Through asset allocation, you can spread your money across different classes of investments, including:
1. Cash and cash equivalents
- Are like having cash in your wallet.
- Make it easy to get your money when you need it.
- Provide lower return, but with almost no risk.
- Examples: Savings accounts, money market funds, and treasury bills.
2. Fixed income investments
- Offer a fixed rate of return that doesn?t change.
- Provide a steady flow of income.
- Can lower your investment risk.
- Examples: Bonds, bond mutual funds and Canada Savings Bonds.
3. Equity investments
- Involve buying a share of ownership in a company.
- Are often riskier than fixed income investments. Their future value is uncertain, and will be affected by many factors, such as:
- How well the company is doing now and its future growth
- News events specific to the company
- Economic trends - Often offer the potential to make far more than either a fixed income investment or cash equivalent.
- Examples: You can buy shares of an individual company's stock, or buy units of a mutual fund that invests in the stocks of many companies.
To build your investment portfolio, choose from one or more of these asset classes to get the right balance of risk and return for you.
Remember: Asset mix is key to your investment success
In most cases, when you mix (diversify) different classes of investments or different investments, you reduce the risks of investing.
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.
