You work hard for your money. And investing can help your money work hard for you by generating income and growing in value.The goal of investing is simple: build wealth so you can use it later in life or pass it on to the next generation. But while you have countless ways to invest, each comes with a degree of uncertainty.
When planning where to put your money, consider the four major factors that affect investments:
Savings. The first step to investing is learning to live within your means to build reserves. Start by recording your assets, your debts and liabilities and everything your family spends, and adjust your budget accordingly. Building a nest egg in a high-interest savings account can be a good way to grow your money while keeping it easily accessible.
Goals. Maybe you want to save for a home, a higher education or travel. Perhaps you’re looking to set up for a comfortable retirement or pass on a financial legacy to your kids or grandkids. Your goals will guide your investment choices.
Time. Most investments rely on the power of compounding interest, which is additional interest paid on your principal deposit. In other words, it’s interest paid on interest. And it helps to speed up your earnings.
Vehicles. You have many ways to put your money to work — GICs, stocks, bonds and more. Factor in the risks and rewards for each.
The benefits of investing in Canada
With investing, the idea is to use your money to make more money. By creating and preserving your wealth, you can reap the rewards of:
Return on investment. Many investments increase in value over time. Investments aren’t always guaranteed, but profit projections can help you decide what to invest in and how much to invest.
Dividends. If you purchase stocks, funds or cash-value life insurance, you own shares in that company and may receive a percentage of its profits — which you can either cash in or reinvest. These dividends are distributed to shareholders on a set schedule. Stocks and funds typically pay quarterly dividends, while mutually owned life insurance companies tend to pay annual dividends, sometimes called a return of excess premium.
Compounded interest. Many investments give you the opportunity to earn compound interest, which is essentially interest on your earnings. The longer you hold a stock, the higher its value — and the more interest you’ll earn.
Voice in how a company operates. When you own shares in a company or corporation, you get to vote or have a say in how it’s run.
Our selection of top picks is based on the same criteria as our annual Stock Trading Platform Awards. This is updated yearly to reflect changes in the market.
"Best for" picks are those we've evaluated to be best for specific product features or categories – you can read our full methodology here. If we show a "Promoted" pick, it's been chosen from among our commercial partners and is based on factors that include special features or offers, and the commission we receive.
This isn't an exhaustive list of all the trading platforms out there. What's best for you depends on your own investing strategy, budget and financial goals.
The risks of investing
No investment is risk-free, so a big part of investing is deciding how much risk you can comfortably assume. Generally, the higher the risk, the higher the reward.
Risks investors face include:
Losses. The value of investments can decrease for many reasons. Companies can underperform, demand for products or services can dry up and the stock market can crash. To earn a Return on Investment (ROI) on loans, stock and annuities, the company you invest in must stay in business. If it goes bankrupt and liquidates its assets, that affects how much money you get back — if any.
Volatility. The value of an investment can fluctuate, sometimes wildly, due to internal factors like faulty products or external events they have no control over, like political changes.
Inflation. When goods and services cost more in the future than they do now, your money becomes worth a little less, and if you don’t grow your money at a rate higher than the rate of inflation, you’ll essentially be losing money on your investments.
Fees. Most investment categories come with a set of fees. For example, brokers charge commissions or management fees to carry out the purchase of stocks and bonds. Weigh the fees against your potential ROI.
Taxes. Likewise, capital gains (profit) from investing are often subject to taxes. The timing of the collection of those taxes depends on the investment. Most investments are taxed on their sale, but retirement investments can be taxed on withdrawal from the account. If you house your investments in a tax-free savings account (TFSA), you can avoid being taxed on capital gains and withdrawals. However, annual account contribution limits apply.
Are any investments guaranteed?
No. But a few protections are in place for specific vehicles and situations:
The Canada Deposit Insurance Corporation (CDIC) insures savings accounts, money market accounts and GICs. The CDIC insures up to $100,000 of your deposits in each insured bank. The catch? CDIC-insured accounts generally earn a lower interest rate.
Deposits into credit union members’ accounts are backed by insurance organizations located in each province, although some federally-regulated credit unions are insured by the CDIC.
Credit union insurance coverage is comparable to, and sometimes even exceeds, that of the CDIC.
The securities you own aren’t insured against a loss in value. But the Canadian Investor Protection Fund (CIPF) is a non-government entity that replaces missing stocks and securities in customer accounts held by a CIPF member firm if the firm fails. The limit for most types of investments is $1 million, though this amount can vary based on what types of customer you are (individual, corporation, partnership etc.) and what type of account you have (trust, joint account etc.).
