Which Investment Vehicles Are Perfect For Young Professionals?

Young investors who want to build their financial worth have a vast range of investment vehicles to consider. However, the investment options vary in terms of volatility and risk levels. Some of the options are ideal for short-term, medium-term, and long-term goals.

If you want to build your portfolio at a young age, you need to select a good investment vehicle to meet your investment needs. It should align well with your risk tolerance to avoid losses. So what exactly should you consider investing in at a young age?

If you’re a young professional planning to move to BC, here’s all about British Columbia that you need to know.

Best Investment Vehicles in Canada for Young Professionals

The best investment options allow investors to place their money into assets to fulfill their specific investment objectives. Since several investment options are available, ensure that you understand the risks involved in the one you select.

Here are the investment vehicles to consider for your financial goals.

1.    Individual Stocks

As a young professional, you’ve perhaps heard about stocks. They are portions of firms or companies that are publicly traded in the stock market.

With this investment option, you earn money when you buy stocks and sell them later at a specific price, usually when the stock prices increase.

You can also make a profit by selling a borrowed stock at a higher price and repurchasing it when the stock’s value falls. Return the low-priced shares to your lender and consider the difference as your profit.

You may also invest in stocks that pay dividends to shareholders. If you hold them for long, they can turn into qualified dividends and offer you a tax-free income source.

One advantage of individual stocks is that you’ll have control over your money. You decide where your money goes and when to capitalize the price movements.

Unfortunately, individual stocks are risky investment vehicles due to the increased difficulty of portfolio diversification. You also have to spend a lot of time screening stocks.

2.    Exchange-Traded Funds (ETFs)

Another popular investment vehicle that can payout is the ETFs, which hold groups of assets, mainly stocks. However, they can also have bonds or other assets.

Buying ETFs is one of the cheapest and fastest ways to diversify your investment portfolio. However, multiple ETFs may sometimes overlap and have similar holdings.

Like stocks, ETFs can get exchanged throughout a trading day—investors can buy and sell the securities at any time during market hours.

When selected carefully, ETFs usually comprise secure and long-term investment vehicles. They work best under a simple, buy-and-hold strategy for wealth building.

The good news is that exchange-traded funds have significant tax advantages. You only pay capital gain tax when you sell an ETF and not throughout the investment’s lifetime.

However, when the investments generate income in the form of dividends, you’ll have to pay income tax in the year you received it.

3.    Bonds

Bonds offer lower returns than most investment vehicles but are the safest investment options to consider. They act as a particular type of debt.

There are different types of bonds, including the government bonds that come from the federal government. They are the safest type of bond as they are government-backed.

When the federal government suddenly becomes unable to repay the debts, it will do everything possible to ensure that you get paid. For that reason, most investors always turn to government bonds during economic uncertainties. The bonds have 20 or 30-year maturities and pay interest twice yearly.

The treasury department usually sells the government bonds at an auction then uses the event to determine the prices and yields of the bond issuance.

Note that the bonds’ values depend on the interest rate movements. In other words, their value tends to fluctuate when the interest rates rise or fall. When the interest rates increase, the newly issued bonds will have higher returns than the existing bonds. As a result, the existing bonds will fall in value.

The government bond market offers a significant amount of liquidity. However, if you sell your bond before it matures, you’ll realize a capital loss. However, the drawback should not stop you from investing in the bonds. They are the safest investment vehicles you can find around Canada.

4.    Mutual Funds

Mutual funds are also groups of assets (usually stocks) you can purchase by pooling money and other investments. They operate like the Exchange-Traded Funds.

While ETFs and mutual funds are both pooled investment vehicles, they have a few notable differences. For instance, ETFs allow intraday trading while mutual funds don’t.

Instead of trading mutual funds throughout the day, like the ETFs, you can only sell them when the day ends, at market close. So you pay the same price as other people.

Another difference comes in the management style for some mutual funds. In the past, the management fee for mutual funds was high due to their active management style.

Investment managers were choosing stocks based on their research and not according to a particular benchmark or index. Currently, most mutual funds are generally passive.

5.    Real Estate

Real estate investments come with numerous advantages since they appreciate assets. They have many tax advantages and can offer predictable cash flow.

The most popular investment vehicle for real estate is the Real Estate Investment Trust (REIT). It’s a company that owns and manages income-generating real estate assets.

REITs can own and operate residential and commercial properties, including apartment buildings, hotels, hospitals, and more.

One good thing about REITs is that they are not correlated with stocks and can be very helpful when your stock portfolio is down.

You will be making money from the dividend payments. When the value of your shares increases, you can also sell them for profits.

As a young professional, you may not have enough money to build an entire real estate property. Thankfully, you only need a few thousand dollars to invest in REITs.

Final Words

Now that you know the investment vehicles to invest in as a young professional, please diversify your portfolio. A combination of safe investments, such as bonds and riskier assets, can yield higher returns, like stocks. Most importantly, start investing early.