Embarking on the world of investing for beginners in Canada can be both exciting and rewarding, especially with the vast array of options available – including stocks, mutual funds, mortgage investments, and more. This makes crafting the right investment strategy at the start more important.
Feeling ready to invest? Here’s a simple guide on what you need to know before you start investing.
- Anyone can start investing in Canada; however, it takes proper research to know what investments fit your goals, time horizon, and risk tolerance.
- Canada offers various investments like stocks, bonds, mutual funds, and others, making strategic planning crucial for beginners.
- Amur Capital simplifies the investment journey, providing a straightforward way to grow wealth with stable returns by investing in a portfolio of mortgage investments.
What is investing?
Investing involves putting your money to work with an objective to earn more money. Think of investing as planting seeds for future financial growth – you purchase assets with the expectation that their value will grow over time. Unlike trading, investing needs your commitment to nurture it by balancing risk and rewards or allocating resources wisely to ensure long-term growth.
In Canada, you can invest in a variety of assets, from stocks and bonds to mutual funds and mortgage investments. Each asset class has its own differences, including risks and rewards. Remember, there’s no guarantee that your investments will always increase in value, just like there’s no guarantee that every seed you plant will blossom at the same rate.
The key is to make informed decisions along the way – understanding your investment goals, risk tolerance, and time horizons. More on these later.
Saving versus investing
Investing is different from saving. When you save, you set aside money, usually in a bank account. This means that the savings account where you parked your money will pay a small interest on the funds deposited. The goal of saving is to preserve the money by exposing it to minimal or no risk.
However, inflation can quickly erode the value of your money if the interest rate on your savings account is less than the rate of inflation. At present, inflation is estimated at over 3% a year. Most savings accounts hover between 1% to 2.5%. If the rate of return is less than inflation, you are actually ‘losing’ money in terms of its current value.
This is where investing comes in. With investing, compounding interest can multiply your money at an accelerated rate. For example, here’s a comparison between investing in a high-interest savings account with a 2.5% annual return and investing in a mortgage investment corporation (MIC) conservative fund with a 7% annual return over 15 years.
Since investing can give you returns that exceed the inflation rate, your money will be worth more, allowing you to reach your financial goals faster.
Factors to consider before investing
Before choosing where to invest, it is crucial to plan your investment journey. You can gauge the following factors with a financial advisor for additional feedback.
• Investment goals: Often, investment goals are tied to life events, like buying your own home or having a stable income stream after retirement. Your investment goals should be Specific, Measurable, Attainable, Relevant, and Time-bound (SMART).
• Investment time horizon: How long do you want to invest? Like saving early, investing early will benefit you significantly from compound growth. Also, the longer you hold on to your investments, the more time you’ll have to recover from market downturns, grow your investment value, and build up a nest egg for retirement
• Risk tolerance: Risk can be described as the likelihood that the outcome will differ from expectations. Risk tolerance refers to your comfort level with this uncertainty. In investing, this can mean fluctuations in the value of your assets.
It is important to note that your risk tolerance will change throughout the years, depending on your age, financial situation, and goals.
• Investment approach: Are you looking to take a more hands-on approach? An online brokerage account allows you to buy and sell stocks and exchange-traded funds (ETFs) without paying a fund manager. However, a DIY approach will require a lot of effort, knowledge and research.
Want to automate your investing? Robo-advisors build and manage an investment portfolio for a fee. If you prefer a more personal touch, a financial advisor can give you a more personalized portfolio and may also offer services beyond investing, such as debt management and estate planning. However, they may charge a steep price.
Your investment approach, whether active or passive, will depend on your risk tolerance, time commitment, and the financial goals you want to achieve with your investments.
• Investment account: Depending on the type of investments you have and the tax laws where you live, you may have to pay taxes on your investment earnings. This is where choosing the right investment account matters.
Registered investment accounts, such as the Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), and Registered Education Savings Plan (RESP), allow you to not only hold your investments but also apply certain tax benefits to your earnings.
With a TFSA, your withdrawals are not taxed, while both RRSP and RESP are. All three are tax-sheltered, meaning your savings and investment gains will grow tax-free while they stay in these accounts.
