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All types of investments come with their own risks and rewards. Some investments are known to be safer than others but may have a lower return, while other investments can prove to be higher risk, but with a much greater return.

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Here you will learn about different types of investments including stocks, bonds and mutual funds, as well as the risks and benefits of each investment type.

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When thinking about investing, stocks are usually the first option that come to mind. A stock is a share in partial ownership of a company. Stocks are easy to buy and easy to sell. The two ways to benefit from investing in stocks is through stock appreciation and dividends issued through the company. Stocks can be highly rewarding but also come with higher risk factors because you are not guaranteed to get returns  on your investments, as well as the fact that there is potential for you to lose your initial investment and more. Stocks are best suited for investors who are confident in their investing capabilities and are willing to take bigger risks for a potentially bigger reward.

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This pie chart displays an example of an investment portfolio. Each section of the pie chart represents a different kind of investment. The best way to balance risk and reward is to diversify your investment portfolio with different assets.

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To understand the risks and rewards of investing, you first need to know how it works and what type of investor you are. Some investors are willing to take bigger risks for a greater reward, while others tend to be more conservative with their assets. Investing in the stock market is the most common way for beginners to gain experience, learn what risks to take and how to benefit the most. There are investment services that can help with this as well, such as online brokers, robo-advisers and investing through you employer. This quick guide will provide the general information for entering the world of investing.

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Investing in stocks is a way to make your money grow over time. By regularly putting money aside to invest, you can see its value multiply over the long term. That's why it's important to begin as soon as you have the money to do so-the longer your time horizon, the better. This article takes you through how much you need, what stocks to choose, and the other basics of investing in stocks you need to get started, all in 10 steps. Whether you have thousands set aside or can invest a more modest $25 a week, you have enough to begin.

Step 1: Set Clear Investment Goals

Begin by reflecting on what you want to achieve financially. You might have short-term goals like saving for a home or a vacation or have long-term objectives like securing a comfortable retirement or funding a child's education. Your objectives will depend on your life stage and ambitions. Younger investors tend to focus more on growth and long-term wealth accumulation, while those closer to retirement typically prefer income generation and capital preservation.

The more precise you can be about your goals, the easier it will be to sort out the best means to get you there. Here are some tips:

Be precise about your objectives: Instead of general goals like "save for retirement" or "I don't want to have to worry about money one day," set specific objectives like "accumulate $500,000 in my retirement fund by age 60."

Set your investment horizon: Determine how long you have to achieve each goal you set. You will have longer and shorter timelines for different purposes. In general, the longer you can give yourself, the less risk you'll need to take on, and the more viable your objectives will be.

Evaluate your finances: Be realistic about how much you can allocate toward your investment goals. This includes looking at your savings, regular income, and any other financial resources you can put to work as you begin. We'll come back to this.

Rank your goals: Most of us have several goals at once, like saving a down payment for a house, paying for a wedding next year, or preparing for retirement. Prioritize these and balance them according to their importance and urgency.

Review and adapt to changes in your life: The phrase financial planning is best taken as a verb, not a noun since goals aren't set in stone, and planning your finances is an ongoing project. You might fall in love or out of it, have many children or none of them, or realize your life's work is best done in a different place in the country. Life changes, and so will your financial objectives. Regularly review and adjust your goals accordingly.

The first step in any venture is the biggest, but it's also when you set your aspirations and imagine yourself in a future that your investments in stocks, a touch of luck, and a prudent investment strategy you'll begin to learn here make possible.

Step 2: Determine How Much You Can Afford To Invest

Determining how much you can afford to put in stocks involves carefully and honestly assessing your financial situation. Don't worry if your funds are less than you would wish. Just like you shouldn't berate yourself for not being ready for a race on your first day of training, so too, you're just at the beginning of your investment journey. This is a marathon, not a sprint and you've got a long way to go. Here are some tips for giving yourself an honest appraisal of how much you can use:

1. Look at your sources of income: Start with your income. In particular, you'll want to see if your employer offers ways for you to invest while gaining tax benefits or with matching funds that will amplify your own contributions.

2. Have an emergency fund: You should have a solid financial foundation before investing, though solid does not mean perfect. Settle on how much you need for emergencies, typically covering major expenses (a few months of mortgage or rental payments, plus your other bills).

3. Snuff out any high-interest debts: Financial advisors also generally suggest making sure you've paid down your debts, especially credit cards and anything else with high interest rates. Any returns you expect from trading stocks are unlikely to make back the cost of the high interest rates accruing each month on your credit card statements. If you still owe on your student loans, look at how much interest you pay. Balance that against the returns you expect by investing in stocks, and choose whether it's better to pay your loans down or invest.

