Investing Basics

Investing Basics: Match Risk to Your Goal and Time Horizon

The basic questions to answer before choosing an investment.

Choosing an investment should start with the goal, not with the product that had the best recent return.

Define the goal

Money needed soon usually has a different risk capacity from money intended for a long-term goal.

Understand volatility

Investments that can grow more over time may also fall substantially in the short term. The appropriate level of risk depends on whether you can tolerate both the financial and emotional impact of losses.

Diversify

Spreading exposure across investments can reduce dependence on a single company, sector or market, although diversification does not eliminate risk.

Separate account from investment

An RRSP, TFSA or other account is a tax/legal structure; the investments held inside it are a separate choice.

Official sources