Non-registered accounts, while having no tax benefits, offer more flexibility with uncapped contribution limits and are open to all asset classes. This means you can contribute or withdraw as much as you want and invest in asset classes restricted by traditional registered accounts.
Main types of investments in Canada
Some of the investment types below involve the stock market, so it’s essential to learn about it first.
Simply put, a stock market brings together people who want to sell shares (also called stock) of publicly held companies and those who want to buy them in the hopes that the value of their shares goes up over time. Industry performance, investor sentiments, and other economic factors can cause the market to fluctuate.
Not all investments are traded on the Canadian stock market, with real estate as one example. Nevertheless, here are some of the most common investments in Canada:
|What it is
|How investors make money
|Bonds are loans with interest issued by companies or governments for a set period of time.
On the date of maturity, or when the bond becomes due, the issuer is supposed to pay back the face value of the bond in full, including the interest.
|Investors usually hold the bond until maturity to ensure they get their initial investment back, plus any interest due.
They can also sell a bond for more than they paid, which means a greater return on their investment.
|When you buy stocks, you are buying a share or portion of the company that issued them. This means you can take part in its profits through dividend payments.
While stocks generally have higher growth potential than bonds, they are considered riskier because companies can lose value or go out of business.
|As with bonds, investors can sell their shares at a higher price than what they paid for. In addition, they receive dividends paid by the company.
|Mutual funds are a collection of investments comprising of stocks, bonds, or other funds professionally managed by a portfolio or fund manager.
With mutual funds, investors can subscribe to various asset types in a single transaction, although they must wait until the end of trading day to see the fund’s value.
Ultimately, the performance of the mutual fund hinges on the ability of the fund manager to make informed decisions that maximize returns within the boundaries of the fund’s risk and objectives.
|When the value of the fund rises, investors can sell it for profit.
When the mutual fund earns money, as in the case of a portfolio comprising stock dividends, a portion of that is distributed to investors.
|Exchange-traded Funds (ETFs)
|ETFs are a type of index fund that aims to mirror the performance of an existing stock market index.
They are similar to mutual funds in that they hold stocks, bonds, and other assets. However, they operate like stocks, which means investors will be able to buy and sell ETFs throughout the day.
|When the ETF’s value goes up, investors can sell it for a profit. Depending on the composition of the fund, ETFs may also pay out dividends.
|Guaranteed Investment Certificates (GICs)
|A Guaranteed Investment Certificate acts as a special kind of deposit and is offered by most Canadian banks. Since they are insured by the Canada Deposit Insurance Corporation (CDIC) up to $100,000, GICs are considered one of the safest investments around.
|Investors are guaranteed to get the amount deposited at the end of the term, plus the interest.
Interest can be paid monthly, at the maturity date, or at any frequency agreed upon.
|Real estate is one of the few investments not affected by the stock market. However, it requires a more hands-on approach, especially with managing rental properties.
Alternatively, Real Estate Investment Trusts (REITs) or mortgage funds offer a more passive way of investing in real estate. REITs are like mutual funds wherein a group of investors pool their money to purchase income-generating properties. Most REITs are publicly traded like stocks.
|Investors can earn rental income from leasing their properties.
With REITs, investors can earn dividends.
Mortgage investment corporations (MICs)
A simpler way to invest in real estate is through Mortgage Investment Corporations (MICs).
Mortgage investing is a managed investment in which the investors’ funds are pooled together and lent to a borrower as a mortgage. The borrower then pays interest and fees, passed on to investors as dividends.
Amur Capital streamlines the mortgage investing process by taking care of all the paperwork through its dedicated Investor Relations team so you can focus on watching your investments grow. Plus, our funds comprise a diversified, stable, and growing portfolio of mortgages across Canada to ensure your investment is well-balanced and primed for success. Our fund offerings have provided investors with stable historical returns even during market downturns.
Mortgage investing basics
Mortgage investing allows investors to earn stable passive income with high growth potential, all without buying and managing a property.
Here’s a quick rundown of the mortgage investment process at Amur Capital:
Investors choose a MIC
Amur Capital offers three funds catering to different investor profiles and goals. By investing money, you become a shareholder, with each share representing a percentage of the portfolio ($1 = 1 share). The pooled funds will then receive a consistent stream of proprietary and high-quality mortgage deals from Amur Financial Group’s mortgage origination entities, Alpine Credits Ltd. and Sequence Capital Ltd.
