Essential concepts to understand before you invest

Whether you plan to invest with the help of an advisor or take a self-directed approach, the first thing you need is to understand your "investor personality."

Investing is first of all about knowing yourself, sticking to your goals, knowing your limits and managing your expectations. How do you do that? By learning basic concepts to determine your investor profile. 

1. Investment objectives 

Why are you investing your money? To travel, buy a home, finance your kids' education, save for retirement? 

Each objective requires a different effort or strategy. Saving with a specific goal in mind will determine your investment horizon. 

2. Investment horizon 

How long will your money be invested? Short-term or long-term? If you've got a clear goal, the question will answer itself. Saving up for a trip and saving for retirement require two different investment strategies. And the types of investments offered won't be the same. 

For short-term horizons, guaranteed investments are recommended. For horizons of more than 5 years, you have a wider choice that includes stocks to diversify your portfolio and increase your return potential. The investment products you choose will depend on your risk tolerance. 

3. Risk tolerance 

How well do you tolerate stock market fluctuations? 

Are you comfortable with volatility, that is, ups and downs in your portfolio's returns? Or do you feel more secure with stability, even if it might mean more moderate returns? Or a bit of both? 

By combining the answers to these questions, your profile will become clear. When you know your profile, you can make the right choices for your investment portfolio. 

How do you create and diversify your investment portfolio? 

By investing in many asset classes, such as: 

  • Fixed income (bonds, guaranteed investment certificates)
  • or
  • Growth (stocks, investment funds or exchange-traded funds (ETFs)

Some investors, who are more self-directed, will want to choose their investments themselves and trade on online brokerage platforms. Others will prefer to turn to the expertise of their advisor or use the Savings and Investment Assistant - This link will open in a new window.

* Financial Planner and Mutual Funds Representative for Desjardins Financial Services Firm Inc.