Too many of us become daunted when we think about investing. Indeed, the risks involved in investing can be difficult to stomach — especially if we aren’t sure about how the investment works.
The good news is that there are plenty of investments that are fairly simple and easy to understand. Additionally, there are ways to reduce some of your risk so that you aren’t so worried about big changes, and concerns about what’s next for the market. Here are simple investments almost anyone can make:
Index Funds
One of the reasons that people become concerned about investing in stocks is due to the worries about stock picking. Choosing the “right” stock for long-term success is very difficult, and few people manage it. However, index funds are simple investments that can take some of the worry out of investing in stocks.
Index funds follow a particular index, such as the S&P/TSX Composite Index. You can find index funds that also specialize in certain types of stocks, such as small caps, or socially responsible stock indexes. Your performance is based on the performance of the index as a whole. So, if a few stocks are lower, but the index is higher in general, you benefit from the whole picture.
Index funds aren’t limited just to stocks, though. There are also funds that track bond indexes and other indexes. You can invest in something you feel reasonably good about, and limit some of your risk because an index fund offers a certain level of instant diversity.
ETFs
Another options is to invest in ETFs. Exchange-Traded Funds offer you a similar benefit as index funds. However, while index funds are mutual funds, ETFs are traded like stocks. You can invest in ETFs based on indexes, as well as expand a little bit, since there are commodity and currency ETFs. However, you do need to be careful with some of these types of investments, since they are a little more volatile than stock or bond ETFs.
GICs
If you are looking for a safe investment, Guaranteed Income Certificates are a good option. GICs provide a set rate of return, and they are guaranteed so that you know that your money is safe. However, the rate of return on GICs are relatively low, when compared with the possibilities of other investments. But the risk lower as well. With index funds and ETFs there is the chance that you could see larger losses — even as the possibility of higher gains is offered. GICs get rid of that uncertainty and protect your capital.
Where to Put These Investments
These investments are all eligible for inclusion in advantaged accounts. You can use them in your RRSP, or in your TFSA. It’s possible to open these accounts with various banks, and they are fairly simple to open and contribute to. Additionally, you will be told how much contribution room you have each year by the government.
As you look to your financial future, don’t forget investing. You want to be able to grow your wealth, and these simple investments can help.
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