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7 Things Every Investor Should Know

Whether you’re just starting out or have invested for years, having a process to get you started is always important.

Risk and return are always important and are often talked about, but there are other things you should be aware of. Here is a list of the seven major considerations every investor should know.

1. Set An Objective

An objective is something you want to achieve. Your objectives should be broad and focus on the long-term. For example, saving for retirement, your child’s education, or for the down payment on a new home would be examples of objectives.

2. Turn Objectives Into Goals

Goals take an objective an turn it into something actionable. Proper goals have five key characteristics, known as SMART: Specific, Measureable, Attainable, Realistic, and Time bound.

See how an objective of saving for retirement is turned into the following goal:

I intend to retire by age 60 and live on the future equivalent of $75,000 per year after-tax.

Setting a goal is not always a simple and sometimes you need to re-evaluate your goals.

3. Know Your Risk Tolerance

The risk you are prepared to take (and you can stomach) has a direct relationship with the returns you can expect to receive from your investments.

An investor who cannot bear to see any drop in their investments will have to select low risk investments such as GIC’s. On the other hand, if you are prepared to take more risk, your potential returns may be higher, but your risk of loss is also higher.

You may have to adjust your timeline or the specifics of your goal to meet the amount of risk you are prepared to take.

Also be aware, that if you have short time horizon, your risk tolerance may fall. If you need your money in six months, throwing everything in the stock market may not be a wise choice.

4. Price Does Not Equal Value

Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max [1]There is a cost to investing. You may have to pay account fees and commissions to place trades. However, seeking the absolute lowest cost is not always the best choice.marginal tax rate [2]

Consider this: If you pick the cheapest on-line broker simply on price alone, you may have found the lowest cost, but if that broker cannot settle your trades on time due to system limitations you may lose more money waiting to trade than the price you pay to trade.

5. Know Your Taxes

Taxes can adversely affect your investments if you are not careful. Always be aware of your and how taxes affect the investment you are buying [3].

If you are buying a bond and the interest will be taxable at 35% whereas dividends from a preferred share with similar characteristics would be 14%.

6. Asset Allocation Is Important

Studies [4] have shown that asset allocation accounts for 80% to 90% of your investments returns more so than individual stock selection and active management! Once you have set your portfolio objective (i.e. growth, balanced, or income), make sure you adjust your portfolio regularly to ensure you preserve your asset allocation.

7. Get Advice When You Need It

You don’t have to use an investment advisor for your entire portfolio, but allowing him or her to advise you on a portion of your investments can add value to your investments. Even the seasoned investor can benefit from some professional advice from a trusted advisor. The advisor can help you maximize value by providing research and guidance.

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