What is a mortgage?

A mortgage is a type of loan used to help you buy a home. Unless you are able to pay the entire amount up front when buying a home, you will more likely pay for it using a down payment at the time you buy, and pay for the rest with a mortgage.

When you repay a mortgage, you repay the original amount — the principal — plus interest. The interest rate you pay depends on the type of mortgage you have, and the interest rates at the time you take it on. The interest rate will affect the total amount you end up repaying.

Mortgages are given by financial institutions including banks and credit unions, or by mortgage brokers who work on behalf of mortgage lenders. It’s a good idea to shop around before deciding on who to get your mortgage from, as interest rates and policies may be different from one to the other.

Buying your first home is one of the biggest purchases you may make. Find out more about determining how much you can afford, how to save for a down payment and other financial considerations on the path to home ownership.

What should you know before taking on a mortgage?

There are a few key choices to make when taking on a mortgage:

1. How long will you take to pay off the mortgage?

This is known as the amortization period. Many people choose periods between 15 and 25 years. The amount of time you take to pay off the mortgage will affect the amount you repay each month, since the shorter the amortization period, the more you will need to repay each time.

Your down payment amount can affect your amortization period. In Canada, if your down payment is less than 20% of the price of the home, your maximum amortization period is 25 years — or 30 years if you’re a first-time home buyer.

2. How long will your mortgage term be?

The mortgage term is shorter than the amortization period. The mortgage term is usually between one and five years. At the end of the term, you’ll have to renew your mortgage. Your interest rate is decided at the beginning of the term.

3. Will you choose a fixed or variable rate?

When you repay your mortgage, you also pay interest. The interest rate you pay depends on whether you have a fixed rate or a variable rate mortgage.

With a fixed rate mortgage, you pay the same interest rate for the whole term. For example, if you take on a fixed rate mortgage at 7% interest for a five-year term, you’ll pay 7% interest for the entire five years.

A variable rate mortgage means the interest rate you pay will change as the Bank of Canada changes interest rates. The overnight lending rate set by the Bank of Canada can change, as a response to changes in inflation or the markets. So, with a variable rate mortgage, if you started out with a rate of 5% interest, and the Bank of Canada raised interest rates by 0.5%, then you would owe 5.5% interest. If the Bank of Canada then lowered interest by 0.75%, you would owe 4.75% interest on your mortgage payments.

Variable rate mortgage payments can be adjustable or fixed. With adjustable payments, the payment amount changes as the interest rate changes, or fixed. Fixed payments mean you always pay the same amount, but the amount going towards interest changes as the interest does.

A fixed rate mortgage might be the right choice if:

• It’s likely interest rates will increase in the next few years.
• You prefer the predictability of knowing your interest rate and payment amounts will be the same for your next mortgage term.

A variable rate mortgage might be the right choice if:

• It’s likely interest rates will decrease in the next few years.
• You are comfortable letting your mortgage rate float with changes in interest rates.

It’s a good idea to keep track of changes in interest rates, even before you buy a home. Some lenders will let you switch from a variable to a fixed rate mortgage as interest rates start to rise.

Caution

When interest rates rise, more of the variable rate payment goes towards interest than towards the principal. If you have a variable rate mortgage with fixed payment amounts, it is possible to end up in a situation where most or all of your mortgage payment goes towards the interest, and none towards the principal.

4. Will your mortgage be open or closed?

Open or closed mortgages have different flexibility in whether you can pay it off in full at any time.

With an open mortgage, you have the option of paying off the entire mortgage any time. However, open mortgages also tend to have higher interest rates. This may be a good choice if you are expecting to have extra money to be able to pay down your mortgage faster.

Closed mortgages have less flexibility. You might be able to pay off only part of the principal at a specific time. For example, being allowed to repay up to 10% of the mortgage within a one-year period. This may be a good choice if you want the predictability of being able to make regular payments, or don’t expect to have a lot of extra money to pay off your mortgage very quickly.

There are also risks for leaving a closed mortgage early. You will likely incur a penalty, which will be calculated in one of two ways:

1. Three months’ interest – This penalty is calculated as the interest you would pay in three months at your current mortgage rate.
2. Interest rate differential (IRD) – The calculation for an IRD penalty can vary from lender to lender. Generally, it estimates the difference in the amount of interest the lender would receive on your remaining principle, based on current interest rates. The rate used depends on the lender, but, for example, if you have two years left in your term, the interest rate used would likely be the fixed two-year closed rate. The rate may also be based on the current mortgage qualifying rate, which is the five-year posted rate from the Bank of Canada.

Lenders will usually charge the greater of the two penalties. If interest rates are going down, IRD tends to be higher. Check the penalty with your lender before choosing a mortgage. Ask your lender to estimate the penalty if you leave mid-way through your term as an example.

Along with the penalty, other fees may apply when exiting your mortgage early, such as administration fees and an amount equal to any initial discount on the rate you received. For an exact rate and other fees check with your lender.

How do lenders approve a mortgage?

When you get a mortgage from a bank, you must qualify for it. This involves passing a mortgage stress test. It verifies the likelihood you will be able to afford mortgage payments at a qualifying interest rate. You must pass this stress test even if you don’t need mortgage insurance. The stress test considers your anticipated mortgage payments against your anticipated income, expenses and other debt.

Learn more about preparing to get a mortgage from the Financial Consumer Agency of Canada.

Mortgages are large loans, and therefore generally require an application and approval process. The lender will be looking to verify that you are financially able to handle repaying the loan.

There are five major things lenders consider when approving a mortgage:

• Your income – How much you earn in a year and whether you have full-time employment.
• Your net worth – This is the difference between what you own (cash, investments, your home and other real estate) and what you owe (any loans or mortgages you already hold).
• Value of the home you’re buying – The lender needs to know your home is worth enough to cover your mortgage debt if you had to sell it. This is called the collateral for your loan.
• Your credit score – Your credit report shows your record for paying bills and credit cards, and paying back loans on time.
• The stability of your work and life situation – They may ask for a letter verifying your employment. If your family is providing financial help with the down payment, the lender may ask for a letter confirming this.

