It's never too soon to start thinking about investing. Investing, simply put, means putting your money to work in order to earn more money.

The Time to Get Started is Now
Some people call these extra earnings passive income, but we prefer to call it smart income. That’s because investing wisely can help you achieve your financial goals more rapidly - whatever those goals may be - including the purchase of a new home, the funding of university education, or the security of a comfortable retirement. Whatever those goals, a smart, timely and consistent investment plan can help you achieve them while gaining the financial freedom you deserve.

It’s important to know that investing is not just for the wealthy - it's for everyone. Once you get started, investing even small amounts can produce considerable rewards over the long term, especially if done regularly and consistently.

But, investing wisely means making decisions about how much you want to invest and where to invest it. You need to know the choices you have and the risks involved with the many different investment alternatives available to you.

A Matter of Choice
There are three basic investment categories: stocks, bonds and cash. You can invest directly in any or all of them. Alternatively, you can invest indirectly, by buying mutual funds that pool your money with that of other people, which is then invested in diversified portfolios.

An example: Stock mutual funds buy stocks, while money-market funds make cash investments.

A Wealth of Opportunities
When you want to invest, you have a wide range of potential opportunities. In Canada alone there are thousands of stocks and mutual funds, and many corporate and government bonds to choose from. You can also choose to invest in markets around the world, in developed or emerging economies. You can often invest directly with the issuer, whether it is a corporation, investment company or government.

Now you can access up-to-the-minute information and then invest online.

Assessing Your Investment
Selecting the best investment depends on your financial goals and general market conditions. For example, a good investment for your long-term retirement plan may not be as suitable as a shorter-term investment geared for university savings for your children.

In each case, the right investment is a balance of three important components: liquidity, safety and return.

Liquidity - How Accessible is Your Money?
If the money you invest must be available to cover financial emergencies, you will be concerned about liquidity, or how easily your investment can be converted back into cash.

The following investments are very liquid:

• Money-market funds
• Savings accounts
• Investments with short maturity dates such as GICs or Canadian T-bills.

If you are investing for longer-term goals, liquidity is less of a priority than growth, or building the value of your assets. In that case, what you seek is growth, or building the value of your assets.

The following investments are growth oriented:

Safety - What are the risks?
Investing means taking some risks. The most obvious risk is losing the money you have invested, so naturally we all seek safe investments. That can mean putting money into bank accounts and Canadian T-bills. But with safety generally comes lower returns on invested capital, such that the safest investments will likely not provide enough growth or income to offset the impact of inflation–the gradual increase in the cost of living. There are additional risks to consider as well, including how the Canadian and global economies are performing. But the biggest risk is not investing at all.

Return - What can you expect to make or lose on your original investment?

Safe investments often promise a specific, though limited, return. Those that are less certain necessarily involve more risk, and the opportunity to make – or lose – more money.

Additional Choices
Other investment choices include:

• Real Estate Partnerships
• Investment Trusts
• Precious Metals, such as gold
• Futures and Options
• Vehicles such as hedge funds and derivatives.

Like most investments, each of these requires specialized market knowledge and due diligence. You might, in time, consider one or more of these vehicles as your experience and requirements for diversity grow.

Most experts agree that the basic three – stocks, bonds and cash – should form the core of any investment portfolio.

Some of the most important reasons for that advice include: easy-to-understand structures, the ability to easily track their performance through markets and online research, and a history of relatively consistent performance.

RRSPs: Registered Retirement Savings Plans
If you want to accelerate the growth of your investments, you don't necessarily have to expose yourself to greater risk. Leveraging your investments, by taking advantage of tax-deferred vehicles such as RRSPs, is the most common way to maximize your current return.

In most cases, there is an annual limit on the amount you can invest on a tax-deferred basis. Financial counselors are unanimous that you should strive to maximize your annual contribution for the long-term benefit of your investment portfolio. Of course, you can always invest whatever additional money you can afford in taxable investments, on which there is no annual contribution limit.

There is one potential drawback to tax-deferred investing: generally you'll have to pay a financial penalty – as well as whatever tax is due – if it is necessary for you to withdraw money from tax-deferred accounts before you reach age 69, when you are required to convert your RRSP into a vehicle designed to provide you with annuity income. That's because the tax-deferral incentive is deliberately intended to assist you in saving for retirement.

If your concerns are the same as the majority of Canadians, you're probably worried about having enough money when you retire. In that case, tax-deferred investing can be a ready-made solution. And there are some situations where the withdrawal penalty is waived, including the payment of university (and other qualifying post-secondary institution) tuition, or the withdrawal of money for a first-time home purchase.