4. Set a budget: Based on your financial assessment thus far, decide how much money you can comfortably put into stocks. This shouldn't dip into any funds you need for expenses now or down the road. Your budget should determine if you are starting with a large lump sum or investing smaller amounts at set times each month or year.

Investing in stocks carries risk, and it's important to only invest money you can afford to lose. Never put yourself in a financially vulnerable position for the sake of investing. This is what separates investing from some of the worst forms of gambling.

Step 3: Appraise Your Tolerance for Risk

Understanding your risk tolerance is a cornerstone of investing. Gauge your level of comfort with the inherent uncertainties of the stock market. Your risk tolerance will differ depending on your life stage, financial goals, and your financial cushion for potential losses.

Determining your risk tolerance is crucial for crafting an investment strategy that matches your financial goals while keeping your peace of mind. It helps you decide which stocks are suitable for your portfolio and what to do when the market goes up or down. Don't be goaded into being more adventurous than you need to be, or more cautious than called for. Do you prefer stability, or are you willing to accept higher risks and price swings if that means there's the potential for more returns? This self-assessment is key to setting a foundation for your investment journey.

Stocks can be organized by the risk they involve. For instance, large-capitalization (large-cap) stocks are generally more stable since they are well-established, major companies well-known in the market. Small-cap stocks usually offer more growth potential but come with increased risk. Similarly, growth stocks are sought for rapid gains, with higher risks, while value stocks focus on long-term, steady growth, usually with lower risks.

Step 4: Determine Your Investing Style

Everyone has a different relationship with money. We've seen how this affects your risk tolerance. But investors also have investing styles that best suits them. Some prefer an active role, meticulously pouring over the last cell on the spreadsheets for their portfolios, while others opt for a hands-off, set-it-and-forget-it approach, trusting their investments will grow over time if they just leave them alone. Some just might not have the time to be active traders following the ticker crawls and latest reports on investing platforms. It's important to recognize that your style might evolve, but you'll need to start somewhere, even if your choice isn't set in stone.

Here are general directions for understanding your investing style:

DYI investing: If you have a good grasp of how stocks work and are confident to head out with minimal guidance into the market, managing your stock trades is one option. You can set up an account with well-known and trusted online brokers to access a wide range of investment options, including stocks, bonds, exchange-traded funds (ETFs), index funds, and mutual funds. This approach gives you full control over your investments, even if certain choices might be stock funds and the like managed by professionals with a fiduciary responsibility to look after your funds.

Working with a financial advisor or broker: For those who prefer the more personal approach and want more, an experienced broker or financial advisor can be invaluable. They offer advice tailored to your life experiences and goals, help you decide among the more promising stock choices for you, monitor your portfolio, and collaborate with you when adjustments need to be made.

Step 5. Choose an Investment Account

You've figured out your goals, the risk you can tolerate, and how active an investor you want to be. Now it's time to choose the type of account you'll be investing through. Each has its own set of features, benefits, and drawbacks.

Here are the most common:

Retirement accounts

Your employee retirement plan: If your employer offers a retirement plan, this is a convenient way to invest in stocks, including potentially those of the company itself. The plans are known by the sections where they're described in the U.S. tax code. The most popular are 401(k)'s (tax-deferred, private employer-sponsored retirement savings), but you could also have a 403(b) (used mostly by nonprofit organizations, public schools, and some churches), a 457 (mostly for state and local public employees), or a similar plan. You contribute to your account automatically each pay period, and many employers offer matching contributions, boosting your investment. Your contributions are tax-deductible, and the account balance grows tax-deferred.

Individual retirement account (IRA): You can start investing in stocks by opening an IRA in addition to your workplace retirement plan (if you have one). IRAs provide some tax benefits, and you can choose between a traditional IRA (tax-deductible contributions) or a Roth IRA (tax-free withdrawals in retirement).

Taxable brokerage accounts

If you prefer more flexibility or have maxed out your IRA contributions, a regular taxable brokerage account gives you access to various investment options, including individual stocks, stock mutual funds, ETFs, and stock options. While they don't have the tax advantages of retirement accounts, they are more flexible and don't have contribution limits. You can also pick different taxable brokerage accounts as you seek a match for your investment style.

Individual brokerage accounts: These are standard accounts opened by one person. The account holder has full control over the investments and is solely responsible for any tax implications. The most basic type is a cash account, through which you buy securities using only the money available in your account. You can also have a margin account at a brokerage for more experienced investors who borrow money from the brokerage against their account's value to buy additional stock.

