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Creating An Investment Plan: How To Decide What To Invest In

While saving lays the foundation for good financial habits, investing propels you forward and opens avenues for growth. After all, prolific investor Warren Buffett once said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”

Before you make any decisions, however, it is crucial to plan ahead. In this guide, we’ll navigate the nuances of creating a robust investment plan, ensuring that it suits your financial goals, investment horizon, and risk appetite.

 

Key Takeaways:

1. An investment plan maps out your investment journey and details how to use your money to achieve your financial goals.

2. The three most important factors to consider when crafting your investment plan are SMART financial goals, investment time horizons, and risk appetite.

3. Consider other investments like mortgages that go beyond traditional stocks and bonds.

 

What is an investment plan?

Think of an investment plan as a roadmap for your investing journey. It details where and how to use your money to achieve your investment goals, considering your risk tolerance and investment timeframe. Whether it’s stocks, mutual funds, bonds or alternative investments, the purpose of an investment plan is to make informed decisions that lead to capital preservation and income growth.

 

What is a financial goal?

If an investment plan is a roadmap, a financial goal is the destination you aim to reach on that map. Financial goals give direction and purpose to your plan, guiding your decisions to help you achieve major life goals, such as an early retirement with a monthly passive income.

Financial goals are often tied to life events, such as buying your first home, starting a family, saving for your children’s education, or retiring. Whatever your financial goals are, make sure to set them as SMART goals, which means they are Specific, Measurable, Achievable, Relevant, and Time-bound.

 

Here’s an example of a SMART financial goal:

 

    • Specific: I aim to accumulate $1 million in a diversified retirement portfolio, including stocks, bonds, and mortgage investments.
    • Measurable: I will track my progress by regularly reviewing my retirement account statements, aiming for an average annual return of 8%.
    • Achievable: Through automatic, monthly contributions and strategic participation in stocks, bonds and mortgage investment funds, I can reach this goal within 20 years.

 

    • Relevant: Retiring early is a priority for me, which is why the inclusion of mortgage investment funds will provide a reliable income stream for my retirement.
    • Time-bound: I aim to achieve this in 20 years.

 

Extending from your SMART goals, you can then allocate a schedule which generally falls into 1 of 3 categories:

 

    • Short-term: These goals can be completed within a year or less. Examples are enhancing financial and investment literacy, starting a side hustle, or setting up a short-term investment portfolio.
    • Medium-term: These goals take between 1 to 5 years to achieve. Examples include investing in a small business or purchasing a home.
    • Long-term: Long-term goals take five years or longer. Examples would be planning for retirement or saving for your child’s education.

Once you’ve set up your SMART goals, you can track your progress through a journal, an app, or a board to help you feel focused and accountable as you work towards them.

 

What is an investment time horizon?

Your investment time horizon refers to how long you want to keep investing. Financial goals and investment time horizons may be related but differ in scope.

While financial goals set the destination, the investment time horizon guides the journey. For example, if your financial goal is to retire in 20 years, the time horizon for the investments allocated to that goal is also 20 years. That means your investments will need to include assets that provide sufficient growth to provide passive income when you retire.

 

What is an investment risk?

Investment risk refers to the likelihood that your investment returns may not match your expectations due to uncertainty in the performance of the investment. This is why your risk tolerance to this uncertainty in pursuit of your investing goals is crucial.

Generally, the longer the time horizon, the more time you have to take advantage of compounding returns, leading to more significant growth in your investment value. In addition, a longer time horizon ‘smooths out’ short-term uncertainty in investment performance as periods the longer time horizon allows the investment to experience the periods of high returns to offset the periods of potentially low returns.

So, while some risk is involved in investing, some investments carry more uncertainty than others. For example, stocks are riskier than bonds because the former has greater volatility in the short term but may provide more robust returns over time.

How to choose investments based on your goals, time horizon, and risk appetite

Creating the best investment plans in Canada involves choosing the right mix of assets in your investment portfolio. And all that boils down to aligning your financial goals, time horizon, and risk appetite to create an effective investment approach.

For instance, if your financial goal is to retire in 30 years, it means your investment must be able to outpace inflation and grow sufficiently to provide a stable income stream once you stop investing.

