To discover your investor profile, ask yourself these four questions:
1. How much risk is right for me?
Higher risk means you may lose some or all of your money. Ask yourself:
- Do I want the chance to make more money if it also means I may lose money?
- Would I rather make less and keep my money safe?
2. How much am I hoping to make by investing (your investment return)?
- With some investments, your return takes the form of income, as interest or dividends.
- With others, it takes the form of capital gains (or losses, if you sell an investment for less than you paid).
- In most cases, to get a higher return, you have to take more risk.
3. How long do I plan to invest for?
- Time horizon is the number of years that you plan to invest. For example, saving to buy a house is a shorter-term goal. Saving for retirement is a long-term goal.
- Investments that don't guarantee your return are often better for a longer time horizon.
- Example: An investment like a stock mutual fund may go up and down in value. If you have to sell early because you need your money, you may take a loss. If you can stay invested longer, you may get a better return over time.
4. Do I need to be able to get my money quickly?
- How easy will it be to get your money back from an investment? This is called the liquidity factor.
- Cash is the most liquid. You have it in your hand, purse, or pocket.
- Money in a bank account is also very liquid. You can get it right away and get it easily, either from a teller or a bank machine (ATM), or with a debit card.
- In most cases, when you give up quick and easy access to your money, you should expect a higher return.
- Example: Bank account deposits often pay less than if you lock your money into a Guaranteed Investment Certificate (GIC) for three years. They may also earn less than a mutual fund over time.
Remember: Know what's important to you
When you understand yourself better as an investor, it will be easier to make choices that are right for you.
Learn more
How much risk is right for you? Take the Investor Education Fund's What's Your Risk Comfort Level? quiz. It can help you understand your tolerance for risk.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.
