Investment basics

You have probably heard that the stock market is a great place to grow your assets. Or maybe your cousin is making a lot of money being an Airbnb host. Or a neighbor said the real estate market is the golden opportunity to build your nest egg for retirement.

Before you explore the myriad opportunities to potentially invest, let’s first review some basics and assess what kind of investor you are.

The information below goes over the key principals that help you start investing the right way.

01

How much risk can you take?

Succeeding in investing is all about getting the most returns while mitigating risk over time. Different investment options have different levels of risk and returns.

You will ultimately want to choose an investment option that can help you achieve your goals with the right amount of risk.

So how much risk is right for you?

Two primary factors to understand risks

The length of time you want your money to be invested. This is crucial to evaluate the level of market risk you want to take. In general, the longer you can invest, the more likely you will be able to recover from losses, and therefore more ability to take risk.

This means how much risk are you comfortable taking. Risk tolerance can change as we age and change depending on our financial situation. Start with these two questions to understand your risk tolerance level:

  • How much can you allow your investment to decrease before you are tempted to sell?
  • How much money are you comfortable possibly losing in investment?
02

Understanding Investment Funds

Schedule a One-on-One Meeting to Get Started.

One of the key benefits of your CRA plan is personalized retirement counseling. If we can help, just let us know.

A lot of people think investing is picking stocks. That is one way to invest, but may not be the best way for the inexperienced, or short-term investors, or the faint-of-heart. Even if you are investing for the long term and have some experience in the market, there is no guarantee of success.

When you buy stock in a company you own a (tiny) piece, or share, of ownership in the company. As a stockholder, or partial owner, you share in the company’s profits and losses. When the value of the company increases or decreases, the value of your investment increases or decreases.

A bond is a form of debt. When you purchase a bond, you are lending capital to a company, city or government that promises to pay that loan back in full, with interest.

Mutual funds are often referred to as a portfolio that is a thoughtfully collected group of stocks, bonds or other securities. Mutual funds are usually managed by a team of investment professionals for the benefit of a pool of investors.

Diversified portfolio to balance risks and return

You’ve probably heard the saying, “don’t put all your eggs in one basket.”

It’s best to create a diversified portfolio or asset allocation. When you spread your money in different investment options, you can protect yourself – to some extent – from the losses. Some investments may fall, while others may remain stable or rise.

Minimize taxes

Investment returns, or gains, often come with tax responsibility. Any time you sell a fund, you may need to pay tax on your gains, unless the fund is within a retirement account, like 401(a) or 457(b) plans. That means that your pre-tax CRA plans will grow tax-free until you start withdrawing for retirement! (You may pay standard income taxes on those earnings when you make a withdrawal unless you have an after-tax 457(b) plan.)

Keep costs low

Mutual funds are created and managed by finance professionals. When you purchase the fund, you will be asked to pay a management fee or fund fee for their services. Some mutual funds are more expensive than others. These costs are controlled by the fund manager and are deducted from your fund earnings.

Separately, CRA charges an administrative fee to all employee participants for fiduciary management and services.

Other Resources

Retirement Planning Guide

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