Mortgage process begins
Once borrowers are approved for a loan, we will mortgage the borrower’s property as our security. Borrowers pay fees, interest, and principal to the Mortgage Investment Corporation (MIC).
Investors receive 100% of the net income (after all expenses and fees) from the mortgages in the form of monthly dividends. They can either withdraw their dividends as cash or continue reinvesting into the fund for compound growth.
By this time, investors have chosen from a registered or non-registered account to receive their investment returns.
Three investment tips for beginners
There are no guaranteed investments, but you can take steps to ensure you’re on a confident footing before you start investing in Canada.
- Make an investment plan – An investment plan incorporates your financial goals, time horizon, and risk tolerance. It acts as a roadmap that details where and how to use your money to achieve your goals.
- Don’t put all your eggs in one basket – Combining different asset classes into your investment portfolio means spreading your money across different areas of the investing world. This means other parts of your portfolio will balance out any losses you may have in some parts if they ever lose value.
- Start now – To maximize the power of compounding and generate higher returns in the long run, you need more time. The key is to start with what you have and reinvest your investment returns.
Common investment terms to know
Here are some of the most commonly used investment terms to help your investing journey. You may still find many new words, so Amur Capital has provided a glossary of investment terms.
- Asset: A tangible or intangible resource you own that has monetary value and can expect future benefits.
- Asset class: A group of investment assets with similar characteristics, such as stocks, bonds, or real estate.
- Asset allocation: Distributing money or investing across different asset classes.
- Brokerage: A financial firm or individual that facilitates the buying and selling of assets.
- Dividend: A payment made by a company to its investors from a portion of its profits.
- Liquid investment: An investment that can be quickly and easily sold.
- Return: Financial gain or loss on an investment.
- Risk: The chance that the outcome may not match your expectations.
- Stock exchange: A place for sellers and buyers to trade stocks and other securities.
- Volatility: Degree of variation of the price or value of an asset class in the market.
How to start investing money in Canada for Beginners
Now that we have set the groundwork for your investing journey, it’s time to take the proper steps toward your financial goals:
- Create a detailed investment plan: Clearly define your financial goals, whether saving for a home, retirement, or other goals. Assess your risk tolerance and adjust according to your time horizon.
- Know about your investment options: Learn and understand the different investments in Canada to know their potential risk, returns, and overall characteristics.
- Open an investment account: Choose a reputable investment platform that will enable you to invest in the assets in the way you want.
- Diversify and allocate: Avoid putting all your funds into one investment. Diversify your portfolio with a mix of traditional (stocks, bonds and mutual funds) and alternative investments (mortgage funds and real estate) to minimize risk.
- Start with small yet regular contributions: Invest with what you have. The key is to be consistent and let the power of compounding do the work.
- Monitor and adjust: your financial situations, goals, and market conditions can change over the years. Regularly review your investment portfolio to ensure it aligns with your goals.
- Leverage tax-advantaged accounts: Take advantage of tax-sheltered accounts like the TFSA and RRSP to maximize your investment strategy.
Start investing with Amur Capital
Amur Capital provides a straightforward way of investing. Our streamlined approach offers access to well-diversified funds tailored for various risk tolerances. Unlike traditional bonds and stocks, our mortgage investment options offer minimal market volatility exposure while ensuring a stable annual return. Embrace a simpler, more rewarding investment experience with Amur Capital.
Frequently Asked Questions
The minimum investment varies between each investment opportunity. However, you can start with as little as $5000.
The first investment looks different for everyone because it depends on their investment goals. You can consider mortgage investments with Amur Capital as your first because we offer stable passive income.
Before putting your money anywhere, it’s essential to understand what you want to achieve and how soon you will require access to the funds. Then, you can explore opportunities that have low minimums.
The rule of thumb is to start with what you have and invest consistently to achieve your goals.
Equip yourself with the knowledge of investing. Always start with a plan and keep your actions aligned with your goals. You can also contact an investment advisor to guide you on this journey.