Investments: A Piece of Your Overall Financial Plan

What are investments?

An investment is something purchased with the aim of increasing its value or earning interest on it over time. The money you use for the purchase is the capital and the money you hope to make is the return.

Types of investments

Many types of investments are available; the following are just a few of the most common:

  • Stocks (or shares or equity), which are pieces of ownership in companies traded on public stock markets; their value changes constantly based on supply, demand, company success and many other factors
  • Bonds, which are like loans to a government or company that they promise to repay with a set amount of interest after a set period of time
  • Mutual funds, which are professionally managed investment funds that pool money from many investors to purchase securities; there are several types of mutual funds, including equity funds (composed of stocks), fixed-income funds (composed of bonds), balanced funds (combinations of equity and bonds) and even funds of funds (composed of shares in other mutual funds)
  • Annuities, in which you deposit funds with a life insurance company and the company pays you a set amount of money for a specific amount of time, sometimes the rest of your life
  • Hedge funds, which are similar to mutual funds but employ much riskier strategies and investments

Other types of investments include real estate, shares in private companies, fine art, guaranteed investment certificates and even savings accounts.

What is a financial plan?

A financial plan looks at how everything related to your financial life fits into your future. It sets out your goals and what you need to do to reach them. You probably have an RRSP and perhaps a TFSA. These are investment tools designed to encourage you to save for your future needs. But investments are only one part of that plan – it should also consider insurance (life and disability), employment income, government pension or income supplements, your will, your estate, your budget and cash flow, existing debts, tax planning and more.

Look at the big picture

Your financial advisor should be looking at your whole financial picture, not just recommending which investments to buy and sell. The first step in developing a financial plan with your advisor is identifying your goals. “To save money” is not specific enough. Do you plan to pay for your children’s or grandchildren’s education? Do you want to buy a vacation property or travel extensively? Do you want to leave a substantial gift to a charity? When do you want to have funds available for these items? And most importantly, how much do you need day to day?

All of that needs to be considered in your overall plan. If you have some mutual funds in your RRSP but haven’t thought about any of those other elements, you do not have a financial plan. Without one, you don’t know how much you need to save or how much you will need to earn on your investments to meet your expectations in the future. If you haven’t thought about your estate, if you were to pass away suddenly, your family would be left with a lot of problems to deal with. If you don’t have savings or insurance, how will they get by?


Your financial plan must also take into account some personal factors. Some people are willing and able to take more financial risk than others; your advisor needs to know where you stand so that they can choose investments and other products that you will be comfortable with. You may want to be fully involved with all decisions relating to your finances, or you may prefer to let an expert handle the day- to-day details of your investments – if that’s the case, you might want to consider discretionary investment management, in which a professional Portfolio Manager makes day-to-day investment decisions on your behalf.

If your advisor isn’t discussing these topics with you, how can he or she select investments that are appropriate for you? The financial plan and investing needs of someone with low risk tolerance, a smaller portfolio and four children to support are going to be very different from the needs of someone with substantial wealth to invest and a strong appetite for risk and the rewards it can bring.

Investments may be the biggest part of your financial plan, but there is so much more to it. If your advisor is not helping you look at the bigger picture, find one who will.

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