Mortgage lenders are considering several risks when they approve mortgages, including:

• Interest rates can change – This creates the risk that borrowers may not be able to keep up with their monthly payments.
• Housing prices can drop – This means there is the potential for people to not be able to pay back their mortgage if they sell their home, if their home is worth less than what they owe to the bank.
• Employment situations can change – If someone with a mortgage loses their job, they may run out of money to make their monthly payments if they don’t have mortgage insurance.

These risks mean that it’s important to verify for the lender that you are in a financial position to carry a mortgage. If you’re unable to continue with mortgage payments, the lender could take ownership of your home.

Before you decide on a mortgage, make sure to calculate what you can afford. Use our mortgage payment calculator to see what your payments might look like depending on interest rate, amortization period, term, down payment, and total purchase amount.

How can you repay a mortgage faster?

It’s important to keep up with your mortgage payments, but there may be ways you can pay down your mortgage faster if you’re able to pay additional amounts. There may be options such as:

• Paying extra amounts on your payment dates, up to 100% of the amount of your regular payment — often called a “double up” payment.
• Increasing the amount of your payments.
• Making annual lump-sum payments against the principal.

These options are usually limited in how much you can pay. For example, the amount of a lump-sum payment is usually limited to amounts of 10% to 20%, depending on the lender and the mortgage. 

The frequency of your payments can also make a difference in how quickly you pay down the mortgage. For example, making payments bi-weekly (26 payments over one year) instead of twice a month (24 payments over one year), means that you would have two additional payments during one year. This might be a good option for you if you are paid bi-weekly and can time your payments to be withdrawn on the same day you are paid. Check your payment options with your lender.

What is involved in renewing a mortgage?

When you come to the end of your mortgage term — usually after three to five years — you will need to renew your mortgage. If your mortgage is with a federally regulated financial institution such as a bank, the lender must provide you with a renewal statement at least 21 days before the end of your term. They must also notify you at least 21 days ahead if they do not plan to renew your mortgage.

When your mortgage term comes to an end, you can do one of two things:

• Renew your mortgage.
• Pay off your mortgage in full.

If you want to renew your mortgage, you can either stay with the same lender, or move to a different one if their conditions are more suitable for you. Just as you would shop around for your mortgage in the beginning, you can shop around for better rates before renewing.

If you want to stay with your current lender, it may be worth negotiating for a better interest rate. You may have better options with other lenders and use this information to negotiate. Make sure you have proof of other offers you have received.

Switching to a new lender may offer a better rate, but there may also be additional costs to change. If you decided to switch, make sure to check on:

• Setup fees with the new lender.
• Appraisal fee to confirm the value of your property.
• Other fees and application processes involved.
• Mortgage insurance premiums involved when switching lenders.

Whether you stay with your current lender or switch to a new one, it’s still important to make sure your budget allows you to make payments regularly. Consider whether you can make larger or more frequent payments if you want to pay down the mortgage sooner. Learn more about mortgage renewals.

What are some common ways to borrow money?

There are many ways you could borrow money if you need to pay for something without using cash or debit. Some of the most common ways are:

• Credit cards – Credit cards are used to make purchases on credit, meaning you don’t pay for them at the time but owe the card issuer the money. There are many types of credit cards and you must apply for them. The features offered and the interest rates you owe on your purchases will vary. If you pay off the balance in full each month, you likely won’t pay any interest.
• Personal loan – You can get a term loan or line of credit from a bank, trust company, credit union or finance company. With a term loan, you repay the loan over a fixed period of time at a fixed rate of interest. With a line of credit, you’re pre-approved to borrow up to a set limit. You can borrow and repay at any time, as long as you make the minimum monthly payment.
• Overdraft protection – This is a type of coverage on some chequing accounts. Overdraft protection covers a short-term cash shortage in your bank account. It also covers NSF (not sufficient funds) cheques. You may pay a monthly charge for this service, or you may pay only when you need to use the service. You will also pay interest on the money you borrow. These interest charges can be high.
• Mortgage – This is a long-term loan you get to buy a home. With a mortgage, interest rates are lower than consumer borrowing options like credit cards, because your home secures the loan. You have different options for how and when you repay a mortgage.
• Home equity loan – This is a type of loan that lets you borrow against the money you have invested in buying your home. The more you’ve paid down on your mortgage (your equity), the more you can borrow. Again, interest rates are often lower because your home secures the loan. Learn more about what to consider before borrowing against your home.
• Student loan – A student loan is designed specifically to help you pay for post-secondary education. Student loans are both provincial and federal. Learn more about student loans in Canada.
• Lease – A lease is a long-term rental on a product, such as a car. It works a bit like a loan, because you make regular payments at a fixed rate of interest. The payments are usually lower than payments on a loan for the same term. The big difference is that at the end of the lease, you don’t own the product. But you may have the option to buy the product for what it is worth at the end of the lease. Many leases set special conditions you must meet. For example, a car lease can limit how many kilometres you can drive each month.

Borrowing against your RRSP – In some cases, you may be able use money in your RRSP as collateral for a bank loan. This may not be allowed depending on your bank policy or RRSP administration agreement. Make sure you get expert advice from a tax planner or financial advisor before you go ahead. If you don’t follow the rules, you’ll have to pay tax on the RRSP money you use as collateral.

There are also ways you can borrow from your RRSP. Through Canada Revenue Agency’s Home Buyers’ Plan and Lifelong Learning Plan, you can borrow money from your RRSP without paying tax to buy your first home or pay for education. This can reduce how much you would owe for a mortgage. However, when you borrow from your RRSP, the money you take out of the plan won’t be growing tax-free for your retirement and you will have to pay it back.