Joint brokerage accounts: These are shared by two or more individuals, typically spouses or partners, and can be cash or margin accounts. These accounts can be structured as joint tenants with rights of survivorship: if someone on the account dies, ownership passes to the survivor(s).

Managed accounts:These are professionally managed, and a portfolio manager makes the decisions on your behalf, personalized to your needs, goals, and investment style.

Accounts for specialized goals

There might be tax advantages to using different kinds of accounts if you're investing in stocks for specific goals, e.g., for your own or your child's education or health expenses. If so, it's to your advantage to consider these alternatives, which have special tax incentives:

Dividend reinvestment plan accounts: Some brokers offer accounts that automatically take your stock dividends and use them to purchase new shares, usually without charging commissions for the additional shares.

Education Savings Accounts: These offer tax advantages when the funds are used for qualified educational expenses.

Health savings account: Contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.

Trust and custody accounts: A trustee manages trust accounts for the benefit of a third party according to the terms of a trust agreement. In the case of custody accounts, minors can own stocks and other assets, but a custodian manages the account until the minor is an adult.

Step 6: Learn the Costs of Investing

Commissions and fees

Besides reputation and fit with your investment strategy and goals, broker fees are the most important consideration when you're choosing a brokerage firm, which comes in the next step. Let's prepare. Traditionally, brokerages have charged fees through trade commissions, account maintenance fees, and fees for additional services like research or financial advice. However, the landscape of brokerage fees has evolved significantly in recent years. Here's what you'll want to look for as you do your research:

Trading commissions: A broker might charge a commission every time you trade a stock, whether you buy or sell. Trading fees range from $2 per trade to $10. Some brokers charge no trade commissions at all, but they make up for it with other fees. Depending on how often you plan to trade, these fees can add up, affect your portfolio's return, and deplete the money you have available to invest.

Let's see this in action: Suppose you buy one share of stock in five companies with $1,000. Assuming a transaction fee of $10, you will incur $50 in trading costs which is equivalent to 5% of your $1,000. Should you sell these stocks, the round trip (buying and then selling) would cost you a total of $100, or 10% of your initial deposit amount of $1,000.

Maintenance fees: Some brokerages charge monthly or annual fees to keep your account active. These might be waived, though, if your account balance is above a certain threshold.

Service fees: You might pay additional fees if you haven't used your account in a while. Brokers also may charge for services like broker-assisted trades, access to their premium research, and trading on margin (by borrowing). Most of these fees and the services linked to them are optional.

Subscription-based models: As Generation Zers and Millennials take up a larger share of the investment space, financial advisors, planners, and brokers are taking on clients used to month-to-month or yearly fees for apps and app-based services. Instead of paying per transaction or for specific services, you pay a flat monthly or annual fee. Your subscription may include commission-free trades, access to research tools, and other premium support.

Some platforms offer tiered subscription levels, supplying more features or lower margin rates at higher subscription rates. As you would with Hulu or your favorite online magazine, you'll want to keep an eye on how much you're taking advantage of what you're paying for. If not, you might draw down to a lower tier or seek another broker altogether.

Account minimums

A major change in recent years has resulted from the immense competition among brokerages. Many online brokers have eliminated account minimums, making it easier for a wider range of investors to get started.

This means that if you have just a few dollars to invest, you can still open a brokerage account and begin trading stocks. While some brokerages still require you to deposit substantial amounts before you can become a client, this shift away from very low or no minimum requirements has made investing far more accessible to nontraditional investors and beginners. However, you'll want to assess any minimum a brokerage requires, which is still your money, with transaction fees and maintenance costs that may lead you to decide that keeping a minimum in your account is less costly in the long run.

Step 7: Pick Your Broker

Brokers are either full-service or discount.

Full-service brokers

These offer a full range of traditional brokerage services, including financial advice for college planning, retirement planning, estate planning, and for other life events. This customized advising justifies the higher fees that they typically charge, normally a percentage of the value of your transactions, a percentage of your assets under management, and sometimes, a yearly membership fee. Minimum account sizes can start at $25,000.

Discount brokers

These offer you tools to select your investments and place your orders. Some also offer a set-it-and-forget-it robo-advisory service. Most have educational materials on their sites and mobile apps. Some brokers have no (or very low) minimum deposit restrictions. However, they may have other requirements and fees. Be sure to check on both as you look for a brokerage that's best for your financial situation.

Below, we get you started by comparing the best online brokers:

We recommend the best products through an independent review process, and advertisers do not influence our picks. We may receive compensation if you visit partners we recommend. Read our advertiser disclosure for more info.

