President's Choice Financial|accounts and products|mutual funds|the basics of mutual fund investing

CIBC Securities Inc. — six steps to successful investing

1. know yourself

We all have different investing goals and a different time frame for achieving those goals. Some goals may be short term, like saving for a vacation or a car purchase, while others may be long term, like retirement.

In general, the shorter your investment horizon, the more conservative your asset allocation should be. For short-term goals, this means investing more of your portfolio in savings and income funds, and less in growth funds. For long-term goals like retirement, a greater emphasis on growth might be more appropriate.

In addition to different goals, every investor has a different comfort level with investment risk. While risk sounds like something to avoid, there can be an upside ― greater risk usually comes with greater potential rewards over the long term. Finding the risk-reward balance that’s right for you ― and that’s appropriate for your investment time frame ― is an important first step to successful investing.

2. begin investing now

Time can be an investor's greatest ally, especially for long-term savings goals such as retirement. Delaying the start of your savings and investing program - even for a few years - can cost you thousands of dollars.

The reason is simple. The investment earnings you make over time compound and these earnings in turn earn more money. This compounding effect can greatly accelerate the amount you accumulate.

So don't delay - there's no time like the present to start. A little disciplined saving and investing today can pay off a few years down the road.

3. build a diversified portfolio

Spreading your assets across a wide range of different investments is one of the best ways to increase potential returns over the long term while reducing risk.

Holding a combination of asset classes - savings, income and growth - will help cushion your portfolio from downturns, as the value of some investments may go up while the value of others may go down. For example, if you hold a combination of growth and income funds and the stock market declines, your income fund investments (which tend to be more stable) may help offset any short-term losses.

But diversification means more than just dividing your investments across asset classes. It also means diversifying your investments across different countries, management styles, market capitalization and sectors.

By diversifying across different countries, you spread your portfolio over a greater percentage of the world market and this gives you the opportunity to benefit from economic growth in countries outside of Canada.

Diversifying across different management styles is important because over different time periods, one investment style usually performs better than another. Market capitalization (the total market value of all the shares of a company owned by investors), sectors and specialized industries or fields, are other areas for consideration in diversifying your portfolio.

4. invest regularly

One of the key steps to achieving your financial goals is to invest a set amount at a regular interval, for example, weekly, bi-weekly or monthly. There are two major advantages to this approach:

i. disciplined investing: "pay yourself first"

There is no end to the demands on your money. By setting up a regular contribution program, your money is invested immediately, before you have second thoughts about spending it.

ii. the effects of compounding

Taking advantage of the effects of compounding is one of the best ways to make your money work for you. Compounding is money multiplying itself. Your investment earns a return, then you earn a return on the return and so on. To benefit from the power of compounding, it is important to start saving early.

regular investment plan

A CIBC Regular Investment Plan makes it easy to invest on a regular basis. Money will be automatically withdrawn from your bank account on a regular basis. You decide how much and how often you want to invest. You can make regular contributions up to four times per month. And you can start with as little as $25 a month.

5. monitor your portfolio

Life - and your portfolio - will both change over time. It's important to monitor your portfolio to ensure it continues to reflect an investment strategy that's right for you.

You may be surprised at how quickly the percentage mix of savings, income and growth investments in your portfolio changes over time, even if you continue to invest the same percentage in each asset category.

That's because each asset type will likely earn a different rate of return each year. For example, if your income fund returns 4% one year and the growth fund you own increases by 8%, you'll need to rebalance your portfolio to maintain your target asset mix, as the percentage of your portfolio held in the growth fund will have increased.

One other point to consider - the asset allocation strategy that's right for your portfolio will likely change over time. For instance, your emphasis on income investments is likely to increase as you get closer to retirement. Other life events can also affect your asset allocation strategy.

So, it's important to monitor your portfolio on a regular basis. If your portfolio is well planned at the beginning, any changes you make over time will likely be gradual, allowing your portfolio to evolve while still maintaining a long-term view.

6. invest for the long term

Just as patience can play an important role in fulfilling many of your life's goals, it should also play a role in helping you achieve your financial goals.

It takes some discipline to resist the impulse to react to recent news or events, but you may benefit over the long term.

A long-term outlook is especially important if you invest in funds that hold equities, as stocks can be risky and stock prices can fluctuate over time. The best approach? Set a long-term investment strategy and stick with it. You'll minimize your risk of buying and selling an investment at the wrong time, be less affected by short-term price changes and reap the benefits of compound growth.