Investing For Canadians All-in-One For Dummies

Tony Martin, Eric Tyson

• Publisher: For Dummies
• Year: 2020
• ISBN:
  9781119736684
• Edition: 1
• Topic: Personal Development
• Subtopic: Personal Finance

The all-encompassing guide to getting smart about the market

While investing is one of the smartest ways to become financially worry-free, making the decisions that get you there can be intimidating and overwhelming. Today's investors have a huge array of options open to them and sorting the wheat from the chaff—and the get-rich-quick Ponzi schemes from the real deal—is an exhausting process. Investing For Canadians All-in-One For Dummies takes the fear out of the complexity by providing you with a clear and honest overview of Canada's unique investing landscape—and shows you how to make it work for you.

Bringing together essential and jargon-free information from Investing For Canadians For Dummies, Stock Investing For Canadians For Dummies, Mutual Funds For Canadians For Dummies, Real Estate Investing For Canadians For Dummies, Day Trading For Canadians For Dummies, Cryptocurrency Investing For Dummies, and Investing in Silver & Gold For Dummies together in one convenient place, this rich resource is an arsenal of techniques and advice for guaranteeing you a secure and prosperous future.

• Develop and manage a portfolio
• Find investments that suit your income
• Get the latest information on tax laws
• Follow time-tested strategies
• Invest in gold, silver, and other precious metals

Book 1

Entering the World of Investing

Contents at a Glance

1. Chapter 1: Exploring Your Investment Choices
   1. Getting Started with Investing
   2. Building Wealth with Ownership Investments
   3. Generating Income from Lending Investments
   4. Considering Cash Equivalents
   5. Steering Clear of Futures and Options
   6. Counting Out Collectibles
2. Chapter 2: Weighing Risks and Returns
   1. Evaluating Risks
   2. Analysing Returns
   3. Considering Your Goals
3. Chapter 3: Getting Your Financial House in Order
   1. Establishing an Emergency Reserve
   2. Evaluating Your Debts
   3. Establishing Your Financial Goals
   4. Funding Your Registered Retirement Savings Plan
   5. Taming Your Taxes in Non-Retirement Accounts
   6. Choosing the Right Investment Mix
   7. Treading Carefully When Investing for University or College
   8. Protecting Your Assets

Chapter 1

Exploring Your Investment Choices

IN THIS CHAPTER

Defining investing

Seeing how stocks, real estate, and small business ownership build long-term wealth

Understanding the role of lending and other investments

Knowing where not to invest your money

In many parts of the world, life’s basic necessities — food, clothing, shelter, and taxes — consume the entirety of people’s meager earnings. Although some Canadians do truly struggle for basic necessities, the bigger problem for other Canadians is that they consider just about everything — eating out, driving new cars, hopping on airplanes for vacation — to be a necessity. However, you should recognize that investing — that is, putting your money to work for you — is a necessity. If you want to accomplish important personal and financial goals, such as owning a home, starting your own business, helping your kids through university or college (and spending more time with them when they’re young), retiring comfortably, and so on, you must know how to invest well.

It’s been said, and too often quoted, that the only certainties in life are death and taxes. To these two certainties you can add one more: being confused by and ignorant about investing. Because investing is a confounding activity, you may be tempted to look with envious eyes at those people in the world who appear to be savvy with money and investing. Note that everyone starts with the same level of financial knowledge: none! No one was born knowing this stuff! The only difference between those who know and those who don’t is that those who know have devoted their time and energy to acquiring useful knowledge about the investment world.

Getting Started with Investing

Before this chapter discusses the major investing alternatives, consider a question that’s quite basic yet important. What exactly does “investing” mean? Simply stated, investing means you have money put away for future use.

You can choose from tens of thousands of stocks, bonds, mutual funds, exchange-traded funds, and other investments. Unfortunately for the novice, and even for the experts who are honest with you, knowing the name of the investment is just the tip of the iceberg. Underneath each of these investments lurks a veritable mountain of details.

