Practical Money Skills - For Consumers

And it's worth the effort. After all, having worked so hard for your money, your money should work for you. Your first investment, then? An investment of time (just a little!) to figure out what investing is all about.

How we choose
How people choose to invest their money is largely a function of three things: their individual goals, their tolerance for risk and their budget.

Investment choices
There are many investment instruments on the market. Each has a different level of risk and expected return. The "safer" investments offer a better chance of preserving your original outlay of funds, but the rate of return will be low. If you're willing to take more of a gamble, there's an abundance of investments whose returns may be higher, but which come with the risk of losing it all.

Investments fall into three principal categories:

Cash and cash equivalents (like savings accounts, treasury bills and money market mutual funds): This is generally the safest category of investment, but it produces the lowest returns.

Fixed-income investments (like GICs, bonds and income mutual funds): These generally offer higher returns and provide a regular source of investment income.

Equity investments (like stocks and equity mutual funds): These are high-risk assets which can grow in market value if the holder has the tenacity to wait it out.

How we invest (according to the Canadian Banker's Association)

40% of Canadians have mutual funds

20% have Canada Savings Bonds

18% have individual stocks

17% have GICs (terms of more than one year)

15% have GICs (one year or less)

11% have provincial savings bonds

8% have other bonds issued by government or corporations

7% have off-shore investments

6% have T-Bills

4% have index-linked GICs.