Saving Savvy: Choosing the right savings products

Class introduction

This is the last time you'll hear me talk about reusable containers, I promise. And no, I'm not getting paid to promote them.

But how do you determine which product is best for you?

Risk tolerance

The answer: your investor profile. Knowing yours will help you identify your risk tolerance - your ability and willingness to take risks and to stay cool.

Not the kind of risk you take by resting your eyes for "just 5 minutes". But rather the risk related to the degree of variation in the value of your investments or the risk of not reaching your end goal.

Your ability to take risks depends primarily on your personal financial situation and your objective-based investment horizon. In other words, for how many years do you plan on holding the saving products you chose.

On the other hand, your willingness to take risks depends on your personality, your expectations of return and your comfort regarding the changes in the value of your investments and the negative emotions that may ensue. A better understanding of the mechanisms at play and guidance along the way might put you at ease with the level of risk.

Your first steps in investing should therefore always be to educate yourself further and to determine your investor profile and risk tolerance.

Savings products

There are two main categories of savings products: guaranteed investments and non-guaranteed investments.

First category: guaranteed investments

The first is a type of investment that ensures that the invested amount will never be lost. Most guaranteed investments. Most guaranteed investments will also ensure its return and will offer a predetermined interest rate.

Because of the stability and certainty they offer investors, guaranteed investments generally yield lower returns than non-guaranteed investments.

Government savings bonds and guaranteed investment certificates (GICs) are the most popular types of investments.

These savings products can be used in combination with non-guaranteed investments to limit fluctuations in your portfolio and to plan for shorter-term goals. When you invest through these products, you become a sort of lender. Yup, it's as if you were lending money to the government or a financial institution for a predetermined period of time in exchange for a certain interest rate.

Second category: non-guaranteed investments

Non-guaranteed investments can be used to offer a higher potential of return to investors. You could think of stocks, which represent shares in companies in which we can invest. Since the value of these savings products varies according to companies' and the economy's prospect, they offer a higher potential of return. But as the name implies... the generated return is not guaranteed. Just because it is non-guaranteed, doesn't mean it has to get your heart rate up. It will therefore be important to invest responsibly through proper diversification and this brings us to our next topic: investment funds.

Investment funds

Investment funds are the key to optimizing your investment journey. They allow you to combine a large quantity of financial securities such as stocks or bonds into a single savings product.

There are many different types of funds, such as mutual funds, exchange-traded funds or labour sponsored funds. They are a simple way to diversify your portfolio while respecting your investor profile.

Each type of fund has its own particularities.

For example, the Fonds de solidarité FTQ is a workers' fund that invests in Quebec companies. Furthermore, the Fonds provides additional tax credits with its RRSPs as well as mutual funds through its collective savings broker, FlexiFonds.

Class recap

The investment world is in constant evolution. That's part of what makes it so fascinating. From increasingly specialized savings products, to the growing importance of autonomous investing, to crypto-currencies and other financial securities of the digital age, it's important to stay informed and to manage your risks properly. Which will ultimately make you feel much more confident and relaxed.

Anyways, there is one thing that I can guarantee: I myself cannot wait to see you again in our fifth and final class!