What are some reasons to borrow money?

You may have heard people talk about good debt versus bad debt. The difference between good or bad debt might look a little different for different people. Generally speaking, people refer to good debt when they are borrowing money for something that will add value to their life or produce more wealth for them in the long run.

Examples of good debt might include:

• Taking on a mortgage to purchase a home, which may increase in value the longer you own it.
• Taking on a student loan, which will enable you to get higher education and qualify for employment.
• Borrowing to start a business, such as a small business loan, which could grow your wealth.

Some types of debt can improve your life, however, you still require a plan to pay them off. Before you borrow, make sure to ask a few key questions, including finding out what the interest rate is and whether it might change.

The term bad debt usually describes debt used to purchase something that will decline in value, or will not add anything of value to your life in the long term. Examples of this type of debt might include:

• Using credit to pay for expensive purchases such as a vacation, electronics or new furniture, without having a plan to repay them. Try to plan and save for occasional expenses like a new TV or a vacation. 
• Borrowing to cover monthly bills or regular expenses. This can end up costing you more in the long run if you can’t repay them and owe interest. Sticking to a budget will help you pay your bills without having to borrow.

Taking on high interest debt that will be difficult to repay, such as payday loans, or unsecured personal loans. These types of loans can often have interest rates higher than average consumer credit options like credit cards. Depending on how long it takes to repay them, they can cost more in interest than the amount of the original loan.

Debt consolidation is the process of combining multiple debts into one. Try the debt consolidation calculator to see to calculate what your new monthly payments would be, how soon you could be debt free, and how much your total interest amount would be when you consolidate your debts. And the Pay Off Credit Cards and Debt Calculator can give you monthly payment plans for up to eight credit cards or loans, including lines of credit and mortgages. It will show you the order in which you should pay off the debts, and how long it will take

What is a buy now, pay later plan?

Buy now, pay later (BNPL) plans have become more common, especially as an option offered by online payment systems. These plans offer you the option to pay for your purchase in instalments with low or no interest, rather than paying the entire price up front. These payments are typically done through pre-authorized payments to your credit card or bank account.

The risk of BNPL plans is that you must be able to make these post-dated payments in full, otherwise you may be charged additional fees. It can also be tempting to spend too much, since you’re not required to pay for the purchase in full. 

What are the risks of borrowing too much?

Any money you borrow needs to be paid back. That means there are risks of borrowing too much, including:

• It may become a habit. You might find it easier to put large purchases or occasional expenses on a credit card. But unless you pay off your credit card right away, your debt will grow each month.
• It takes away money from other important needs. When you borrow money, you have to pay interest. That’s money you could put toward savings or spend on other things.
• It can harm your credit rating if you don’t pay your bills. If you fall behind on your bills, you may not be able to borrow more money when you need it or you may have to pay a higher rate.

If you have a poor history of being able to repay your debts, this will negatively affect your credit history. As a result, it may be difficult to get loans in the future. If you’re finding it hard to pay off your credit card each month, or are regularly exceeding your credit limit, this may be a sign to get help managing your debt and spending. Learn more about how your credit report works.

If you’re considering borrowing money to invest, such as for a margin account, be aware that taking on debt involves more risk than paying for an investment outright with cash. Whether your investment makes money or not, you still have to pay back the loan plus interest. If you rely solely on investment returns to cover your borrowing costs and your investment falls in value, you could end up defaulting on the loan. Remember, no investment is without risk.

Why should you research your investment opportunities?

As an investor, it’s crucial to make sure you know exactly what you’re putting your money into. That’s why investors should always look closely at investment opportunities and verify that investing advice or products are from credible, registered sources.  

Many people get information online from social media, including information about investing. But social media can be prone to misinformation, or used by finfluencers who are paid to promote certain products. And AI search engine results may not always provide accurate information. There are also many online scams that use AI to make you think an investment opportunity is authentic — but it’s actual fake. So, it’s very important for investors to check that an investment opportunity is real.

Nine ways to research investment opportunities

1. Check registration

It’s always important to check the registration of anyone trying to sell you an investment or give you financial advice. You can search the name of the person or company you’re looking to invest with to see if they are registered to sell investments or give advice.

Registration is a quick and easy step to protect your money. If you don’t see their name on the Canadian Securities Administrator’s national database, be wary about trusting them with your money.

2. Search online for news and reports about a company

When investing in stocks, you become a shareholder of a company. There are many ways you can learn more about companies before you invest in them. Some examples are news releases, annual reports, or even the company website itself. A few minutes of searching and reading can tell you about how the company operates, how long they’ve been in business, and how well they have performed so far. News reports might also tell you more about the public investor sentiment about the company or its sector.

Reading more about a company can help you learn about its track record of financial success, how it’s governed, and what recent changes have happened. If you are considering ESG investing, reading about a company can also help you decide if the investment would align with your values.

3. Start following a market index, or several

Indexes show you how markets are doing on a particular day. You can choose a few indexes to follow on a daily or weekly basis, to get a sense of market trends. This can help you keep informed about whether certain investments, or investments in certain sectors, are more likely to be volatile than others. If one stock you’re interested in is up or down on a particular day, you can pay attention to whether others are affected by similar market swings at the same time.

Getting a sense of market activity in different sectors can also help you get a sense of whether they are a good match to your risk profile.   

4. Decide whether you’re more of an active or passive investor

Knowing your investing style matters because it relates to how much time you’re able or interested to spend researching your investments.

Active investors tend to devote time each week to make investing decisions or monitor their portfolio. They may try to buy and sell different assets depending on market activity certain times. Passive investors, by contrast, don’t try to beat the market by active trading, but use passive strategies like matching their portfolio to the composition of a certain index, such as an indexed ETF.

