A beginner’s guide to investing

Most people have the idea of saving for retirement on their radar. Even if you don't always do it, you know they should be putting aside some of each paycheque to meet future goals. And these days, if you're working from home, you could even have a little more left over each month that you can add to your budget.

But when you're trying to figure out the best way to save and invest for retirement, you might have a lot of questions.

Here's an investing 101 guide to help bring your financial goals within reach.

The old rules about money need an upgrade

First things first—if you're stuck on how to get started, you're not alone.

Many of today's investors were brought up with ideas about money rules that don't really work anymore. For example, previous generations might have bought a house pretty early in life, maybe leaving saving for retirement until their 50s, when their kids were grown and gone. And if they had a defined-benefit pension plan, saving for retirement was taken care of for them automatically.

Life looks pretty different today, especially for younger investors. Canadians are spending more on postsecondary education. Especially in Canada's larger cities, home ownership is not as accessible as it was in the past, and some people still have a mortgage into their retirement years. Finally, many people don't have a traditional workplace pension that will automatically set aside funds to provide a steady income during retirement.

These changes mean what worked in the past may not work for you today.

But there's some good news: Even though it might seem like the odds are stacked against you, you actually have more savings options today. Read on for the new financial tips that can unlock financial success for future you.

Tip 1: Learn the difference between product and container 

An investment container is the type of account you put your money in, like a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP).

An investment product is what you use to fill the container — like a GIC, mutual fund, or ETF, among other choices (don't worry, we'll explain all of these).

When you're ready to make a move, there are lots of different options for containers and products. But before you choose what's best for you, build your knowledge base by understanding how investment containers and products aren't the same.

Unboxing investment lingo: What to know 

 

Here are the main accounts – or "containers" – you can use to invest
Tax-Free Savings Account, or TFSA	Any interest or growth on your money within a TFSA is always tax-free, as long as you stay within your contribution limits.
Registered Retirement Savings Plan, or RSP	The money you contribute can potentially reduce your taxable income. You pay tax when you take money out, but hopefully that's when you're retired and in a lower tax bracket.

 

Here are the main products you can put in your containers
Guaranteed Investment Certificates, or GICs	A GIC provides a guaranteed interest rate over a set term. It's a low-risk savings or investment tool.
Bonds	Bonds are debt securities issued by governments, municipalities, or corporations to raise capital. They are generally less risky than stocks.
Individual Stocks	Unmanaged investments in single companies. With virtually unlimited choices, picking which stocks to invest in requires time, research and attention.
Mutual Funds	Professionally managed investments, with many choices available. Provides access to potential market growth by including stocks from different companies, along with bonds, cash and "cash equivalents" (like T-Bills) in a single package. Built-in management fees can vary. Investments come with the risk of loss, and investors should read the prospectus before investing.
Exchange-Traded Funds (ETFs)	ETFS are a lower-cost way to access market performance for the long term. They can include many different company stocks and track various indices: some are broad stock markets, some are sector-specific, and some are bonds. Your direct oversight is usually required to manage your investments over time. Investments come with the risk of loss, and investors should read the prospectus before investing.

 

Tip 2: Your TFSA is a superhighway to meeting your future financial goals

Our second tip is to consider the Tax-Free Savings Account as a fast track to getting your money working for you.

TFSAs can be powerful tools for helping you reach your long-term financial goals. Here's why:

1. Even though "savings" is right in the account name, the truth is that you can use your TFSA to invest in any of the products above.

2. Because earnings aren't taxed, your money has more power to grow.

These two features together mean that for many people, the TFSA is a good choice for getting started with investing. Then, with time on your side, the TFSA's superpowers shine. That's because, with the ingredient of time, even small amounts can grow very significantly (if you don't believe us, check out this calculator).

Tip 3: Simple strategies have the best chance of success

Investing can sound complicated, but there are ways to keep things simple. One way is to combine ETFs and mutual funds into an all-in-one solution that gives you the benefits of both.

ETFs are a low-cost way to access global markets. If you invest only using ETFs, however, there could be a lot for you to manage: ensuring you make regular contributions, selecting the right ETFs that match your investing goals, reinvesting the growth produced by your funds, and adjusting the balance between your ETFs over time to make sure you're still following the approach you selected when you started and they continue to produce the intended results.

Mutual funds can help make investing much simpler and easier. This means you're more likely to stick to your investment strategy. With mutual funds, you can set up automatic contributions, any dividends you earn can be reinvested for you by default, and your investments may be balanced back to your initial risk allocation if they drift off-course (some mandates may not do it automatically).

For many Canadians, the easiest way to start (and keep) investing is by using mutual funds. While some mutual funds hold individual stocks and bonds directly, others use a mix of specific ETFs. When you choose a mutual fund that holds ETFs, you get two main benefits:

You get an ETF portfolio that's diversified, even globally diversified, at a low cost.

Because the ETFs are held in a mutual fund, you don't need to research, buy, sell, and rebalance the individual ETFs yourself.

Three lessons for Canadians new to investing

Here are three top lessons for Canadians who want to get started with investing:

1. You don't need many different investment products. Instead, you can choose just one product and get your needs met. All-in-one solutions can take away the pain point of "How do I choose?"

2. Once you understand the benefits of ETFs, you may want them in your portfolio. People may think an ETF is just one stock instead of a whole basket. Getting this straight is essential.

3. Many of today's investors are fee-conscious and want value for money. ETFs usually cost less than the alternatives, meaning a strategy that includes ETFs is a perfect fit for someone who might be worried about spending too much in management fees.

Putting your plan into action

You already know you should save for the future. If you've been hesitating, our tips are designed to get you in motion. There's no better time to get started than now.

Use these tips – understanding the difference between investment products and containers, getting started with a TFSA, and considering using an investment strategy that gives you a simple and automatic way to benefit from convenience, global diversification and low cost – to support your long-term financial success.