How to choose the best investment account for you<\/h3>
Choosing an investment account may seem a little overwhelming at first, but it\u2019s simpler than you might think. The first thing you need to do is work out what your investing goals are:<\/p>
- Why are you investing? Are you saving for retirement, a home deposit or maybe your children\u2019s education?<\/li>
- What is your time horizon? Are you investing for the short, medium or long term?<\/li>
- How much risk are you willing to accept?<\/li>
- How much money do you have to invest?<\/li>
- Will you need to be able to access your money quickly in an emergency?<\/li><\/ul>
Once you have a clear vision of what you want to achieve, you can start comparing your options. Ultimately, many people decide that they need a combination of investment accounts to suit their needs.<\/p>
For example, you could open a savings account to save for a vacation or an emergency fund, and a stock trading account to buy and hold stocks and ETFs for the long-term to help fund your retirement.<\/p><\/div><\/article>
Types of investment accounts<\/h3>
All investment accounts fall into one of two categories\u2014defensive investments and growth investments.<\/p>
4 types of growth investment accounts<\/h4>
Risk level:<\/strong> Medium to very high<\/p>
- Stock trading accounts<\/a><\/li>
- Robo-advisors<\/a><\/li>
- Peer-to-peer investing accounts<\/a><\/li>
- Forex trading accounts<\/a><\/li><\/ol>
2 types of defensive investment accounts<\/h4>
Risk level:<\/strong> Very low<\/p>
- Savings accounts<\/a><\/li>
- Guaranteed investment certificates (GICs)<\/a><\/li><\/ol>
Growth investments<\/h3>
Growth investments have the potential to increase in value. This could mean investing in stocks of small-cap companies with growth potential, either through a self-directed investment account or a robo-advisor.<\/p>
It could also mean looking for alternative options like peer-to-peer investments, or trading forex with leverage to amplify your profits.<\/p>
Growth investments can deliver much higher returns than defensive investments, but they come with a higher level of risk. There\u2019s no guarantee that you\u2019ll get your money back\u2014in fact, you could lose money\u2014and you don\u2019t get the security of CDIC protection that you enjoy with savings accounts and GICs.<\/p>
But if you choose the right investments, you could end up with much more money when all is said and done.<\/p>
1. Stock trading accounts<\/h3>
Stock trading platforms and apps<\/a> let you connect to stock markets so you can trade stocks, ETFs<\/a> and a wide range of other financial products. It\u2019s easy to buy and sell stocks online or via your broker\u2019s mobile app, and some discount brokers even offer commission-free trading<\/a>.<\/p>
Stocks also offer two potential sources of income: capital gains when you buy low and sell high, and the passive income of dividend payouts.<\/p>
The risk level varies depending on the investment you choose. For example, investing in a money market fund or an index fund that tracks the S&P 500 will generally have a lower level of risk than investing in penny stocks.<\/p>
Depending on your broker, you may also be able to use self-directed investment accounts to trade mutual funds, bonds, options, futures and cryptocurrencies.<\/p>
Key features of a stock trading account<\/h4>
- Invest in Canadian stocks and ETFs online<\/li>
- Many brokers also provide access to US stocks and ETFs, and some let you trade a wide range of international markets<\/li>
- Many platforms charge a brokerage fee every time you trade, but some offer $0 commission trading<\/li>
- Choose from a cash account (invest your own money) or a margin account (trade using money you borrow from the broker)<\/li>
- Easy access to your money when you want to cash in your investments<\/li>
- Canadian Investor Protection Fund (CIPF) coverage if you open a brokerage account with a CIPF member<\/li><\/ul>
What are the downsides of a stock trading account?<\/h4>
The biggest risk of trading stocks is that you could lose money. In fact, if the company goes bust and its share price falls to $0, you could lose your entire investment.<\/p>
Market volatility is another risk to consider. Historically, stock markets go up in the long-term, but they can experience plenty of fluctuations in the shorter term. That\u2019s why stocks are generally seen to be a better long-term investment and not as well suited to short-term goals.<\/p>
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- Guaranteed investment certificates (GICs)<\/a><\/li><\/ol>
- Robo-advisors<\/a><\/li>
- Stock trading accounts<\/a><\/li>