Cash and short-term government bonds or bank GIC’s are typically less risky than stocks because they are geared towards protecting your initial investment amount, but they have lower returns in the long term which may not be sufficient to meet your retirement fund goal in your desired timeframe.

Additionally, since the time horizon for this goal is longer, consider the potential for higher returns by exploring investments in mortgage-backed securities such as Amur Capital’s Mortgage Investment Corporations (MICs), which can offer a balance of capital preservation, income and growth over the long term.

Alternatively, if your financial goal is to travel abroad in the next two years, investing in volatile assets like stocks may be too risky as you could end up with less money than you originally invested. In this case, cash, GIC’s and short-term bonds may be better suited.  As mentioned above, a short-term financial goal requires less uncertainty over the timeline which bonds and GIC’s can offer.

Here is a table to consider your own goals and the investment options you have:

 

Time Horizon Investment Goals Investment Options
Short: less than 1 year to 1 year Examples include setting up an emergency fund, renovating a home, or starting a side hustle High-interest rate savings accounts GICs Savings bonds Money market funds
Medium: 1 year to 5 years Examples include further education, purchasing a home, or funding a business Bonds ETFs Mutual funds MICs
Long: more than 5 years Examples include saving for retirement, building generational wealth, or ensuring a long-term passive income stream. MICs ETFs Stocks Whole life insurance

Source: Adapted from Ontario Securities Commission.

Other financial products, such as Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP), can also hold investment assets and offer unique benefits like favorable tax treatment and/or deferral to optimize your investment strategy.

For example, using a TFSA means your money grows tax-free, and you won’t be taxed on the earnings when you take it out, hence why investors consider them a great option for short-term goals and emergency funds. On the other hand, an RRSP is tax-deferred, which means you will only get taxed when you withdraw the funds, which is especially helpful for those retiring and looking for long-term income, as they are commonly in a lower tax bracket during retirement compared to employed periods.

There is also a growing market for investments that goes beyond traditional assets like stocks and bonds. Amur Capital offers Canadian investors access to the real estate market in the form of mortgage investing, where the investors’ funds are pooled together and invested in a portfolio of quality Canadian mortgages that are managed by professionals with over 50 years of experience. This allows investors to benefit from the real estate market without buying or managing a property.

 

Steps to creating an investment plan

Now that you know what to consider in creating your investment plan, here’s how you can start:

 

    1. Define SMART financial goals: Set your goals as Specific, Measurable, Achievable, Relevant, and Time-bound.

 

    1. Match goals with time horizons: Match each financial goal with your investment time horizon, considering your short-, medium-, or long-term goals.

 

    1. Assess and understand risk tolerance: Evaluate how comfortable you are with fluctuations in the asset value of your investments. Generally, investments with higher potential returns go together with increased risk.

 

    1. Determine investment amount: Personal finance is meant to be personal; hence, you should assess your financial capacity and budget to set a realistic amount.

 

    1. Utilize tax-advantaged accounts: Leverage TFSA and RRSP benefits to optimize tax efficiency in your portfolio.

At Amur Capital, each of our Mortgage Investment Corporations (MIC) enjoys a special tax status as a flow-through entity, which means the MIC distributes 100% of its net profits to the shareholders. Investors can choose from three funds according to their risk tolerance: Amur Capital Conservative Income Fund (ACCIF), Amur Capital Income Fund (ACIF), and Amur Capital High Yield Fund (ACHYF).

Whether you are a new investor seeking to start or a seasoned one looking to diversify your portfolio and earn passive income, constructing a robust investment plan involves careful consideration of your investment options, aligning them with your financial goals. By following these steps, you can navigate the complexities of investing and build a tailored plan to ensure investing success.

 

 

Frequently Asked Questions

How much you need to start investing in Canada depends on the type of investment vehicles you use. Some may require a minimum investment amount while others do not, so you can start investing with any amount.

As a beginner, you can start with less complex investments, preferably managed by an expert professional investment team.

You can contact our investor relations team to learn about the different investment options available at Amur Capital.

Starting your investment journey as a beginner involves educating yourself about the type of investments available, understanding your risk appetite, and knowing your investment time horizon and financial goals. 

Once you know about these factors, you can start crafting your investment plan that fits your financial situation and ensures investing success. 

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