (ETF): An exchange traded fund is an investment fund that holds assets such as stocks, commodities or bonds. Exchange traded funds trade on stock exchanges and have a value that is similar to the total value of the assets they contain. This means that the value of an exchange traded fund can change throughout the day.

The risk level of an exchange traded fund depends on the assets it contains. If it contains high-risk assets, like some stocks, then the risk level will be high.

Security: A security is a transferable certificate of ownership of an investment product such as a note, bond, stock, futures contract or option.

Segregated Fund: A pooled investment fund, much like a mutual fund, is set up by an insurance company and segregated from the general capital of the company. The main difference between a segregated fund and a mutual fund is the guarantee that, regardless of fund performance, at least a minimum percentage of the investor’s payments into the fund will be returned when the fund matures.

Stock: A stock is a unit of ownership in a company which is bought and sold on a stock exchange. Stocks are also called “shares” or “equities”.

Treasury-bill (T-bill): A T-bill is a short-term, low-risk investment issued by a federal or provincial government. It is sold in amounts ranging from $1,000 to $1 million, and must be held for a fixed term which can range from one month to a year.

Start Investing As Early As Possible

One of the most important pieces of advice is to invest when you’re young. That is one of the best ways to ensure that you get the most returns on your money.

Even if you don’t have a lot of funds, you can still make investments. Let’s say you invest $200 every month for 10 years and earn a 6% average annual return. At the end of the 10-year period, you’ll have $33,300. Of that amount, $24,200 is money you’ve contributed — those $200 monthly contributions — and $9,100 is interest you’ve earned on your investment.

When you invest young, you have lots and lots of time for money to grow.