Robo-Advisors

For an automated solution, robo-advisors or automated investment platforms are cost-effective and pretty effortless when investing. If you select this option, you won't be alone in doing so. According to Charles Schwab, 58% of Americans say they will use some sort of robo-advisor by 2025.

An app or platform takes the information you provide about your financial goals, risk tolerance, income and savings, and so on, and its robo-advisor creates and helps manage your investment portfolio using its specialized algorithms. Aimed at retail investors, robo-advisors are low-cost, usually have little or no minimum balance requirements, and are programmed for strategies suited for new and intermediate investors. That said, they tend to offer fewer trading options and lack the personal approach to financial planning best suited for long-term investing.

If this interests you, we get you started below by comparing the best robo-advisors.

Step 8: How To Fund Your Stock Account

Now that you've chosen the type of account to open, you'll have to fund it. Here's what to do:

1. Choose a brokerage: First, select a brokerage firm, perhaps one of the major online firms, that aligns with your investment goals and preferences or is simply most convenient for you. Consider factors like fees, available investment options, and the platform's user-friendliness.

2. Pick your account type: Decide whether you're opening a cash account, which requires you to pay for investments in full, or a margin account, which allows for borrowing to purchase securities.

3. Open your account: Once you've chosen a brokerage and account type, you'll need to open your account. This involves providing your personal information: Social Security number, address, employment details, and the particulars of your financial situation. This shouldn't take you more than 15 minutes.

4. Link your bank accounts: The most common way to fund your stock account is by linking it to your bank account. This is usually done online through the brokerage's platform, where you'll enter your bank account number and routing number. Many brokerages allow you to link your account via small test transactions for verification.

5. Transfer or deposit your first funds: Once your bank account is linked, you can transfer funds to your brokerage account, typically through an electronic funds transfer, which can take a few days to process. Other options may include wire transfers for faster funding if you're raring to go, though these usually cost more. Some brokerages still accept physical checks. If you prefer this method, you can mail a check to the brokerage or bring it to a physical location.

6. Set up periodic transfers: If you plan to make stock buys a habit, consider setting up automatic transfers from your bank to your brokerage account.

7. Start investing: Once you've verified the funds are in your account (don't worry: the brokerage won't let you trade otherwise), it's time to start choosing among the stocks that best fit your investment goals.

If you plan to trade frequently, check out our list of brokers for cost-conscious traders.

Step 9: Pick Your Stocks

Choosing the right stocks can be daunting even for experienced investors. Beginners should look for stocks that have stability, a strong track record, and the potential for steady growth. Don't start out of the gate with a risky stock, thinking you'll hit it big right away. Investing for the long term is mostly slow and steady, not fast and rash. Here are some stocks that are solid bets to begin:

Blue chips: These are shares of large, well-established, and financially sound companies with a history of reliable performance. Examples include companies listed in the Dow Jones Industrial Average or the S&P 500. They are typically industry leaders and offer stability during market fluctuations.

Dividend stocks: Companies that regularly pay dividends can be a good choice for beginners. Dividends give you a regular income, which can be reinvested to buy even more stock. See How to Buy Dividend Stocks to get started.

Growth stocks: The greater the chances for outsized growth in a stock, the riskier investing in it will be. Beginners interested in growth stocks should look for industries with long-term potential, such as technology or healthcare.

Defensive stocks: These are in industries that tend to perform well even during economic downturns, such as utilities, healthcare, and consumer goods. They will give you a buffer against market volatility as you start.

ETFs: Traded like stocks, these track many indexes or sectors and are a low-cost way to gain exposure to a broad range of assets. You can trade shares in them throughout the day at market prices. These funds often track a specific market index, like the S&P 500, and offer instant diversification, reducing the risk associated with individual stocks. As you gain experience, you can look at funds for sectors that pique your interest, themes that meet your investment goals, or indexes that track environmental, social, and governance stocks to match your quest for returns with your values.

It's prudent to begin with a conservative approach, focusing on stocks or funds that offer stability and a good track record. This will give you confidence and returns to work with as you advance in your investing knowledge.

Step 10. Keep Learning About Investing In Stocks

Investing in stocks is an ongoing learning experience-even the most successful investors are learning new tips and strategies each passing day. As the stock market continually evolves, staying up to date and going back to Step 1 and reviewing your goals, available funds for trading, investment style, and so on, will be key. Here are some final tips for now:

1. Read widely and regularly: Consistently visit reputable financial news sites. Keep informed about the global economy, industry trends, and the companies you are invested in. Avoid sites and books promising easy returns or tricks, not tips, likely to redound to their benefit when you buy their courses or apps. Books on investment strategies, stock market fundamentals, and diversification techniques can be essential.

