Do you only invest in GICs or a handful of stocks because you feel unfamiliar with other investment choices? It’s understandable to be anxious about the unfamiliar, but learning more about different investments that may be suitable for you can help make your portfolio less risky.
Overcome behavioural biases to reach your investing goals.
For most of us, investing isn’t a full-time job. We don’t have time to understand the pros and cons of every possible investment. As a result, when making investment decisions, we try to make things simpler for ourselves by gravitating towards what’s familiar. For example, we may only invest in companies with brands that we recognize or in companies our family or friends invest in.
The trouble is that just because an investment is familiar doesn’t mean that it’s best suited for your financial goals. Sticking to what’s familiar can also leave you undiversified, which means your portfolio has higher risk than a diversified one.
Diversification means choosing a mix of investments whose prices don’t always move in the same direction. For example, stocks and bonds often move in opposite directions. A mutual fund or ETF can also help you diversify by exposing you the stocks or bonds of competing companies in different countries or industries, though this depends on the make-up of the particular mutual fund or ETF. If you diversify, you’re less likely to lose a large portion of your investments just because one company or one part of the market isn’t doing well. Learn about four reasons to diversify.
Our Getting Started section will help you get familiar with several common types of investments. The right types of investments for you will depend on many factors, such as your risk tolerance, investment needs and time horizon.
Read the full report
If you’re interested in how leading practitioners and regulators around the world are using behavioural insights to address issues in capital markets and improve outcomes for investors and market participants, read the Investor Office Report – Behavioural Insights: Key Concepts, Applications and Regulatory Considerations (OSC Staff Notice 11-778).
