People use the word "return" to mean different things:
- Some people think of their return as a sum of money. They say something like "I invested $1,000 in the stock market and made $50." To them, $50 is the return.
- Other people talk about their return as a rate. They say something like "I made 5% last year on a mutual fund." This is just another way of saying that you made $50 on $1,000 (or 5%). The experts call it the rate of return (ROR) or investment return. It's usually written as a per cent that tells you how fast your money grew over a year.
What return will I get on my investments?
- If you buy investments that pay interest, you often know what you'll make. This includes savings accounts and Guaranteed Investment Certificates (GICs).
- What you make depends on how long you invest, and how easy it is to get your money out when you need it. Example: Most high-interest rate savings accounts are currently paying about 3% for the year. So if you put $1,000 in a savings account now, you would have $1,030 at the end of a year. You would make $30. Your rate of return would be 3%.
- If you buy other types of investments, such as stocks, your return may not be certain. There is a chance you could make nothing or even lose money.
- Even when you don't know for sure what you'll make, you can still get an idea of what to expect. How? Look at how investments like yours have done in the past five or 10 years. The past is no guarantee of the future, but looking at history can help you estimate the return you may get.
Remember: You don't always make money when you invest
We all want a good return on our investments. But sometimes you have to be ready for the ups and downs. Make sure you know what can happen before you choose an investment.
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.