2. Use stock simulators: These platforms enable you to practice trading stocks risk-free using virtual money. They are excellent tools for applying investment theories and testing strategies without risk. Investopedia's simulator is entirely free to use.

3. Learn about diversification: Having taken your beginning steps here, you'll next want to spread your investments across diverse asset classes to reduce risk and improve the potential for returns. When you're ready, we'll help you learn how to diversify your portfolio beyond stocks.

Just as financial planning is a verb, learning about stock investing is continuous. The more informed you are, the better you'll be able to make wise investment decisions and adapt to market changes.

What Is the Difference Between a Full-Service and a Discount Broker?

Full-service brokers provide a broad array of financial services, including financial advice for retirement, healthcare, education, and more. They can also offer a host of investment products and educational resources. They have traditionally catered to high-net-worth individuals and usually require significant investments. Discount brokers have much lower thresholds for access, but tend to offer a more streamlined set of service, allow you to place individual trades, and offer educational tools.

What Are the Risks of Investing?

Investing is a commitment of resources now toward a future financial goal. There are many levels of risk, with certain asset classes and investment products inherently much riskier than others. It is always possible that the value of your investment will not increase over time. For this reason, a key consideration for investors is how to manage their risk to achieve their financial goals, whether short- or long-term.

How Do Commissions and Fees Work?

Most brokers charge customers a commission for every trade. Due to commission costs, investors generally find it prudent to limit the total number of trades they make to avoid spending extra money on fees. Certain other types of investments, such as exchange-traded funds, carry fees to cover fund management costs.

The Bottom Line

Beginners can start investing in stocks with a relatively small amount of money. You'll have to do your homework to determine your investment goals, risk tolerance, and the costs of investing in stocks and mutual funds. You'll also need to research brokers and their fees to find the one that best fits your investment style and goals. Once you do, you'll be well-positioned to take advantage of the potential stocks have to reward you financially in the coming years.

Options trading entails significant risk and is not appropriate for all investors. Certain complex options and strategies carry additional risk. Before trading options, please read the Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request.

There is an Options Regulatory Fee that applies to both option buy and sell transactions. The fee is subject to change. See Fidelity.com/commissions for details.

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How to Invest in Stocks: A Beginner's Guide

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From how much you need to open an account to the investments to choose, this guide will get you started.

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Risk is the potential for uncontrolled losses of value, it can consist of various factors that negatively impact your investments. Some potential risks when investing include market risk, liquidity risk, inflation and horizon risk. Risks can be unavoidable when investing, without taking risks there would be no potential for reward. Risk is a main reason why people are hesitant to invest their money, which is why it is important to be an informed investor and not make irrational or ill-considered investment decisions. This list contains 9 different risk factors, with at least one or more applying to each type of investment discussed here.

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9 types of investment risk

1. Market risk

The risk of investments declining in value because of economic developments or other events that affect the entire market. The main types of are , and .

Equity Equity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds. + read full definition risk - applies to an in shares. The of shares varies all the time depending on demand and supply. Equity risk is the risk of loss because of a drop in the market price of shares.

Interest rate Interest rate A fee you pay to borrow money. Or, a fee you get to lend it. Often shown as an annual percentage rate, like 5%. Examples: If you get a loan, you pay interest. If you buy a GIC, the bank pays you interest. It uses your money until you need it back. + read full definition risk - applies to investments such as bonds. It is the risk of losing money because of a change in the interest rate. For example, if the interest rate goes up, the of bonds will drop.

Currency risk - applies when you own foreign investments. It is the risk of losing money because of a movement in the . For example, if the U.S. dollar becomes less valuable relative to the Canadian dollar, your U.S. stocks will be worth less in Canadian dollars.

2. Liquidity risk

The risk of being unable to sell your investment at a fair price and get your money out when you want to. To sell the investment, you may need to accept a lower price. In some cases, such as exempt market investments, it may not be possible to sell the investment at all.

3. Concentration risk

The risk of loss because your money is concentrated in 1 investment or type of investment. When you diversify your investments, you spread the risk over different types of investments, industries and geographic locations.

4. Credit risk

The risk that the government entity or company that issued the will run into financial difficulties and won't be able to pay the interest or repay the at maturity. applies to debt investments such as bonds. You can evaluate credit risk by looking at the of the bond. For example, long- Canadian government bonds have a credit rating of AAA, which indicates the lowest possible credit risk.