Both active and passive investors tend to use indexes as a benchmark to measure their investing progress

If you know whether you’re more of an active or passive investor, this can help you direct your investing research towards the investments and strategies that are a good fit for you.

5. Read Fund Facts documents

Fund Facts summarize important information about a fund. There are Fund Facts for mutual funds, and ETF Facts for ETFs. You can expect to learn about what the fund is invested in, what the risk rating is for the fund, the fund’s past performance, tax considerations and what fees are associated with investing in the fund.

It’s helpful to read Fund Facts and ETF Facts because you can compare the description of the fund with your own goals as an investor. For example, you can consider whether the risk level of the fund is higher or lower than what you are comfortable with.

6. Look up financial metrics about a company

For stock investors, there are a number of financial metrics that can help you learn about how profitable a company is, and whether or not their share price is overvalued.

Three financial indicators to consider when looking at a company are:

• Price-to-earnings ratio (P/E ratio) – The P/E ratio divides the company’s share price by its earnings per share. If a company has a high P/E ratio, the company’s stock may be overvalued or too expensive. Conversely, a low P/E ratio can indicate that a stock is undervalued. Generally, investors consider a P/E ratio under 10 to be a sign of value, but this benchmark varies by industry. The P/E ratio is also helpful for comparing one company to another.
• Price-to-book value ratio (P/B ratio) – The P/B ratio divides the company’s share price by its book value. This ratio is used by investors looking to identify under-valued companies and avoid those that are over-valued.
• Price-to-sales ratio (P/S ratio) – The P/S ratio divides the company’s share price by its sales price per share. This ratio is used to show how much investors are willing to pay for a share in the current market.

These metrics can be helpful for self-directed or DIY investors who are able to invest time into researching their stock investments.

7. Check the legitimacy of a company’s website before you invest

If you’ve learned about an investment through a text message, social media app, or phone call it’s crucial to check whether it’s from a legitimate investment firm — especially if it’s an unsolicited tip. Fraudsters can use websites that are design to fool you into thinking they are real company.

In many cases, fake investing websites could be used as part of a crypto scam, or a long-haul scam known as pig butchering. The fraudster may first work to gain your trust, and then send you to a website that looks like an investing platform but is actually fake.

Some ways you can check a website are:

• Search online and double-check the address for odd letters or extra hyphens
• Spell check the website for errors
• Compare graphics quality and company logos
• Watch out for unusual payment methods like offshore wire transfers or cryptocurrency

Be cautious of unsolicited investing tips, especially if they’re from someone you don’t know very well.

As fraudsters increasingly adopt artificial intelligence (AI) as part of their scam tactics, fake websites are becoming more sophisticated and be harder to spot. Be on alert for the signs of investment fraud.  If you are promised high returns with little or no risk, you feel pressured to buy, and you can’t tell if they’re registered to sell investments, it may be a scam.

8. Use SEDAR+ to look up disclosure documents

Public companies and investment funds in Canada must file disclosure documents with SEDAR+ (the System for Electronic Document Analysis and Retrieval). Disclosure documents report on companies’ activities and financial status, and whether actions like a cease trading order have been taken against a company. You can use SEDAR+ to look up a company or fund to learn more about the status of its operations.  

9. Check investor warnings and alerts

The Ontario Securities Commission and other regulators frequently issue investor warnings and alerts to help protect investors. Investor warnings caution the public about individuals or companies that may pose a risk to investors. Investor alerts report on potential harmful activity in progress, such as types of scams.

If you’re considering investing in a company, it’s a good idea to check if the OSC or other regulators have issued an investor warning about them. This could help you avoid investing your money with an unsafe company.

Stay up to date on the latest investor warnings and alerts from these organizations:

Ontario Securities Commission (OSC)

Canadian Securities Administrators (CSA)

Canadian Investment Regulatory Organization (CIRO)

International Organization of Securities Commissions (IOSCO)

What are other ways to be an informed investor?

It’s just as important to know what your own investing personality is like, as it is to research your investments. This includes figuring out things like:

• Your investing goals, and how much time you have to reach them.
• Your risk profile, including how much risk you can handle personally and tolerate financially.
• What kind of behavioural biases you might be prone to, such as overconfidence or herd behaviour.

Learning more about investing takes time, so try setting aside some time each month or week to practice some of these tips.

What is a crypto asset?

A crypto asset is an umbrella term for digital assets that use cryptography (the writing or solving of codes), peer-to-peer networks, and distributed ledger technology (such as blockchain) to create, verify and secure transactions. They are transferred, stored and traded electronically.

Crypto asset prices can be very volatile. This means they can increase or decrease in value by large or small amounts, throughout the day and night. You risk losing some or all of your money. Check your risk tolerance before committing to any investment. Learn more about the risks of investing in crypto.

Crypto assets can have multiple features and uses. They cannot be easily divided into mutually exclusive classes/categories. Crypto assets can include:

• value-referenced crypto assets
• non-fungible tokens (NFTs)
• utility tokens
• governance tokens

Importantly, any type of crypto asset may be considered a security depending on its features and the circumstances surrounding its issuance and trading.

Value-referenced crypto assets are designed to maintain a stable value over time by referencing the value of another asset or assets, such as a fiat currency, commodity, or another crypto asset. You may have heard the term “stablecoin”.  The term can be misleading since “stable” does not adequately reflect how volatile these crypto assets can be. There have been many instances where the value of so-called “stablecoins” was extremely volatile and where their value was significantly reduced. As the term “stablecoin” may be misleading, the OSC generally refers to these types of assets as value-referenced crypto assets (VRCAs).

The most common VRCAs reference the value of a fiat currency and, in particular, the US dollar. However, VRCAs are subject to various risks and are not the same as fiat currency (e.g., Canadian or US dollars). Find out more about the unsteady truth about stable coins.

Non-fungible tokens (NFTs) record ownership of a unique tangible or intangible object — such as a song, digital image or video. “Non-fungible” means each token is unique and cannot be exchanged for another.

