The biggest misconception about investing is that it’s reserved for only people with lots of money and investment knowledge. Part of that may have been true in the past, since only those with lot of money thought of investing. But times have changed and things are very different today, companies and services have made it their mission to make investment options available for everyone, including beginners and those who have just small amounts of money to put to work for them.
An investment is an asset that is acquired with the intention of allowing its value to grow. The wealth that gets created can be used for whatever is the investor’s objective, such as repayment of a loan, paying off tuition fees, or purchasing other assets.
Investing is a way to potentially increase the amount of money you have, which can generate income in two ways. One, if you invest in a saleable asset, you may earn income from the possible returns (profits). Two, if invested in a return generated plan, then it will earn an income via accumulation of gains. In essences, investments can be understood by saying that it’s about putting your savings into assets or objects that will be worth more in the future or that will help produce an income over time.
Investments are things like stocks, bonds, mutual funds, Segregated Funds and annuities. You buy these products through an Investment Account, like a RRSP, TFSA, RESP.
The expectation of a return in the form of income or growth in asset value is generally the main reason for investing. Risk and return go hand-in-hand when investing; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk. At the low-risk end of investing are basic investments such as GICs; bonds or fixed-income instruments are higher up on the risk scale, while stocks or equities are regarded as riskier. Commodities and derivatives are generally considered to be among the riskiest investments. One can also invest in something practical, such as land or real estate, or delicate items, such as fine art and antiques.
The differences between saving and investing are:
Investing involves reallocating funds or resources into something to earn income or generate a profit. There are different types of investment vehicles and each carrying different levels of risks and rewards. This is something you can start doing today, tomorrow or when you feel ready. Most often, it works by using the power of compounding to increase the value of your money over a period of time—this may impact your money’s purchasing power in the future and help you be more financially secure in retirement.