5. Reinvestment risk

The risk of loss from reinvesting principal or income at a lower interest rate. Suppose you buy a bond paying 5%. will affect you if interest rates drop and you have to reinvest the regular interest payments at 4%. Reinvestment risk will also apply if the bond matures and you have to reinvest the principal at less than 5%. Reinvestment risk will not apply if you intend to spend the regular interest payments or the principal at maturity.

6. Inflation risk

The risk of a loss in your purchasing power because the value of your investments does not keep up with . Inflation erodes the purchasing power of money over time - the same amount of money will buy fewer goods and services. is particularly relevant if you own cash or debt investments like bonds. Shares offer some protection against inflation because most companies can increase the prices they charge to their customers. prices should therefore rise in line with inflation. Real also offers some protection because landlords can increase rents over time.

7. Horizon risk

The risk that your investment horizon may be shortened because of an unforeseen event, for example, the loss of your job. This may force you to sell investments that you were expecting to hold for the long term. If you must sell at a time when the markets are down, you may lose money.

8. Longevity risk

The risk of outliving your savings. This risk is particularly relevant for people who are retired, or are nearing retirement.

9. Foreign investment risk

The risk of loss when investing in foreign countries. When you buy foreign investments, for example, the shares of companies in emerging markets, you face risks that do not exist in Canada, for example, the risk of nationalization.

Various types of risk need to be considered at various investing stages and for different goals.

Take action

Review your existing investments. Which risks affect you? Are you comfortable taking these risks?

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Types of investment risk | Understanding risk | GetSmarterAboutMoney.ca

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The risk of investments declining in value because of economic developments or other events that affect the entire market. The main types of are , and . Equity Equity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business.

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The benefits of investing can be bountiful and they are what every investor aims for. Without the potential for return there would be no reason to invest and risk your money in the first place. Some basic benefits of investing include staying ahead of inflation, building wealth, early retirement, saving money on taxes and various other financial goals of your choosing. Those benefits alone are exemplary reasons why everyone should invest. You don't have to be a billionaire genius like Warren Buffet to profit from investing, with the right guidance and tactics anyone can reap the rewards of investing their money.

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Investing is something that everyone should do. There are so many benefits of investing that it makes no sense not to get started.

If you want to build wealth and financial stability investing is what will get you there.

Still not convinced? Here are five benefits of investing.

# 1- You Stay Ahead of Inflation

If you don't invest and grow your money, you'll actually end up losing money over time. This is all thanks to inflation.

Inflation is the general increase in prices that happens every year and the decline in purchasing power of your money. The rate of inflation can vary widely but historically inflation has averaged to around 3%.

If you invest your money and say, earn a rate of return of 7% on average, then you'll stay way ahead of inflation and will be to increase the value of your money.

# 2 - Investing Will Help You Build Wealth

I think this should go without saying, but I'm going to say it anyway: Investing is how you build wealth.

There are a hundred and one ways to invest and grow your money. If you're serious about building wealth then you need to create an investing plan that suits you and your goals.

The wealthy invest, the broke do not.

# 3 - Investing Will Get You to Retirement (Or Early Retirement)

In order to have enough money to retire you need to make your money work for you. Like we illustrated above, leaving your money sitting in savings will actually work against you!

The more you invest the more you'll be able to take advantage of the power of compound interest.

Compound interest is what happens when you're interest starts earning interest.

Here's a super simple example:

You invest $100.

In one year your $100 earns $10 in interest, now you have $110 sitting in your brokerage account.

The next year your $110 earns you $11 in interest. You now have $121 without ever putting any extra money in your account.

The next year your $121 earns $12 in interest. You now have a total of $133.

This cycle keeps repeating itself as long as you're investments do well.

# 4 - Investing Can Help You Save on Taxes

Another HUGE advantage of investing is your ability to save on taxes!

For example, the money you put into a 401k, SEP IRA, or Traditional IRA is not taxed the year you earn it. Instead you pay taxes on it when you withdraw during retirement. This saves you a lot tax dollars the year that you contributed.

If you'd rather pay tax now you can elect to use a retirement account like the ROTH IRA. With this option you pay tax now and don't pay any tax when you withdraw.

These are just basic examples. There are tons of loopholes in the tax code that favor investors. This is how the rich stay rich and pay so little in taxes!

If you need to lower your tax burden I'd highly suggest you speak with your CPA or Financial Advisor to come up with a custom investing plan that will meet your specific needs.

# 5 - Invest To Meet Other Financial Goals

You can also consider investing to help grow your money to meet other financial goals. For instance, investing in your child's college fund.

