7.3.7 Video: How to choose investments

From: Financial Consumer Agency of Canada

Transcript

Introduction

Many people know that they need to invest their money wisely but don't know how. By learning to ask the right questions, you can really illuminate the subject and improve your chances of doing well. The more you know, the better you'll do.

That's why it's important that you ask questions about your investments. No one cares about protecting and growing your money as much as you do.

Segment 2: Problem identification

The first step to protecting and growing your money is to understand proposed investments before you make them. Even if your financial professional is being paid to advise you about your investments, don't hesitate to ask questions. Some financial professionals may offer you products that make them more money.

You must know whether an investment is right for your investing goals – the potential return, the level of risk, how it fits with any other investments you have and the ability to sell the investment when you are ready.

If you're not getting the answers you need or if the answers seem "too good to be true", they just might be, so don't invest.

Segment 3: What questions need to be asked

So, what types of questions should you ask? Let's start with the basics.

(Voiceover)

  • What kind of investment is it? That is, does it give you regular payments, or does the profit come only when you sell the investment? Does it rise and fall in value?
  • Can I get independent information about it?
  • What risk factors affect the safety of my investment?
  • What are the fees and charges, including sales and other commissions?
  • Are there any guarantees?
  • How will taxes affect my return on this investment?
  • Are there penalties or other limits for early withdrawal?
  • Are my savings diversified across multiple investments?

Segment 4: Diversification

You need to know that your investment is part of a diversified portfolio. Diversifying your investments is important.

(Voiceover)

Diversification means investing in a variety of different investment products and types of products. It means not putting all your eggs into one basket. If you put your money into a range of investments and one or two lose money, the others may gain money to balance your returns. Make sure you don't rely completely on one investment.

Segment 5: Don't Invest if you are not satisfied

You'll also want to get advice about your investments from someone who is licensed to sell investments in your province and who can answer your questions in language you understand.

Don't accept incomplete or confusing answers. There are many places to buy investments, and many qualified people who can answer detailed, specific questions about investments using simple language.

Conclusion

Shed light on your investments. Understand your investments and how they fit into your financial plan before you make them. Ask questions often and seek answers that make sense.

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