As a Canadian, should you invest mostly in bonds or in stocks? Should you invest everything in just stocks or just bonds? This is a difficult question when it comes to investing. Experts advise that you should invest a minimum amount in bonds, with stocks being a main part of your portfolio. It is better to have more than one investment instrument in your portfolio. In fact, portfolio diversification is a major instrument in terms of risk reduction.
From this point on, how much you invest and into what you invest depend on your specific financial situation and the risk you are willing to take. If you are risk-averse, you should not make risky investments. In addition, if you do not have enough cash, it is best not to invest. If you are prone to panic attacks and anxiety, it is not advisable to take risks you cannot stomach, either. Regardless of what you decide to invest in, protecting the bare minimum is important - this is the money you will need post retirement. Anything above and beyond that, you can invest.
If you choose to invest your money in bonds, opt for ones with a term of no more than five years. Municipal bonds with longer terms entail major interest-rate risk and can lose value easily.
Among the factors underlying the decision how much to invest and what in are your minimum required monthly income, taxes, expected pension benefits, and the equity you will have in your home when you retire. You should not expect growth in value - use the current market information.
How are the expected returns calculated when investing in bonds? You need to take the interest rate and inflation into consideration. If the interest rate is 6 per cent and inflation is 3 per cent, then your return is 3 per cent (the first minus the second).
If you invest in stocks, you should think about the money you are prepared to lose. Then multiply this amount by two. You should never invest more than that in stocks. Stocks carry a higher risk but also come with higher gains. Returns on bonds are in the range of 3-4 per cent on average, while returns on stocks can be up to five times that. Sometimes you win, sometimes you lose. Finally, if the entire market is in bad shape, then it does not really matter what you are investing in, does it?
Investing in residential real estate is an alternative to investing in stocks and bonds. Investing in real estate is in fact a major investment instrument. Home owners mostly buy property as their primary residence. It should be noted, however, that owners do not always have the full purchase price of the property they buy, and financial companies extend loans for the purchase. Compared to other real estate varieties, residential real estate involves the least risk.
From this point on, how much you invest and into what you invest depend on your specific financial situation and the risk you are willing to take. If you are risk-averse, you should not make risky investments. In addition, if you do not have enough cash, it is best not to invest. If you are prone to panic attacks and anxiety, it is not advisable to take risks you cannot stomach, either. Regardless of what you decide to invest in, protecting the bare minimum is important - this is the money you will need post retirement. Anything above and beyond that, you can invest.
If you choose to invest your money in bonds, opt for ones with a term of no more than five years. Municipal bonds with longer terms entail major interest-rate risk and can lose value easily.
Among the factors underlying the decision how much to invest and what in are your minimum required monthly income, taxes, expected pension benefits, and the equity you will have in your home when you retire. You should not expect growth in value - use the current market information.
How are the expected returns calculated when investing in bonds? You need to take the interest rate and inflation into consideration. If the interest rate is 6 per cent and inflation is 3 per cent, then your return is 3 per cent (the first minus the second).
If you invest in stocks, you should think about the money you are prepared to lose. Then multiply this amount by two. You should never invest more than that in stocks. Stocks carry a higher risk but also come with higher gains. Returns on bonds are in the range of 3-4 per cent on average, while returns on stocks can be up to five times that. Sometimes you win, sometimes you lose. Finally, if the entire market is in bad shape, then it does not really matter what you are investing in, does it?
Investing in residential real estate is an alternative to investing in stocks and bonds. Investing in real estate is in fact a major investment instrument. Home owners mostly buy property as their primary residence. It should be noted, however, that owners do not always have the full purchase price of the property they buy, and financial companies extend loans for the purchase. Compared to other real estate varieties, residential real estate involves the least risk.
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