Utility tokens use a distributed ledger or blockchain platform to provide access rights or the ability to purchase a specific product or service. The provider of the product or service typically issues the tokens, which can only be used within the issuer’s network.

Governance tokens can grant voting and management power to holders of such tokens on a specific blockchain network. This can include the ability to vote on proposals raised by the blockchain community on changes to be added to the specific blockchain protocol.

There has been a significant rise in crypto-related scams. Find out more about the red flags of crypto fraud.

Why do people buy or invest in crypto assets?

There are various reasons why investors may decide to buy or invest in crypto assets. According to a 2023 OSC survey, people hold crypto assets as a speculative investment/gamble, as a long-term investment given their belief in crypto assets and the technology, to diversify their portfolio or as an alternative asset class, or to use it to digitally transfer money. Or investors may be drawn by the potential for high returns and hoping to capitalize on price volatility. Others responded that they may invest due to a fear of missing out (FOMO) when they hear others talking about the gains they made in crypto or given a belief it may be a hedge against inflation.

Some crypto assets may also serve a functional purpose, such as tokens that grant access to blockchain-based video games, or value-referenced crypto assets that are used to make purchases of other crypto assets or pay for services. However, currently, most crypto assets are not routinely used for purchasing or trading goods or services. Unlike traditional currencies such as the Canadian or U.S. dollar, crypto assets are not issued or backed by a government or a central bank.

The relative anonymity of crypto transactions, particularly on unregulated platforms, has also made these assets attractive to money launderers and illicit actors. These motivations, coupled with significant risks — such as total loss, fraud, and inadvertently enabling illicit activity — underscore the need for careful consideration before investing.

Where can you buy or sell crypto assets?

There are different ways to buy and sell crypto assets. You could trade directly on the blockchain or through another party such as a registered crypto asset trading platform. You could also invest in an investment fund that holds crypto assets through an investment dealer.

• Blockchain – The digital ledger system behind most crypto assets. It tracks and validates transactions through a decentralized network. Unlike a centralized system like a bank account, blockchain is distributed and maintained at multiple points through a network of computers.
  A blockchain tracks the movement of a crypto asset from address to address. Think of it as a digital accounting journal that is replicated across multiple computers rather than stored in a single place. Blockchain transactions are viewable by the public using a blockchain explorer service. It shows all the details of transactions on a blockchain network.
  
• Crypto asset trading platform – An online trading service that allows investors to buy and sell crypto assets. It’s sometimes referred to as crypto exchange. When you buy crypto assets on a registered platform, the platform can hold your interest in the crypto assets in a crypto wallet and with a third-party custodian. Learn more about crypto asset trading platforms.

• Investment fund – There are regulated investment funds that have investment objectives to hold crypto assets. They can be purchased by retail investors in the same manner as investment funds holding more typical assets such as equities.

What is a public key and private key?

Every address on a blockchain has a public key and private key, which are comprised of a string of letters and numbers. Public and private key pairs allow you to send and receive crypto assets directly on the blockchain:

• Public key – Used to receive crypto assets from other people and identify your account on the blockchain. Like your email address, your public key can be shared.
• Private key – Used to access your account and send crypto assets to other people. The private key must be kept secret in a secure place. Similar to your email password, a private key is not meant to be shared. If it gets lost or stolen, you can’t regain access to the crypto assets in your digital wallet. Anyone who knows the private key associated with your crypto assets can access and trade them on the blockchain.

Digital wallets are technologies that hold the keys associated with your crypto assets on the blockchain. Your digital wallet comes with an assigned public key and a private key. Digital wallets can be hot or cold. A hot wallet connects to the internet. A cold wallet stays offline.

Depending on how you bought the crypto assets, you may choose to withdraw your crypto assets and keep them on your private wallet directly. Otherwise, the crypto trading platform generally holds the crypto assets on your behalf in a crypto wallet that is controlled by the platform, as well as through a third-party service known as a custodian.

If the crypto trading platform as well as a third-party custodian hold clients’ crypto assets, you’ll need to rely on the crypto asset trading platform, or any custodian it works with, to keep the crypto assets safe.

A contractual agreement with a crypto trading platform can include terms that specify who has ownership of the crypto assets and who has possession of them. It’s important to review the client relationship disclosure documentation (or other agreements) to see the legal terms and conditions of your contractual relationship with any platform.

There are several crypto asset trading platforms that have taken steps to be registered in Canada. These platforms are subject to regulatory requirements that helps protect investors. If you are considering investing in crypto assets, always work with a registered crypto asset trading platform. And ask yourself how much reliance you can place on a client relationship disclosure document or agreement with a platform that is not registered and may be in another country. Importantly, all crypto assets carry risk, even if they are available on a registered crypto trading platform. Also, always check the registration of any person or company trying to sell you an investment or give you investing advice.

Try the Crypto Quiz to test your crypto knowledge.

What are the risks of investing in crypto assets?

All investments carry risk. Investments that are potentially high reward are also often high-risk. Riskier products, like crypto assets, may have the possibility of higher returns, but there’s also a chance you could lose everything. Returns are not guaranteed. 

Before you buy any investment, it’s important to know your risk tolerance. Risk tolerance is both your ability and willingness to accept an investment outcome, even if it doesn’t produce the expected results. Make sure the amount you invest matches your investing risk tolerance and investing goals.