The information on this page is current as of March 6, 2020.
You’ll find various ways to invest your money to achieve specific financial goals. Investments are grouped into categories by type — for example, bank products and bonds — each with its own features, risks and rewards.
Cash equivalents
You can stash your cash in a bank account, but other ways can make better use of your cash and earn interest or tangible assets.
These debt securities are issued and backed by corporations or the government to help pay for capital expenditures or the government’s borrowing needs.
MMAs can take your savings to the next level by offering the convenience and liquidity of a high-interest savings account, sometimes with checkwriting privileges, but often in exchange for higher initial deposit and balance requirements.
Look to a GIC for an insured savings account that holds a set amount of money for a fixed term ranging from 30 days to 10 years. The issuing bank pays interest until the GIC matures. You can cash in your GIC for the principal plus the interest you earned or roll over your balance to a new GIC.
TFSAs were created by the federal government to encourage more Canadians to save for the future. Earnings grow tax-deferred and withdrawals are tax-free within certain annual limits. Fortunately, unused contributions roll over into future years, so you can make the most of the opportunity to save.
Whole life insurance policies are investment products that build value over time. They include a cash component that’s invested into a menu of options, usually mutual funds. When you die, your beneficiaries receive a death benefit plus any added cash value.
Think of an annuity as a contract between you and an insurance company. The company promises to pay you regularly either right away — called an immediate annuity — or as a future deferred annuity. Annuities are taxed according to whatever tax regulations govern the account the annuities are sitting in (such as a Registered Retirement Savings Plan (RRSP). Many people buy fixed, variable or indexed annuities to help manage money in retirement.
Investors often buy precious metals like gold, silver and platinum to diversify their portfolios and protect themselves from inflation and financial instability. Precious metals have intrinsic value, so they’re not susceptible to inflation simply because you can’t print more of them. Because they’re separate from assets like stocks and bonds and carry no credit risk, they’re a less volatile investment.
Types of stocks
When you buy stocks, you’re buying a share of ownership in a company. Also called equities, stocks are based on the company type, size, potential for growth and performance in the market. Your profits and losses depend on the success and failure of the company, as well as the influence of major trends in the stock market.
These pay regular dividends based on the company’s current or retained earnings. For investors, they provide high-yield income that’s often paid out quarterly. Big-name utility companies tend to be income stocks.
These are stocks of companies growing at a faster rate than the market average, such as tech startups. They rarely pay dividends. Instead, investors purchase them because they believe their capital will appreciate.
These are shares of companies with lower price-to-earnings (PE) ratios than their peers, so they’re often cheaper than stocks with a higher PE. They can be growth or income stocks, and people buy them hoping the stock price will rebound and return to a more competitive PE.
These are shares in huge, financially fit corporations with a solid history of growth, and they usually pay dividends. Examples of blue-chip stocks are General Electric, Visa and Walmart.
MLPs are publicly traded US companies that are organized as limited partnerships. They combine the benefits of having profits taxed only when investors receive distributions with the liquidity of a public company.
As the name suggests, these are small shares of public companies (often new to the market) that trade for less than $1. They’re known for their volatility.
Impact stocks are shares in companies that are known for their environmental and social stewardship. Companies specializing in solar energy, low-income housing and sustainable agriculture are examples of impact stocks.
Types of bonds
Bonds are a type of fixed-income investment that pay interest or dividends at set intervals and return your principal amount at the end of the term. They are issued by governments and companies at fixed rates, so when you buy a bond, you’re essentially lending the issuer money in exchange for interest payments. Bonds are generally less risky than stocks, but like any investment, your returns may vary, so there’s no guarantee you’ll make money.
There are two different types of government bonds: treasury bonds and municipal bonds. Both are used to generate money for cash flow, finance debt, fund investments and more. They are issued by the government, so they are the lowest risk, but they often have lower interest rates than the other types of bonds.
Government of Canada Real Returns Bonds
Considered to be the safest investment in Canada, these bonds are backed by the Canadian government. The main benefit of Real Returns Bonds is that the principal amount is adjusted for inflation, so you don’t end up losing money over time if the Canadian dollar declines in value. Your investment can be sold any time, but you won’t receive any interest you’ve earned if you don’t keep the bond(s) until the end of the term.
Quick Facts:
Interest. 2%
Term length. Varies but can last up to 28 years.
Price. The price per bond is $1,000. (Note that your bank or financial institution may require a minimum investment of several bonds or more.)