When you have a long term goal of ten or more years it may make sense to invest that money to help you reach your goal faster!

There are many benefits of investing. If you want to create financial stability, grow your wealth, and stay on track for retirement you need to come up with an investing plan that suits your needs.

If you're completely new to investing you can check out our course, Investing 101, that will walk you through getting started.

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Investing is something that everyone should do. There are so many benefits of investing that it makes no sense not to get started. If you want to build wealth and financial stability investing is what will get you there. Still not convinced? Here are five benefits of investing.

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Website 4: Recap; How to benefit from investing in Stocks, Bonds and Mutual funds.

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Website 4: Recap; How to benefit from investing in Stocks, Bonds and Mutual funds.

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Knowing the differences and similarities between different  investment types is important, but that is only one key factor. You must establish investment goals and create a timeline to achieve these goals, this will effect the type of investment choices you make. The sooner you start investing the sooner you  can start profiting, but you must be comfortable, a financial advisor can help asses the risks and make investment decisions for you. Avoid key investment mistakes, some common mistakes that are made include lack of knowledge, going all in on one single investment, investing all of your cash and more. Remembering  and utilizing these key factors greatly increase the likelihood of succeeding in the investment world.

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Investing can seem like a very risky, complex and fast-moving process. With endless combinations of investment vehicles to choose from, it can be difficult to take your first step as an investor - especially with the knowledge that all investments carry the risk of losing some or all of your money. So why bother?

Well, there are many compelling reasons to make investing a part of your overall financial plan. Investing can help preserve your wealth by overcoming the effects of inflation, help you save for long-term goals and it can even generate income. So how can you get past all the negatives associated with investing and make it work for you?

A helpful first step is to understand the risks of different types of investments. Watch as Jen learns about stocks, bonds and mutual funds from Mr. Greenback (and find out how she snuck into his office!).

If you're a visual person, you might also find this Intro to investing infographic helpful.

1. Understand the risks of different types of investments
Stocks
Stock is capital raised by a corporation through the issuance and distribution of shares through financial markets.

Less stable

Higher potential gain

Risk of company failure

Bonds
A bond is a debt security - the issuer owes the holders a debt, and is obliged to repay the principal and interest.

More stable

Lower potential gain

Risk of issuer not paying you back

If trading individual stocks and bonds is not your cup of tea, investing in mutual funds is another option to consider.
Mutual funds
A mutual fund is a collection of stocks or bonds. Your money is pooled with the money of other investors into a fund that is invested in anywhere from a few dozen to hundreds of different securities.

Managed by an expert fund manager who reports to a board of directors

Provides you with professional money management as well as instant diversification

2. Establish your goal timeline

The time horizons of your goals will have an impact on where you put your money. With a shorter time span, a more conservative investment vehicle is typically in order. With a longer horizon, your investment has time to weather more risk.

Here are some examples:

New car fund
Time horizon: 3 years
Potential investment vehicle: Savings account or mutual fund with short-term bonds

Kid's education fund
Time horizon: 15 years
Potential investment vehicle: Balanced mutual funds

Retirement fund
Time horizon: 30 years
Potential investment vehicle: Stock-focused mutual funds

3. Start early, start small and keep going

When you are starting to invest, it is best to start small and take risks only with money that you are prepared to lose. You'll have two main choices for actually investing your money.
Advisor
Utilizing the services of a financial advisor at your bank, credit union or specialized investment firm is the traditional way to invest in stocks, bonds and mutual funds.

Purchases and trades are facilitated through your advisor

Broker commissions and maintenance fees can be expensive

Educated professionals are guiding you

Less time on your part

Less stressful, as you are relying on a proven coach

Even though you are relying on expert advice, there are no guarantees

Here are some tips on how to find the right advisor for you.
DIY
Direct investing, do-it-yourself investing, self-directed investing - no matter how you describe it, investing on your own is a real option today, thanks to technology.

