Put the following advice into practice
- 1. Do not try to beat the market by buying at the best time. Even investment experts cannot always predict market movements and the best time to buy
- 2. Do not buy returns, instead choose products that meet your needs. Past returns are not a guarantee of future returns. That is why you should base your choice on the characteristics of the investment type and not on its past performance.
- 3. Invest systematically. By allowing you to invest the amount of your choice at the frequency you desire, systematic investing helps you save at your own pace. Moreover, by investing frequently throughout the year, you can benefit from market gains while avoiding being hit too hard by downturns.
- 4. Diversify your investments. By investing in several types of products, several regions of the globe, different asset categories and various economic sectors, while respecting your investor profile, you reduce risks and increase your return potential.
- 5. During market instability, be patient. When you invest long-term, remain faithful to your investment strategy. Remember that history shows that a market decline has often been followed by significant recovery.
- 6. Favor investments with tax advantages. Outside your RRSP, prioritize products with advantageous tax treatment, such as those that generate capital gains and dividends (stocks, equity funds and dividend funds), rather than those that produce interest income (guaranteed investment certificates, bonds, detached coupons and bond funds).
- 7. Do not deprive yourself of the growth potential of stock markets. A portfolio that includes stocks in addition to bonds carries a lower potential risk than a portfolio consisting only of bonds. Including stocks in a proportion that respects your risk tolerance is a winning move!
- 8. Review your portfolio once a year with your financial advisor. Since your needs and financial situation are constantly evolving, ensure that your portfolio still meets your needs by discussing with your financial advisor at least once a year or when an important event occurs (home purchase, birth, inheritance, job loss, etc).
- 9. Contribute to your RRSP every year. Rather than neglect contributing to your RRSP one year and thus deprive yourself of thousands of dollars in retirement, do not hesitate to borrow. You could then use the tax refund you receive to pay off part or all of the loan.
Frequently Asked Questions — Golden Rules of the Investor
What is diversification?
Diversification consists of spreading investments across different asset categories (stocks, bonds, real estate), sectors and geographic zones. The usual objective is to reduce the impact of a localized decline on the overall portfolio.
What is periodic average cost (DCA)?
Periodic average cost, also called dollar-cost averaging, consists of investing a fixed amount at regular intervals, regardless of market fluctuations. This approach is often cited as a way to smooth the average purchase price over time.
What are the most common mistakes investors make?
Among commonly cited errors: acting on emotion, trying to predict the market in the short term, concentrating too many assets in a single position, ignoring management fees and not reviewing your allocation over time.
What is investment horizon?
Investment horizon represents the period before which the investor plans to use their funds. A short horizon (less than 3 years), medium (3 to 10 years) or long (more than 10 years) usually influences the allocation between more stable assets and more volatile assets.
How do you assess your risk tolerance?
Risk tolerance combines the financial capacity to absorb a loss and psychological comfort with portfolio fluctuations. Questionnaires offered by financial institutions often serve as a starting point for this assessment.
What is compound interest?
Compound interest is interest calculated on both the initial capital and the interest already accumulated. Over a long horizon, this effect is often presented as one of the main drivers of portfolio growth.
Should you rebalance your portfolio?
Rebalancing consists of bringing the portfolio allocation back to its initial target. It is customary to do this once or twice a year, or when an asset deviates significantly from the intended weight.
Where to find objective information on investing?
Several public organizations and provincial regulators publish factual guides and tools for consumers. The Financial Consumer Agency of Canada also gathers neutral educational resources on savings and investment.
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