Investing 101: Investing Basics

Budget: Building a budget will help you understand how much money you earn, spend and save. A budget can help you determine what you are spending your money on to better help you make decisions on how much you have available to save or invest.

Financial goals: Assess what your goals are and how much money you will need to achieve your goals. An example could be understanding how much money you need to save for retirement. Our TD Retirement Savings Calculator can help you see what you'll need to retire the way you want.

Investment objectives: Are you looking to grow your money, to generate an income or to keep your original investment safe? There are a range of investment products that are suitable to help meet your objectives.

Time horizon: Markets move up and down. If you’re investing your money and need to use it in the near term, you could be negatively impacted during a market downturn if you have to sell your investment at a loss. It is important to choose investment products that align with your time horizon to help ensure you can weather downturns and be able to benefit when markets improve again.

Risk profile: Risk tolerance is the ability to handle fluctuations in the value of your investments. Ideally, you should invest in products that you feel comfortable holding, even when faced with market fluctuations.

All these factors can change over time. It's important to review these considerations as your circumstances change or at a minimum of annually once you start investing to ensure you continue to hold investments that meet your needs. A TD Personal Banker can work with you to conduct a goals-based review of your options and to help determine which investments are suitable for you.

TFSA: A Tax-Free Savings Account (TFSA) is a registered plan where you can save or invest up to your individual contribution limit and your earnings are tax-free.

RRSP: A Registered Retirement Savings Plan (RRSP) is a registered plan that lets you build up savings designed for your retirement, while deferring your taxes.

RESP: A Registered Education Savings Plan (RESP) is a registered plan that helps you save for a child’s post-secondary education. RESPs can be a great option as saving incentives, such as grants, are offered by government.

RDSP: A Registered Disability Savings Plan (RDSP) is a special program for Canadians with disabilities and their families to help save for long-term financial needs like future medical costs.

RRIF: A Registered Retirement Income Fund (RRIF) is a retirement income option which gives you the flexibility of deciding how much income you withdraw each year from your retirement savings. You have to be paid a minimum annual amount from your RRIF account according to the federal government’s predetermined schedule. Often, owners of RRSPs roll over the balance from those plans into a RRIF.

Mutual Fund: A mutual fund is an investment that pools the money of many individual investors and uses it to buy securities such as bonds, stocks, or other investable assets that are selected and managed by a fund manager. Each mutual fund has an investment objective which the fund seeks to achieve to the benefit of the investor. You invest in mutual funds by purchasing units of the fund. Mutual fund values tend to fluctuate and there is no guarantee that you will earn a return on your investment or the total amount you invested will be returned to you. It is recommended that you review the fund facts or prospectus before investing in mutual funds.

GICs: A Guaranteed Investment Certificate (GIC) is a deposit which provides a guaranteed rate of return on your investment and secures your principle investment amount, making it a safe way to invest your money.

Stocks: Stocks are units of ownership of a corporation. Owning stock in a company entitles the owner to an equal share of earnings that are paid out, if any, in the form of dividends. Holding stocks means having part ownership of a company. The terms 'share' and 'stock' are often used interchangeably.

Bonds: Bonds are debt instruments (financial assets that can be traded) that promise to pay a specified amount of interest and to return the principle amount on a specified maturity date. Bonds are issued by federal, provincial and municipal governments, as well as corporations.

ETFs: Exchange-Traded Funds (ETFs) are pooled investments like mutual funds. ETFs often are structured to mirror a stock index, but unlike mutual funds, they are bought and sold on a stock exchange.

Return: Also known as rate of return, this is the amount your investment has changed in value over a specific period of time. It's usually shown as a percentage of your original investment or principle.

Risk: In investing, risk is the chance you might lose some or all of the money you've invested. Many investments offer the potential for a higher rate of return but also involve some level of risk. Your comfort with risk generally depends on your willingness to accept fluctuations in the value of your investments, and your ability to weather any potential for financial loss. This is known as your risk tolerance.

While risk can't be completely removed, investment options like mutual funds, can align to different customer objectives and risk tolerances. Very low risk investments like GICs that offer principle protection provide safety but offer a lower potential for return.

Liquidity: Liquidity refers to the availability of your money. The more liquid it is, the more available it is. Liquid assets or investments are those you are able to cash in or sell quickly, like savings accounts and most stocks. Liquidity can be important if you are planning to use your savings or investments in the short term.

Diversification: Having a wide mix of investments is called diversification. It can help to reduce your risk because some investments will do better at certain times, when others do not.

Dollar Cost Averaging: Dollar-cost averaging is the investment strategy of gradually buying at regular intervals over a period of months or years. In situations where the value of the investment fluctuates, investing automatically/regularly helps to even out the purchases over time, and may improve the growth potential of investments in the long run, reduce the risk, and take the worry out of 'when to invest' to maximize returns.

Principle: In investing, the principle is the initial amount of money you put into your investment.