Before you invest a penny

Many people and organizations invest their savings for a number of reasons. The following article discusses a number of important concepts with regards to investing.
An organization may want income from their investment portfolio to cover some of the operational costs. A young professional might invest to grow their initial investment amount so that by the time they retire, they have a substantial portfolio.
Because these investors have different goals, the investment strategies and solutions each will use are different and their portfolios will look and perform very differently over time. However, there are some considerations that all investors should consider before they invest their money:
This concept refers to the use of investment strategies and solutions that minimize the possibility of investment loss. In other words, the basic goal of investing is to make money or, in the event of a market collapse, to not lose any money.
What many investors do not consider is that this concept can be extended to any purchases of stocks and it is possible to maximize the safety of any money invested in stocks by purchasing stocks when they are selling for less than what they are worth. Investment professionals have a number of valuation tools to accomplish this.
This concept refers to the ability of the investor to cash in their investment. In other words, there is a market in which the underlying investment can be easily sold or exchanged with other investors.
After the market crash of 2008 and 2009, it has become obvious that this is a very important consideration and one that many investors did not assess. One excellent example of a market that had no liquidity was the ABCP (Asset Backed Commercial Paper) market in Canada.
Basically, all trading stopped because there were no persons or organizations who were willing to buy these investments. Because there were no buyers for these investment products, those investors who had bought these before the market seized were stuck holding these investments in their portfolio but could not get out of them.
If one of the purposes of investing is to not lose money, another important reason people invest is to grow their funds. This is a concept that seems to have been forgotten by many investors, investment professionals and companies that offer investment products. The industry uses a wide range of complicated terminology, investment products and complicated formulas that it seems to have forgotten that the primary job is to help investors make money.
Investing to ensure the initial investment amount is as safe from loss as is possible is a secondary consideration to growing the value of the initial investment amount over time.
While all investors want to make money, all investment results should be considered on an after-tax basis. This is important because if you make a great deal of money on your investments, but pay a lot of it in taxes, you are being inefficient in your investment approach.
This means the appropriate investment deferral or outright elimination should be considered. For most, this requires using the appropriate investment accounts including RRSPs, pension plans, life insurance investment strategies and TFSAs (Tax-free-savings accounts).
However, as we have noted in other articles, it is important for First Nations people to get the appropriate advice in this matter since those who earn a non-taxable income cannot use all of the tax minimization strategies listed above.
Many investors do not invest for growth, but for income. For example, retired people who have saved a substantial amount need a regular income from their investment portfolio. An investment portfolio designed to generate income is very different from a portfolio designed for growth in terms of the types of investments it holds and generally has a lower risk profile.
Most First Nations and First Nation Trusts have income oriented investment portfolios since they want to ensure that the initial investment amount is used to create an immediate benefit for the community, but lasts for a long time. For these investors, they will use the income that the portfolio generates for spending and will not spend the initial investment.
This article is supplied by Gordon Keesic, a Lac Seul band member and an Investment Advisor with RBC Dominion Securities Inc. Member CIPF. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article.