The risks of investing in crypto assets include:

• High volatility – Crypto asset prices can be very volatile. This means they can increase or decrease in value by large or small amounts, multiple times throughout the day. You risk losing some or all of your money. It is not always clear what causes the value of crypto assets to go up or down.
• Unregistered entities – Some crypto asset trading platforms (CTPs) are not registered and are operating illegally. When you give money to an unregistered CTP you could be giving your money to a fraudulent CTP and in that case, there is typically no way for anyone to get it back. Registered firms are subject to regulatory requirements that aim to protect investors. If you have decided to invest in crypto assets, always use a registered crypto asset trading platform. View the list of crypto asset trading platforms that are registered in Ontario. However, trading on a registered CTP still involves buying and selling risky crypto assets where you could lose some or all of your money.
• Terms and conditions – Carefully review the terms and conditions associated with any crypto asset trading platform or other party that you use to purchase or sell crypto assets.
• Misleading online reviews – What you see online might be written by employees or other people paid by a service provider. Also, information could be outdated or inaccurate by the time you see it.
• Risk of fraud – Some fraudsters capitalize on market interest in crypto assets by creating new scams or rebranding existing scams (such as Ponzi schemes) with crypto language. They are looking for people who are seeking opportunities to get in “on the ground floor” with crypto assets. Learn to spot and avoid fraud.
• Lack of coverage by the Canadian Investor Protection Fund (CIPF) – The eligibility criteria for CIPF protection for securities held in an account with an investment dealer explicitly excludes crypto assets.

There are additional risks for crypto investors, including:

• Losing your private key – If you are directly holding your crypto and you lose your private key, the asset will simply become inaccessible.
• Having your private key stolen – A private key written on a piece of paper or stored in the USB can be stolen physically. And a private key held in a software wallet could be lost/hacked depending on the integrity of the software solution.

There are risks of having your crypto held by the platform. Find out more about how crypto asset trading platforms work.

Crypto assets are generally considered high risk. Purchasing crypto assets is generally a speculative activity as their value and/or liquidity are highly volatile. You can get exposure to crypto assets through an investment fund rather than investing directly. The elevated risk of crypto remains even if purchased as crypto investment funds through a registered dealer or adviser. Find out more about crypto assets and how they work.

What kind of frauds can involve crypto?

Scammers use many different tactics to try to get your money. Watch out for fraudulent crypto asset trading platforms. It can be difficult to tell the difference between the legitimate crypto asset trading platform and a fraudulent cloned one. The fake sites’ polished look may lure you into sharing personal information, financial information, and crypto wallet passwords that end up in the scammer’s hands.

Crypto is being used in conjunction with many types of investment frauds, including:

• Romance scams – Many scammers work to gain the trust of their victims by initiating contact online. This can take the form of a romance scam. That’s when a fraudster starts a romantic relationship online, perhaps through a dating app or social media. The scammer then escalates to asking for money, often in the form of crypto.
• Long-haul scams – A long-haul scam (sometimes called a pig-butchering scam) starts when the scammer sends a text message or direct message that seems to be accidental. It may look like a message meant for someone else. In reality, the scammer is hoping you will let your guard down and respond. The scammer keeps up conversation with you, and once they have your trust they may ask for money or encourage you to invest in a specific crypto asset trading platform.  
• Grandparent scams (or emergency scam) – The scammer targets a senior and pretends to be their grandchild. Or, they target someone and pretend to be a family member or close friend who needs urgent help. The fraudster pressures the victim by saying they need money right away to get out of a sudden emergency. They may ask for crypto.

The rise of generative AI technology has led to AI voice and face cloning scams becoming more prominent. A common AI scam is when the scammer uses AI to mimic the voice of someone you know or trust. This could be a loved one, who phones you urgently to ask for money or crypto assets. Or you could think you are being contacted by a celebrity encouraging you to invest in crypto. OSC research found AI-enhanced scams pose significantly more risk to investors compared to conventional scams. Find out more about these scams and how to keep your money safe.

Consider these tactics to avoid crypto-related scams:

• Be skeptical about unsolicited calls, text messages, emails, or messages on social media, especially from someone you don’t know. Don’t send personal information.
• Be suspicious of anyone asking you to send money, crypto assets, or encouraging you to invest, especially when you haven’t met them before in person.
• Slow down the conversation. If it seems like someone you know is in trouble, take steps to verify this yourself. Hang up the call and contact them using a number you know is theirs.
• If an investment opportunity seems too good to be true, it probably is. Always check before you invest.

In most cases, when people have had their money taken by a fraudster it’s gone for good. Their money cannot be retrieved. If someone connects with you later promising to help you get your money back, it could be a recovery room scam.

It’s very difficult to get crypto assets back once they have been transferred to another blockchain address outside of your control. Complicating factors include how challenging it is to identify the person(s) in control of blockchain addresses and the use of tools that make tracing the transfer of crypto assets difficult.

Protect yourself by learning about the red flags of crypto fraud. If you think you have been scammed, or have been targeted by a scam, you can contact the OSC using an online form, or call 1-877-785-1555 or email inquiries@osc.gov.on.ca.

How does using a registered crypto asset trading platform help protect you?

Registered crypto asset trading platforms are required to provide disclosure and information to assist you with managing your risks when trading crypto assets on their platform. These can include the following:

• Providing disclosure and information on the overall risks of trading crypto assets.
• Determining if it is appropriate for you to trade crypto assets prior to onboarding you onto their platform. In many Canadian jurisdictions, including Ontario, , there is an overall limit on how much you can invest in most crypto assets on a platform.
• Evaluating crypto assets available to be offered on their platform.
• Providing crypto asset-specific disclosure and information.

If you are investing  through a registered dealer or advisor in an investment fund that invests in crypto assets, they will  also provide you with disclosure about the investment fund (prospectus, including an ETF Facts or Funds Facts) and will assess the suitability of the fund for you.

What is a crypto asset trading platform?

A crypto asset trading platform (CTP) allows you to buy, hold, sell, stake, deposit and withdraw crypto assets through a website or a mobile application.

Trading crypto assets on a trading platform is akin to do-it-yourself investing and requires time, knowledge, skill and research. Another way to invest in crypto assets would be to get advice from a person who is registered to provide recommendations. They would assess whether investing in crypto assets or other options for investing in crypto, such as investing in an exchange-traded investment fund that holds crypto assets, would be suitable for you.

