3 types of return

Step 5 to investing is choosing your investments. When choosing an investment, you'll want to consider how you expect to make money on it – and how your earnings will be taxed.

3 ways to make money on investments

1. Interest

Investments like savings accounts, GICs and bonds pay interest. With these types of investments, you know exactly how much money you’re going to earn on your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition.

2. Dividends

Some stocks pay dividends, which give investors a shareShare A piece of ownership in a company. A share does not give you direct control over the company’s daily operations. But it does let you get a share of profits if the company pays dividends.+ read full definition of what the company makes. You get a regular income from these investments. The amount of the dividendDividend Part of a company’s profits that it pays to shareholders in proportion to the total number of shares held. The Board of Directors sets the amount. For common shares, the amount varies. It may skip dividends if business is poor or the directors invest money in things like new equipment or buildings.+ read full definition depends on how well the company did that year and what type of stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition you own.

3. Capital gains

As an investor, if you sell an investment like a stock, bondBond A kind of loan you make to the government or a company. They use the money to run their operations. In turn, you get back a set amount of interest once or twice a year. If you hold bonds until the maturity date, you will get all your money back as well. If you sell…+ read full definition, mutual fundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the fund’s goals for risk and return. You can redeem your fund units at any time.+ read full definition or ETF, for more than you paid for it, you’ll have a capital gain. If you sell it for less than you paid for it, you’ll have a capital lossCapital loss The money you lose when you sell an investment or some other asset for less than you paid for it.+ read full definition.

Consider taxes before you investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition

Non-registered investment accounts have no special “taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition status” the way registered accounts, such as RRSPs or TFSAs, do. All investments held in non-registered accounts are subject to tax, but not all investment income is taxed in the same way or at the same rates. Learn more about how taxes affect your investments.

Key point

6 steps to investing:

  1. Set your goals
  2. Know your investing personality
  3. Create your plan
  4. Choose your asset mixAsset mix The percentage distribution of assets in a portfolio among the three major asset classes: cash and cash equivalents, fixed income and equities.+ read full definition
  5. Choose your investments
  6. Track your progress

Take action

Use this calculator to find out how much you could earn in interest.

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