Your financial goals will help you determine what type of investment is right for you. For example, if you are saving for retirement, you may want to invest in a retirement account such as a RRSP. This also helps if you are trying to save for a down payment on a house, because a RRSP can be used for a Home Buyer’s Plan (HBP).
Your Investment Horizon Impacts Whether An Investment Is Right For You
Time horizon refers to the length of time that you plan to hold an investment. It is an important factor to consider when selecting investments because it can affect the level of risk that you are comfortable taking on.
If you have a longer time horizon, you may be able to afford to take on more risk in the hopes of earning higher returns. This is because you have more time to weather any short-term market volatility and potentially recover from any losses. For example, if you are saving for retirement and have a time horizon of several decades, you may be able to afford to invest a larger portion of your portfolio in stocks. This gives you the potential for higher returns but also carries more risk.
On the other hand, if you have a shorter time horizon, you may want to be more conservative with your investments. This is because you have less time to recover from any potential losses, so you may want to minimize your risk by investing in assets that are less volatile. For example, if you are saving for a down payment on a house and only have a few years to save, you may want to invest in lower-risk assets such as bonds or cash equivalents.
It’s important to keep in mind that no investment is completely risk-free, and even investments that are considered low risk, such as bonds, can fluctuate in value. However, by considering your time horizon and choosing investments that align with your risk tolerance, you can help ensure that your portfolio is well-suited to your financial goals and time frame.
Be Mindful Of Your Risk Tolerance
Your risk tolerance is your willingness to lose money in an investment. For example, if you are risk-averse, you may want to invest in a less volatile investment such as a bond or money markets investments. If you are willing to take on more risk, you may want to invest in a more volatile investment such as a stock.
If you are the kind of person who will panic when an investment suddenly drops 20% in price, investing in a technology company might not be the best stock choice. Inversely, if you are a young, high salary & high savings individual that can tolerate volatility, investing in high addressable market, high growth stocks might be a better fit.
Research the Investment To Find Out If It’s Right For You
When you are considering an investment, you should research the investment to ensure it is a good fit for your goals and risk tolerance. For example, does this stock offer a good stable dividend? Is the company profitable and stable, or unprofitable and debt ridden?
Look at the investment from all angles and try to understand it as much as possible. An example of that would be to pay attention and making sure that the management (in the case of a stock) is shareholder friendly. Have they been paying shareholders back or have they been issuing shares to fuel unprofitable growth projects? Are they awarding themselves high compensations in stock options and shares or are they paid appropriately? Pay attention to any red flags that come up and be sure to ask questions if anything is unclear.
You can also research investments online, in magazines, or by speaking with a financial advisor. These professionals can also help you make decisions about your investments.
What Is Better, Stocks Or Bonds?
There is no simple answer as to whether it’s better to invest in stocks or bonds. Each has its own set of risks and rewards. For example, stocks tend to be more volatile than bonds, but they also offer the potential for greater returns.
When it comes to investing in international stocks or mutual funds, it’s important to consider both the risks and rewards. For instance, while international stocks offer diversification and the potential for higher returns, they also come with more risk due to factors such as currency fluctuations. As a general rule of thumb, very few portfolios should have only 1 asset class.
Be sure to visit our article on the different types of investment available to Canadians for more info!