Provincial bonds
Issued by provincial governments, these bonds are backed by the provincial authority to levy and collect taxes and are considered fairly safe. Investors buy bonds at a fixed interest rate for a set term. Interest payments are paid twice a year, and at the end of the term, the bonds are sold for whatever the market value is at that time. (Your interest rate remains the same, but the value of your bonds changes regularly.) Quick facts:
Interest: Around 0.40% – 2.55% depending on the term length; paid annually or whenever the investment matures.
Term length: A few months up to 30 years.
Prices: Range from $80 – $120 per bond, although actual prices can vary. The minimum amount you can invest is $5,000, while the maximum investment amount is $50,000.
Rating system: The risk level of municipal bonds is rated according to the DBRS system and depends on the credit strength of the corporations issuing the bonds. Bonds issued by less financially stable businesses are considered a riskier investment and will subsequently have higher rates of return.
Municipal bonds
Municipal bonds (also called “munis”) represent roughly 2% of all bonds on the Canadian market and are issued by cities, counties, school districts and sometimes redevelopment agencies. While all of these bonds are used to finance capital expenditures, the specific purpose and repayment plan will vary depending on the type of bond that is issued.
Quick facts:
Interest: Doesn’t usually exceed 2.5% and is paid annually or whenever the investment matures.
Term length: A few months up to 30 years.
Prices: The minimum amount you can invest is $5,000, while the maximum investment amount is $50,000.
Rating system: The risk level of municipal bonds is rated according to the DBRS system and depends on the credit strength of the corporations issuing the bonds. Bonds issued by less financially stable businesses are considered a riskier investment and will subsequently have higher rates of return.
Corporate bonds are issued by public companies in an effort to generate cash flow. Unlike stocks, you won’t own a share of the company but will instead be considered a creditor and will earn interest on top of your principal. These bonds usually offer higher returns than government bonds, but they’re also riskier — if the company fails, it may default on the debt.
Quick facts:
Interest: Approximately 0.70% – 4.24% depending on the term length.
Term length: Short-term bonds are 0 – 5 years long, medium-term bonds are between 5 – 12 years long and long-term bonds are 12+ years long.
Prices: It’s not uncommon to see rates starting around $75 – $100 per bond, though prices can vary.
Rating system: The risk level of corporate bonds is rated according to the DBRS system and depends on the credit strength of the corporations issuing the bonds. Bonds issued by less financially stable businesses are considered a riskier investment and will subsequently have higher rates of return.
Types of bonds:
Investment-grade bonds. These bonds have a high credit rating (BBB- or higher), which suggests that the company is in a relatively strong financial position and has the ability to repay the bonds.
High-yield bonds (junk bonds). These bonds have a lower credit rating (BB or lower) than investment-grade bonds. However, they generally pay higher interest rates in exchange for the increased risk.
Convertible bonds. Most often issued by companies with low credit ratings and high growth potential, these bonds can be converted to a predetermined amount of common stock or cash.
Types of funds
An investment fund collects capital from a bunch of investors to buy stocks, bonds and securities. Usually managed by professionals, they give investors access to opportunities they may not have been able to invest in on their own.
These funds pool money from investors to invest in a variety of securities, such as stocks and bonds. Investors buy shares in mutual funds, and each share represents their part ownership in the fund and the income it generates. Four major categories are money market funds, bond funds, stock funds and target date funds.
Like mutual funds, ETFs are pooled investments that give investors an interest in a professionally managed portfolio. Unlike mutual funds, ETF shares trade directly on stock exchanges. Typically, an ETF is an index fund — it buys all the stocks and bonds in an index, or a curated list of investments. For example, the Dow Jones Industrial Average is an index consisting of 30 major companies. You might buy an ETF to diversify your portfolio and thereby decrease your risk. You can wait while the market grows, as opposed to buying and selling securities all the time. Because you’re not making many transactions, you’ll pay less in fees.
Open to accredited investors like insurance companies, universities, and high-net-worth individuals, these funds require a high initial investment. They’re managed by private equity firms that typically buy a controlling interest in the portfolio company and work to increase its value over the span of 10 or so years. While most private equity funds have a long-term focus, some specialize in minority investments in startups and fast-growing companies.
Also limited to wealthy and institutional investors, hedge funds pool money to invest in a range of investments. However, they tend to take a riskier approach than mutual funds.
An index fund is a type of mutual fund or EFT with a portfolio that’s made to match or track the returns of a market index, such as the S&P 500. It’s an indirect investment option that’s known for its low operating expenses and turnover.
Types of options
Options are contracts that give the investor the right — but not the obligation — to buy or sell a security, such as a stock or foreign currency, at a fixed price within a specified time. They’re derivative, which means they derive their value from their underlying assets. Options are open to both institutional and individual investors.
