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If you’ve ever felt too overwhelmed or under-informed to start investing, you’re not alone. Many people delay investing or avoid interacting with their accounts because they assume they need to understand everything before they can do anything. The truth is, you don’t. What you do need is a grasp of a few foundational concepts that will help you make informed decisions, ask better questions, and avoid the most common pitfalls. This article walks you through five of them: fees, the basic building blocks of investments, risk, returns, and time. Think of this as your starting point, not the finish line.

Fees

I started with this one because it’s the most timely. Investment firms are required to send annual fees reports for 2025 by the end of February 2026. In my opinion, fees are not the most important consideration in choosing an investment strategy or building a portfolio.  You should know what you’re paying so you can make confident choices; and it’s your advisor’s / firm’s job to make that information accessible to you. Across my clients, there is a range of DIY clients with extremely low fees at one end, to advised clients who are paying 1-1.5% of assets under management, to clients who use mutual funds and are paying an average of 2.5% of assets in the fund. 

Fees are not the only factor that make you successful or unsuccessful in meeting your goals and having enough.  They are important for you to understand in order to make decisions about who and how you want to pay and the service that you receive in exchange for the fees you're paying.

More high versus low fees in future Substack & blog post.

All mutual funds, exchanged traded funds (ETFs) and accounts managed by an investment advisor have fees.  You’re paying those fees.  All firms are required to issue an annual fee & return report by February for the previous year.  If you don’t know how much you’re paying for your investments, this report is a good place to start.

Fees are calculated based on the amount that you have invested, you are charged a percentage of the amount in the fund, ETF or under management with the advisor.

The regulations on fee reporting (known as CRM2) currently only require firms to disclose part of the fees that you’re paying. Some mutual fund firms decided to disclose the full fee, some advised accounts include the full fee disclosure as a matter of course. CRM2 changes starting January 2027 (known as CRM3 or Total Cost Reporting); firms will be required to disclose all fees.

If you’re not sure what you’re paying for your investments, start by logging in to your investment platform and looking for your annual fee statement, or asking your advisor to review your fees.

Building Blocks of Investments

Cash / Bonds / Stocks

These are the 3 most familiar stopping points on the investment building block option line.

Cash: is an investment option.  It’s the option that stays where we put it, doesn’t jump around, and can earn interest.  High interest savings accounts (HISAs), Guaranteed Investment Certificates (GIC’s), money market funds are all in the cash category. 

Bonds: are debt.  Think IOU arrangement between yourself as the investor and the issuer.  Bonds pay an agreed interest rate for the length of the bond.  Prices move up or down based on how attractive the interest rate is or how worried we are (as a group) about other investments.  The other term for bonds: fixed income.

Stocks: a form of ownership that lets you participate in the profits of the company.  Share prices of a company move up and down based on earnings (often reported quarterly); the outlook for the sector the company belongs to ex: AI & worker replacement predictions can affect all companies in a sector whether or not any individual company has a plan to replace workers with AI.

These building blocks of cash, bonds and stocks are used to build mutual funds, index funds, exchange traded funds (ETFs) and managed portfolios.

Risk

Risk is defined as chance of a loss. All investments have risk.  It’s important to understand the different types of risk, and what risk level overall is appropriate for you.

There are two types of risk to understand: volatility (how much price movement in a year is normal or expected) and capacity (your ability to absorb a loss without derailing your financial stability).

Risk tolerance: measures your tolerance for short term volatility.  Will you lose sleep if your investments dropped by 20%?  45%?  80? At what point would you sell?  Ideally, the volatility of your investments never keeps you up at night, even when you don’t like the negative period that they are having.  A mis-match of investment to risk tolerance looks like: I would sell if my investment dropped by 10% and the normal behaviour of that investment is to swing in price by 25% in a year.  I’m setting myself up to sell at the worst time if I buy that investment.

Risk capacity: a measure how much you can afford to lose and still be financially stable.  Money that needs to cover your housing and grocery costs in the next 12 months shouldn’t be invested in something that swings in price.

Returns

You can find a rate of return for any investment, from individual stocks to managed portfolios.

Be aware of which rate of return you’re looking at.

The average rate of return doesn’t matter to you; as an investor, you experience (live with) the annualized, or compound rate of return.  This is a slippery concept, and is widely mis-used by social media posts that talk about investing.  Happily, there are regulations around how companies, and investment firms report your returns to you.