Trades are conducted by you through an online discount brokerage

Typically lower fees and more transparency; you are closer to the process

Learning and research are totally up to you

Can be time-consuming

Your emotions can get the best of you

Your personal decisions and mistakes can be costly

4. Avoid these first-time investor mistakes
Diving in head first
The basics of investing are quite simple in theory - buy low and sell high. However, don't be fooled by this overly simplistic view of the financial markets. It is important to study up before jumping in.
Playing penny stocks
At first glance, penny stocks seem like a great idea - with as little as $100, you can get a lot more shares in a penny stock than in a blue chip stock that might cost $50 a share. Unfortunately, what penny stocks offer in potential profitability has to be measured against the volatility that they face.
Going all-in with one investment
Investing 100% of your money in a specific market, whether it's the stock market, commodity futures, foreign exchange or even bonds, is not a good move. It is better to diversify your risk by putting your dollars into a variety of investment vehicles.
Investing all of your cash reserves
Studies have shown that cash put into the market in bulk, rather than incrementally, has a better overall return; however, this doesn't mean you should invest all of the money you have. You should always have cash available for emergencies and other opportunities.
Chasing news
Investing based on news is a terrible move for first-time investors. Trying to guess what will be the next revolutionary product or basing a decision on a rumour of earth-shattering earnings is not a recipe for success. Rather than following rumours, the ideal first investments are in companies you understand and have personal experience with.

Remember: all investments made in stocks, bonds and mutual funds carry the risk of losing some or all of your money, even when made through a financial advisor or financial institution.

As always, we recommend that you talk to your financial institution to get more specific advice. You can talk to a financial planner at Vancity about options relating to your specific situation. Not a Vancity member? Join us.
And now a note from our lawyers... This blog post provides general information only, and does not constitute financial, accounting, tax, legal or other professional advice. We encourage you to obtain personalized advice from qualified professionals regarding your particular circumstances. Please see our Terms of Use.

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Your intro to investing: stocks, bonds and mutual funds | Good Money by Vancity

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Investing can seem like a very risky, complex and fast-moving process. With endless combinations of investment vehicles to choose from, it can be difficult to take your first step as an investor - especially with the knowledge that all investments carry the risk of losing some or all of your money.

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Bonds are like a loan from the investor to the company. The investor purchases the bond with an agreement from the issuer that the full amount will be paid back to the investor once the bond has reached maturity, plus regular interest payments while the bond matures. Bonds are known for being a safer type of investment, with the benefits of being predictable and stable. Bonds are also not without risk, companies can go bankrupt and default on paying back the principal. Rising interest rates are also a risk factor as they can diminish the value of your bonds. Bonds are ideal for investors who want a lower risk investment that can still provide a good return.

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A mutual fund is a financial vehicle consisting of a pool of money collected from various investors to invest in stocks bonds and other assets. Mutual funds are run by professional fund managers, with the goal of producing income or capital gains for the investors of the fund. Mutual funds have a reduced risk factor due to the diversification of the fund, you also have a team of fund managers doing the work for you, but it comes with the cost of management fees. Poor performance still presents itself as a risk for mutual funds along with market risks affecting the investments within the fund. Mutual funds are considered to be in the middle of the risk/reward spectrum and are an ideal investment vehicle for a retirement fund.

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Referring back investing 101, there are many different investment strategies that define the characteristics of different investors. Your approach to investing impacts the amount of risk taken and benefits received. The three factors that determine the type of investor you are include the time you are willing to spend, financial preference and investment knowledge. These factors can determine what kind of investment vehicles you should utilize to your advantage and where you reside on the passive/aggressive spectrum. Passive investors prefer to hold onto their investments for long periods of time with the risk of potentially taking large losses. More aggressive investors consist of day traders who constantly buy and sell investments but run the risk of capital losses. Your investment personality may change over time depending on your goals and investment experience.

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What Kind of Investor Are You | Simple Steps for a Retirement Portfolio Course

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Question 1: What did you learn about your topic that surprised you the most?

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Question 1: What did you learn about your topic that surprised you the most?

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What surprised me the most is how every type of investment has their own risk factors and that none of them are 100% safe or guaranteed to make a profit. I now understand why a lot of people do not invest or are uninterested in it altogether. After analyzing the benefits however, I believe that anyone who has the time and resources to invest certainly should.

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Question 2: Provide a real-life example of how this topic is relevant or interesting for you.

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Question 2: Provide a real-life example of how this topic is relevant or interesting for you.

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This is a very interesting topic to me, as I see lots of potential for risk and success in the investment world and have learned from it. I tried my hand in the stock market once, but lacked the time and determination to succeed with it. I ended up selling all of my shares and closing my TFSA account. This was a valuable learning experience for me, as I had come to realize that its not just about "having your money work for you" as they say. You have to invest your time and knowledge into your investments to really benefit from them, not just your cash.

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Question 3: If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

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Question 3: If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

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There are a lot of important factors to consider when investing, but I think the most important piece of knowledge is to have a plan. Don't just aimlessly invest in something that looks promising on the outside. Do the research and create financial goals to achieve, you can always change or adjust these goals over time and you will be able to make smarter decisions that will lead you closer to achieving these goals in the long run.