These contracts give the buyer the right to buy shares of an underlying stock within a specified timeframe. The seller must sell those shares to the buyer, who exercises the option to buy on or before the expiration date.
These give the buyer the right to sell shares of an underlying stock on or before the expiration date, and the seller must oblige.
These short-term financial tools are based on a yes/no question. Like call and put options, they have an expiration date. At that time, the price of the asset must be on the correct side of the strike price to make a profit. In other words, the payoff is either a fixed cash amount or asset — or nothing at all.
Types of real estate
Buying a home is among our major investments. But other investment options make up the real estate realm.
This involves buying and operating a real estate property, such as a house or apartment building, so that you can collect the rent. Many investors go with this investment for its cash flow income.
REITs allow you to invest in large-scale, income-generating real estate, such as shopping malls, hotels, resorts and storage facilities. As the investor, you earn a share of the income that’s produced. Many REITs are registered with securities regulators such as the Investment Industry Regulatory Organization of Canada (IIROC) and the US Securities and Exchange Commission (SEC).
Investors who want to hold a tangible asset can purchase ownership tree farms, managed natural forests and similar investments.
Investment loans
Traditionally, banks granted these fixed-rate loans to help investors finance a specific project and acquire such assets as property, equipment or machinery. Today, investors will find direct lending options that include crowdfunding and peer-to-peer lending platforms.
Types of contracts
An advanced form of investing, contacts are agreements to buy or sell commodities, shares and assets.
These are agreements to buy or sell a specific quantity of a commodity at a specific price and on a specific date. Commodities traded on the futures market include metals, oil, grains, and animal and food products, like coffee and hogs.
Like commodity futures, these are legally binding agreements to buy or sell specific shares of an individual stock or a narrow-based security index at a future date.
A forward is a customized contract between two parties to buy or sell an asset at a specific price on a specific date in the future. Unlike standard futures contracts, forwards can be tailored to any commodity, amount or delivery date.
A swap is an agreement between two parties — like businesses and financial institutions — to exchange cash flows or liabilities for a set period of time.
Currencies
Also called forex or FX, foreign exchange is the largest financial market in the world. Investors trade international currencies online and over the phone.
On the other hand, money market funds are mutual funds that are invested conservatively in government, municipal, corporate or bank securities. The return on money market funds also fluctuates with market conditions, but there’s a possibility that return drops below zero and you lose some of your principal.[/fin_hide]
How to invest
Investing is accessible to anyone. The paths you can take to build a portfolio depend on your budget, risk tolerance and financial goals.
Investment accounts
Before signing up for an investment account, read the fine print. These accounts are typically taxable, and fees can vary.
Brokerage accounts. This is an arrangement between an investor and a licensed brokerage firm. As the investor, you deposit money into the brokerage account and then place orders to buy or sell such investments as stocks, bonds and mutual funds.
Digital apps. In recent years, fintech startups have launched apps that allow everyday earners to invest their money from their smart devices. These apps appeal to millennials and the tech-savvy, and they cut down on the fees you’d typically pay for a human to manage your money.
Retirement accounts
Look at retirement accounts as a way of investing and securing your financial future. They can help you to save for retirement and manage your income after you retire.
Employer pension plans. With defined contribution plans, you contribute pretax money from your paycheck to your individual account. The value of the account fluctuates over time, and on retirement, you’ll receive the balance. Many employers match your contributions, offering another incentive to save.
Registered Retirement Savings Accounts (RRSPs). These accounts offer tax advantages. For example, you won’t pay taxes on your earnings until you make withdrawals during retirement. If you withdraw sooner, you will be subject to a higher tax rate.
Other sources of retirement income include investments held in TFSAs, funds deposited into bank accounts, real estate investments and government programs such as Old Age Security (OAS) and the Guaranteed Income Supplement (GIS).
Robo-advisors
Robo-advisors are exactly what they sound like: digital financial advisers. A robo-advisor relies on intricate algorithms and technology to offer financial advice, help with asset allocations and automate the management of your investments.
Financial advisers
If you prefer working with a human, you can enlist a financial planner or adviser to help you set up an investment portfolio. Most financial advisers work out of banks and require a minimum amount to invest.
Investing strategies
A good investment strategy addresses the opportunities and risks of the financial markets in a way that helps you achieve your goals. Such a strategy can change over time, but consider important components like:
Asset allocation
Split up your investments based on your goals and risk tolerance. It can be good to put more money into stocks than bonds when you’re young to leverage long-term growth potential, then shift into less risky investments like bonds as you near retirement.
