Interest rates on savings accounts and GICs are climbing but they are having a hard time matching the rapid increase in inflation which is now over 8% — you are actually losing money by holding cash. Investing in financial markets can provide higher returns, but there are no guarantees and as we have seen lately, they can be volatile.  As someone who is new to investing, you may be asking yourself:

•   What do I invest in?

•   How do I evaluate and manage my risk?

•   Should I consult a financial advisor?

These are all great questions and we have compiled some basic advice below to help you get started.

DIY isn’t just for home repairs
There are lots of online options to invest in financial markets on your own without anyone required to facilitate the transaction. You can easily open a trading account and buy and sell individual stocks and various other investments (ETFs for example). This approach has become widespread because it is the cheapest investing option available and is very convenient, but only if you have the time and motivation to learn or a trusted mentor to help you get started.

Seek professional help?
You could choose to consult with a financial advisor. Many of them have professional accreditation and offer advice and can make transactions on your behalf. Make sure you understand how they will be paid as seemingly small annual fees can have a huge effect on how fast your investment grows over the years. Some investment advisors also require a substantial minimum investment before they will work with you, and they may offer only a limited range of investment products.

Rely on Technology?
A robo-advisor is an online investing platform that falls between the DIY approach and a financial advisor in terms of user-friendliness. Most banks and online investment firms offer this service. Robo-advisors use a live interview or online questionnaire to create, and then continuously manage a portfolio based on the information and risk preferences you provide. They require little sophistication on the user’s part, they have a small or no minimum amount to get started, and the fees are reasonable —usually around 0.5%.

Fees can take a real bite
We have mentioned fees for all three options above (DIY, financial advisor, robo-advisor) because most people don’t understand how a seemingly small annual fee can rob your investment fund over the years. A $100,000 in a mutual fund with a 2% annual fee (MER on a mutual fund for example) earning a 5% return will grow to $209,378 in 25 years. That same $100,000 invested in an ETF with a 0.2% annual fee earning a 5% return for 25 years will grow to $322,873. Mutual funds are a popular option for TFSAs & RRSPs, but you should investigate the fees and whether the returns they are providing justify their cost.

There are many options when it comes to investing in the markets and the choice is entirely up to you — make sure to do your homework and make informed decisions.

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