Mutual Funds, GICs, T-Bills, Canada Savings Bonds - today's investor has no shortage of investment options to choose from. Along with a staggering array of products to consider, investors also face the challenge of trying to predict where the market is going. "As part of our commitment to our clients and their needs, we have chosen flexible investment products that remove some of the guess work," says Martin Kosterman - our Retirement Income Specialist.
"The result is that locking-in an investment, in any one institution is no longer a consideration, we've found that a single institution can't offer the best price and/or product mix," he adds.
Before examining your investment options, Martin suggests looking at your investment goals keeping in mind some factors such as Estate planning, tax minimization, any change in your monthly or annual income and life style changes, as the health of either spouse can sometimes quickly change, and any change in your monthly or annual income requirements, must be planned for in advance.
Flexibility is then a major consideration. Other things to look at are the:
Time horizon: Do you expect to use the proceeds of your investments in the short or long term?
Liquidity: Is there a chance you may need to convert your investment into cash for emergencies or move quickly into other investments?
Income: Will you be counting on your investment to provide you with a regular source of income?
Capital growth: If long-term capital gain and protection from inflation is your goal, you could look for investments that offer high growth potential over 5 to 10 years.
Balance your investments
Security: Some investments provide greater assurance regarding the safety of your principal investment. One way to increase growth potential while minimizing risk is diversification or putting your money into several types of investments. With fixed term investments, staggering the terms spreads the interest rate risk. "At any given time, some investments perform better than others, depending on market conditions. The ideal situation is to balance your investments so you can participate in any gains and, at the same time, protect yourself from losses," says Martin.
Depending on the age of the client, we recognize and recommend widely different investment concepts, the younger investor perhaps can be more aggressive, and choosing a Dollar Cost Averaging approach, enter the world of investing, in a controlled and balanced way.
The younger investor would seek a high percentage in growth related investments, while the investor accustomed to income generating investments, would have a larger portion of Government issues, GICs, Mortgage Backed Securities, Money Market Funds etc., those investments that provide the most security. Listed below in groups are certain investments that correspond with the normal risk level noted.
Any portfolio mix depends on setting investment goals, understanding the type of investment recommended and how that investment reacts to the market in general, E.g.: Interest rates go UP Bond prices go DOWN. Does that matter? It only matters, if you are going to sell the bond prior to maturity, because when the Bond or GIC matures you receive the Face value, it pays the interest at the issue rate or provides the yield specified on the purchase date.
Other types of risk include
Credit Risk: The possibility that the company holding your money will not pay interest or dividend due, or the principal amount when it matures.
Inflation Risk: The risk that the dollar you receive on redemption, will buy less than the dollar you originally invested.
Interest Rate Risk: The possibility that a fixed debt instrument, such as a bond, will decline in value due to a rise in interest rates.
Market Risk: The risk that the unit price, or value, of your investment will decrease.
Risk of Principal: The possibility that the invested capital will decrease in value.
With extracts from: The Money Advisor (Book) - Bruce Cohen.
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