Cycles
Business cycles, economic cycles and seasons can influence the movements of investment vehicles. Restaurants must be planned, then built. Oil must be discovered, then drilled. Prescription drugs must be developed, then tested and approved.
Diversification
Don’t put all your eggs in one basket. To manage risk and protect against market fluctuations, savvy investors diversify their portfolios across multiple vehicles and sectors.
Trends
Keep your finger on the pulse of the economy. Recognize the role that generational, technological, societal and other shifts can play in the ongoing supply and demand tug of war.
Investment philosophy
Broadly speaking, there are 2 main investing philosophies: Active and passive investing.
Many traditional wealth management firms prefer active investing, where advisers regularly buy and sell assets for you. The idea is that skillful investing can “beat the market” and outperform a portfolio that changes very little.
Robo-advisors tend to use a passive investing approach. Rather than try to pick winning and losing investments, they put your money in a curated mix of investments and wait for it to grow.
Some actively managed funds outperform the market, but most don’t. According to the 2017 Dow Jones Indices SPIVA Scorecard — a semiannual comparison of managed funds against benchmarks — large funds usually don’t beat the S&P 64% of the time. And medium-size and small funds fall behind their benchmarks almost 90% of the time.
Robo-advisors aren’t designed to beat the market, but they move in sync with it. According to experts, robo-advisors often perform better than actively managed funds, once you account for the difference in management fees.
Financial markets
To get money into your desired investment, you’ll need to access a market that offers that investment, often through an investment account that participates in the various markets.
You can invest your money through exchanges in Canada, the US and elsewhere in the world including:
Capital markets
The TSX is one of the largest stock exchanges in the world, hosting over $2 trillion worth of trades. Canada’s biggest companies trade on this platform and come from a variety of industries including oil, gas, retail, finance, energy and mining.
Public companies that aren’t yet big enough to be included on the TSX trade on this public ventures marketplace.
Created in 2001, the CSE is meant to function as a more modern and efficient stock exchange, with only 200+ companies trading on it. Equities and government bonds are traded on this platform along with other structured products.
As Wall Street’s best-known stock exchange and the world’s largest, it lists most traditional US companies, like General Electric, Bank of America, Ford and AT&T.
Founded as the National Association of Securities Dealers Automated Quotations in 1971, it’s second only to the NYSE and features many top technology companies, like Apple, Microsoft, Facebook and Netflix.
NASDAQ CANADA is wholly owned by Nasdaq, Inc. and acts as an extension of the company’s trading platform in the US. Companies featured on the exchange include TD Securities, BMO Nesbitt Burns and CIBC WorldMarkets Corp.
Founded as the mutual New York Curb Market Agency in 1908, it grew to become the American Stock Exchange (AMEX) before being acquired by the NYSE and rebranded as the NYSE American. It’s home to many small-cap stocks, especially precious metals mining companies like NexGen Energy, NovaGold Resources, Polymet Mining and Sandstorm Gold.
Various OTC markets, some traditionally called bulletin boards or pink sheets, allow investors to buy and sell through a broker rather than trading through an exchange, often when a stock or bond isn’t listed on a major exchange.
Derivatives markets
This exchange is owned by the TMX Group located in Toronto, but it’s based the Tour de la Bourse (Stock Exchange Tower) in Montreal. Securities traded on this platform include futures contracts and options on equities, indexes, currencies, ETFs, energy and interest rates.
Focused on options and futures since 1898, the CME now includes the Chicago Board of Trade, the New York Mercantile Exchange and the Kansas City Board of Trade.
This modern energy futures exchange has grown quickly since 2000 to serve numerous commodity futures and options markets, as well as digital assets.
As the nation’s largest options exchange, CBOE offers contracts on some of the most popular indices, like the S&P 500, Dow Jones Industrial Average, NASDAQ Composite and Russell 2000.
Bottom line
All investments are a dance of risk and reward. The aim of investing is to build wealth and set yourself up for a comfortable financial future. But it comes with a degree of uncertainty.
What you invest your money in and how you invest it should be guided by your goals and capital.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
Katia Iervasi is a lead writer and spokesperson at NerdWallet and a former editor at Finder, specializing in insurance. Her writing and analysis on life, disability and health insurance has been featured in The Washington Post, Forbes, Yahoo, Entrepreneur, Best Company and FT Advisor. She holds a BA in communication from Australia's Griffith University.
CMC Markets provides online trading services to Canadian customers who can enjoy low commissions and the features of an award-winning trading platform.
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