What does checking the registration of a crypto asset trading platform mean?

In Canada, crypto asset trading platforms must be registered. This includes platforms that provide custody of crypto assets (i.e., they do not immediately deliver the crypto assets to a wallet solely controlled by you) or trade in crypto assets that are themselves securities. These platforms are subject to regulatory requirements that help protect investors.

There are several crypto asset trading platforms that have taken steps to be registered in Canada. Checking registration status, before you start trading, will help you ensure the platform you’re about to open an account with is regulated, is not operating illegally and is not a fraudulent platform.

To check if a platform is registered, visit the Ontario Securities Commission’s list of registered crypto asset trading platforms. You can also search for the platform’s name in the National Registration Search.

Crypto assets are generally high risk, even if they are available on a registered crypto asset trading platform. The level of risk is elevated if you use a crypto asset trading platform that is not registered. In fact, the OSC has taken enforcement action against several unregistered crypto asset trading platforms.

 Remember to check if the platform has been sanctioned by a member of the Canadian Securities Administrators on the Disciplined List. And avoid platforms banned by the CSA. You can also check if a platform you may be considering has any investor warnings and alerts issued against it.

In general, anyone selling securities or offering investment advice must be registered with their provincial securities regulator. Visit CheckBeforeYouInvest.ca to learn more.

The Canadian Securities Administrators has more information on Crypto Trading Platforms: Regulation and Enforcement Actions.

The risk of using a crypto asset trading platform that is not registered includes it being part of a crypto scam or involved in fraud. In some cases, fake investing websites could be used as part of a crypto scam or a pig butchering scam. Sometimes fake websites pretend to be the website of a registered crypto asset trading platform. Essential safeguards that help protect investors’ assets from loss, theft or misuse may not be in place if the crypto asset trading platform is not registered. Find out more about the risks of investing in crypto and the red flags of crypto fraud. 

What fees do crypto asset trading platforms charge?

Crypto asset trading platforms charge various fees for their services. They may charge one or more of the following:

• Trading fees: Costs associated with buying and selling crypto assets. Trading fees are sometimes embedded in the pricing of the crypto assets offered (which can include “spreads” and costs set by the crypto asset trading platform).
• Staking fees: Charges for participating in staking activities which are usually applied on the rewards earned from staking.
• Custody fees: Indirectly charged fees for holding and securing your crypto assets.
• Withdrawal/deposit fees: Fees associated with depositing or withdrawing assets. In addition to any withdrawal/deposit fees charged by the crypto asset trading platform, there are blockchain network fees that are charged when crypto assets are transferred to different wallets, including to and from the platform’s custody wallet. 

Why do trading platforms ask you for your personal financial information?

Crypto asset trading platforms are legally required to ask you for information about your financial circumstances, risk tolerance and trading experience. They have a regulatory obligation to understand your situation to assess the appropriateness of opening a crypto account and setting client loss limits that are tailored to your specific circumstances and to comply with anti-money laundering legislative requirements. 

It is important that you provide accurate information and keep it up to date. Crypto asset trading platforms have a legal obligation to keep this information private and confidential. 

If you are not asked for your personal information (including financial circumstances, risk tolerance and trading experience) it may be a red flag that the trading platform is not legitimate, or it is not meeting its regulatory obligations. You should also consider reporting the platform to the securities regulator in the province where you live and/or where the business is located.

Find out more about how crypto assets are regulated.

Is there a cap on how much you can invest?

Crypto asset trading platforms that are registered in Canada are required to establish client limits and, in some provinces and territories, investment limits.

• Client limits – In all Canadian provinces and territories, crypto asset trading platforms are required to establish and apply client loss limits. These limits are meant to reflect your ability to tolerate losses and ensure the platforms protect you from taking on excessive risk, which is assessed considering your individual circumstances.  
  Additionally, registered crypto asset trading platforms are required to monitor your losses on their platform and provide warnings and/or educational materials when your losses approach or reach your assessed client loss limit. This is to help ensure you are aware of your current loss position and help you better manage your crypto investments on a crypto asset trading platform.
  
• Investment limits –In Ontario and many other Canadian jurisdictions there is an overall limit on how much you can invest in most crypto assets on a platform. These caps are called investment limits. 
  The investment limit is $30,000 which applies to most crypto assets available on a platform. Crypto asset trading platforms are required to ensure these limits are not exceeded when you invest on their platform if you are a resident of a Canadian jurisdiction where the limit applies.                                            

What do you do if you have a complaint or are having trouble withdrawing funds?

If you have a complaint or are experiencing trouble withdrawing funds, follow complaint handling procedures provided to you by the crypto asset trading platform. You can contact the platform for information on filing a complaint. Clients of a crypto asset trading platform that is a CIRO member can access information from CIRO on how to make a complaint.

If you are dissatisfied with the outcome of your complaint to the crypto asset trading platform, you can contact the Ombudsman for Banking Services and Investments for assistance.

You can also file a complaint with the OSC, including where you have concerns with the crypto asset trading platform or think you have been scammed. You can contact the OSC using an online form, or call 1-877-785-1555 or email inquiries@osc.gov.on.ca.

Crypto assets are generally considered high risk. Purchasing crypto assets is generally a speculative activity and their value and liquidity are highly volatile. Find out more about crypto assets and how they work.

What happens to your assets if your crypto asset trading platform goes insolvent?

The Canadian Investor Protection Fund (CIPF) coverage for securities held in an account with an investment dealer upon a member firm’s insolvency explicitly excludes crypto assets.

CIPF does not cover losses of crypto assets if a crypto asset trading platform goes insolvent.

If you lost assets, you’ll have to wait for insolvency proceeds to play out which may take years and may result in you not recovering anything or only a portion of your assets.

If you’re considering investing in crypto assets, you should beware of the risks. You could lose some or all of your money.