If you wanted to and had the ability to quit your day job, you could make a full-time endeavour out of analyzing economic trends and financial statements and talking to business employees, customers, suppliers, and so on. However, you shouldn’t be scared away from investing just because some people do it on a full-time basis. Making wise investments need not take a lot of your time. If you know where to get high-quality information and you purchase well-managed investments, you can leave the investment management to the best experts. Then you can do the work that you’re best at and have more free time for the things you really enjoy doing.

An important part of making wise investments is knowing when you have enough information to do things well on your own versus when you should hire others. For example, foreign stock markets are generally more difficult to research and understand than domestic markets. Thus, when investing overseas, investing in a mutual fund where a good money manager decides what stocks to hold is often a wise move.

In most cases, you can reap competitive returns while only paying minimal fees by investing in exchange-traded funds, or ETFs. ETFs are what's known as index funds. They are designed to give investors the same return as a particular stock market index, such as the Toronto Stock Exchange. (A stock market index is a measurement of the overall performance of a basket of stocks. The S&P/TSE Composite Index, for example, measures the overall performance of about 250 large companies in a variety of different industries.) If an index rises by 8.5 per cent in 12 months, investors in an ETF that tracks that particular index will see their investment gain by a similar amount, minus a fraction of a percent for the fees paid to the fund's managers.

This book gives you the information you need to make your way through the complex investment world. The rest of this chapter helps you identify the major investments and understand the strengths and weaknesses of each.

Building Wealth with Ownership Investments

If you want your money to grow faster than the rate of inflation over the long term and you don’t mind a bit of a roller-coaster ride from time to time in the value of your investments, ownership investments are for you. Ownership investments are those investments where you own an interest in some company or other types of assets (such as stocks, real estate, or a small business) that have the ability to generate revenue and profits.

Observing how the world’s richest people have built their wealth is enlightening. Not surprisingly, many of the champions of wealth around the globe gained their fortunes largely through owning a piece (or all) of a successful company that they (or others) built.

In addition to owning their own businesses, many well-to-do people have built their nest eggs by investing in real estate and the stock market. With softening housing prices in many regions in the late 2000s, some folks newer to the real estate world incorrectly believed that real estate is a loser, not a long-term winner. Likewise, the stock market goes through down periods but does well over the long term. (See Chapter 2 in Book 1 for the scoop on investment risks and returns.)

And of course, some people come into wealth through an inheritance. Even if your parents are among the rare wealthy ones and you expect them to pass on big bucks to you, you need to know how to invest that money intelligently.

If you understand and are comfortable with the risks, and take sensible steps to diversify (you don’t put all your investment eggs in the same basket), ownership investments are the key to building wealth. For most folks to accomplish typical longer-term financial goals, such as retiring, the money that they save and invest needs to grow at a healthy clip. If you dump all your money in bank accounts that pay little if any interest, you’re likely to fall short of your goals (and inflation).

Not everyone needs to make his or her money grow, of course. Suppose you inherit a significant sum and/or maintain a restrained standard of living and work well into your old age simply because you enjoy doing so. In this situation, you may not need to take the risks involved with a potentially faster-growth investment. You may be more comfortable with safer investments, such as paying off your mortgage faster than necessary. Chapter 3 in Book 1 helps you think through such issues.

Entering the stock market

Stocks, which are shares of ownership in a company, are an example of an ownership investment. If you want to share in the growth and profits of companies like Skechers (footwear), you can! You simply buy shares of its stock through a brokerage firm. However, even if Skechers makes money in the future, you can’t guarantee that the value of its stock will increase.

Some companies today sell their stock directly to investors, allowing you to bypass brokers. You can also invest in stocks via a stock mutual fund where a fund manager decides which individual stocks to include in the fund.

You don’t need an MBA or a PhD to make money in the stock market. If you can practise some simple lessons, such as making regular and systematic investments, and investing in proven companies and funds while minimizing your investment expenses and taxes, you should make decent returns in the long term.

However, you shouldn’t expect that you can “beat the markets,” and you certainly can’t beat the best professional money managers at their own full-time game. This book shows you time-proven, non-gimmicky methods to make your money grow in the stock market as well as in other financial markets. Book 2 e...