The average return of the stock market (all companies listed for sale on a particular index like the S&P, TSX, NASDAQ) over longer (8+ years) is 10%.  That’s true.  What you will experience as an investor is 7% annualized- this is what you can actually expect to keep, or spend.

These 2 numbers for long-term returns are both true because of the volatility in the year to year returns.  The order that you experience the positive and negative years affects what you have available to spend; the math to arrive at the average return doesn’t take that into account.  The math for the annualized return does, and that’s the return you can reasonably expect to experience, and be able to spend.

Extreme example to make a fast point: If you invest $100, and experience a 50% loss in the first year, to get back to $100, you need a 100% gain.  If that happened, in that short 2 yr period, your average return is 25%, but your annualized return is zero. Social media has no requirement to make this clear to you; your investment firm is required to report to you clearly.

Time

Time affects your investments and your success as an investor in a number of ways.  Time is connected to building blocks, risk and returns.

If you invest in cash, your returns are predictably slightly below inflation.  You won’t see any fluctuation in the value of your cash / GICs/ money market funds, which is great for an investor with low risk tolerance. 

How is a cash investor successful?  By understanding the growth in their portfolio and saving accordingly.  This investor will need to save more than a bond or stock investor to keep their spending power over time.

How does a cash investor stumble?  By not understanding the connection between their returns, inflation and spending power.  This stumble won’t become obvious until later in retirement, when the money is running out faster than expected.

If you invest in bonds, your returns have some volatility.  Some negative years, mostly positive years.  The annualized rate of return for a bond index is 4%.  It can take 3 years to hit that 4% annualized rate of return as an investor, and if your timing was really intense, a bit longer.  In 2022, bond index returns were in the -10%-13% range.  2021 was slightly negative.  That’s Armageddon for bonds; 2 negative years in a row and the 2nd year was huge.  If you first invested in late 2020, you might not have seen an overall gain in your holding until recently or you might still be slightly negative on the 5 year annualized return.  Does that mean you made a mistake?  That bonds are bad?  That you should sell now?  No to all of those.  It means that your timing has affected your returns.  If your risk tolerance and your risk capacity are low, bonds may be the best investment for you personally, which includes holding through the uncomfortable periods.

How is a bond investor successful?  Understanding their risk tolerance, the role bonds play in their portfolio overall and focusing on the long-term return potential.

How does a bond investor stumble?  By selling during or soon after a negative period to re-invest in something that had positive returns when bonds were negative.  This is partly a ‘the grass is greener’ strategy and partly an ‘investing in hindsight’ strategy.  Both are harmful to long term returns and your success as an investor.

If you invest in stocks, your returns are volatile.  95% of the time, I promise that stock index returns will fall between -28% and +38%- that’s such a wide range that my promise doesn’t likely make you feel more secure.  With the wide range of returns, stocks can take 5-8 years to hit a target annualized return in your portfolio of 7%.  That’s a long time as a human to wait, especially when we can find news and check our portfolios at any moment.

How is a stock investor successful?  Understanding the time that may be needed to see that target annualized rate of return.  When stock markets turned broadly negative in 2001, they didn’t turn broadly positive until 2003.  Even once markets turned positive, it was a slow climb back.  2008 was a different broadly negative market- a sharp fast drop of -50% in about 12 weeks, about 10 weeks at the bottom, then a sharp fast rise up.

How does a stock investor stumble?  By selling in a negative market, expecting high positive returns all the time and missing the connection between positive and negative- you will only see the strong positive returns if you are invested for the negative periods. 

How to Start

These five concepts are important for you to understand because they affect you directly.  As the client, you don’t need to understand them before you start, and you don’t need to be hesitant to ask questions- that’s exactly what your advisor is for.  Whether you’re working with an investment advisor, an advice-only planner or you’re collecting information as a DIY investor, get familiar with these concepts and re-visit them regularly. 

Whether you’re just opening your first account or trying to make sense of what you already own, the best next step is usually a small one: find out what you’re paying, understand what you hold, and make sure your investments match both your risk tolerance and your timeline. If this article raised questions, that’s a good sign. Bring those questions to your advisor or keep an eye out for future posts where we’ll go deeper on each of these topics.

Your success as an investor increases the more you ask questions, collect information and gain understanding.

Disclaimer: This content is intended for general informational purposes only and should not be considered personalized financial advice. Every individual's financial situation is unique, and what works for one person may not be appropriate for another. Before making any financial decisions or changes to your current situation, please consult with a qualified financial professional who can assess your specific circumstances and goals.

To book a meeting to review any of these concepts with me, please contact Lindsay at [email protected]