Crypto assets are explicitly excluded from Canadian Investor Protection Fund (CIPF) coverage.

What should you expect from a crypto asset trading platform?

Before you buy any crypto asset, check whether the crypto asset trading platform meets these criteria:

• The platform is registered –If you are considering investing in crypto assets, always work with a registered crypto asset trading platform. These platforms must meet certain regulatory requirements that help protect investors.

• You’re asked client-oriented questions before opening an account – Before allowing you to open an account, the trading platform must comply with applicable Know your Client requirements under securities law. They also must satisfy anti-money laundering regulations and FINTRAC guidelines and requirements. The crypto asset trading platform also must determine if it’s appropriate for you to have a crypto account, taking into account:
  • Your experience and knowledge in investing in crypto assets.
  • Your financial circumstances.
  • Your risk tolerance.
  • The crypto assets made available to you.

• You’re provided information about the crypto assets – You get a description of the crypto assets, the location and way the crypto assets are held on your behalf. You are also told how the crypto assets are accessed by the trading platform and the associated risks and benefits.

• You can find out how crypto assets are priced – Prices for crypto assets can vary across different platform. Factors like the platform’s trading volume, whether prices are based on internal order books or external market feeds, and any fees or spreads added by the platform can all influence the price you see. You should check the CTP’s website to find out how it determines the buy and sell amounts (known as the “bid” and “ask”). If that information isn’t clearly available, ask the CTP how it determines the prices it quotes when you request a trade.

• Your assets will be held by a licenced third-party custodian –Currently, a trading platform is not permitted to hold all its clients’ crypto assets in its own hot or cold wallets. Instead, the platform must use an acceptable third-party custodian that it has conducted appropriate due diligence on, and it must hold at least 80% of its clients’ crypto assets. The third-party custodian must be registered or licenced by the appropriate authorities in its home jurisdiction and have proper controls and processes in place.

How are crypto assets regulated?

Securities law requirements in Canada apply to crypto assets and crypto-related products and services that meet the definitions of “security” or “derivative”. Such products and services are regulated by provincial or territorial securities regulators.

Securities legislation may apply in different ways:

1. If the crypto asset itself is a security –Some crypto assets function like traditional securities (such as shares, bonds, evidences of indebtedness or investment contracts). If a crypto asset falls into this category, securities laws apply, including requirements for disclosure, and registration of the intermediary. Any person or company trying to sell you an investment or give you investing advice needs to be registered to do so.
2. If a crypto contract is created – Even if a crypto asset itself isn’t a security, the way it is bought, sold, or held can create a security. For example, this happens when a platform controls the asset on behalf of a user, meaning the investor doesn’t have direct possession or control over it. In these cases, securities regulators consider the arrangement to be a type of investment contract, which would be subject to securities laws.
3. Investment funds holding crypto assets – Securities laws also apply to investment funds that hold crypto assets. If a mutual fund, exchange-traded fund (ETF), or other pooled investment vehicle includes crypto assets, it is generally subject to the same rules that apply to traditional investment funds. These rules ensure that investors receive clear information about the fund’s holdings, risks, and costs and that fund managers operate within a regulated framework.

Canadian securities regulators have issued guidance on some of the types of crypto asset products and services that may be subject to provincial and/or territorial securities laws. Guidance has also been provided on the requirement to be registered under securities laws for entities that offer crypto assets and crypto-related products. Registered firms are subject to regulatory requirements that aim to protect investors.

What are the rules for crypto asset trading platforms?

Crypto asset trading platforms (CTP) allow investors to buy, hold, sell, stake, deposit and withdraw crypto assets. CTPs operating in Ontario must be registered under Ontario securities law. These platforms are subject to regulatory requirements that help protect investors.

If you are considering investing in crypto assets, always work with a registered crypto asset trading platform.

All crypto assets are generally high risk, even if they are available on a registered crypto trading platform. The level of risk is elevated if you use a crypto asset trading platform that is not registered and likely operating illegally. In fact, the OSC has launched enforcement actions against several unregistered crypto asset trading platforms.

You can check if a platform you may be considering has any investor warnings and alerts issued against it. Also, you can check if the crypto asset trading platform has been sanctioned by a member of the Canadian Securities Administrators (CSA) on the Disciplined List. And avoid platforms banned by the CSA. And always work with registered crypto asset trading platform. If you decide to invest in crypto assets through an investment fund that holds crypto assets, check the registration of any person or company trying to sell you the investment or give you investing advice. If they are not registered, the investment may be a scam or fraud.

Crypto assets are generally considered high risk. Purchasing crypto assets is generally a speculative activity and their value and liquidity are highly volatile. Find out more about risks of investing in crypto assets.

What happens to your assets if your crypto asset trading platform goes insolvent?

The Canadian Investor Protection Fund (CIPF) coverage for securities held in an account with an investment dealer upon a member firm’s insolvency explicitly excludes crypto assets.

CIPF does not cover crypto assets held by a member firm on your behalf that are missing at the time of the member firm’s insolvency. If you lost assets, you’ll have to wait for insolvency proceeds to play out which may take years and may result in you not recovering anything or only a portion of your assets.

If you’re considering investing in crypto assets, you should beware of the risks. You could lose some or all of your money.

Canadian Investor Protection Fund coverage explicitly excludes crypto assets.

Who should you contact if you have a question or concern about a CTP?

If you have a concern about a crypto asset trading platform, you may want to contact the securities regulator where you live or where the platform is headquartered. In Ontario, you could contact the Ontario Securities Commission (OSC). You could also contact Canadian Investment Regulatory Organization (CIRO), if the platform is registered as a dealer member.

Canadians considering buying or selling crypto assets in Canada, should use platforms registered with Canadian securities regulators. Some of the registered crypto asset trading platforms are members of CIRO.

How OSC resources can help

If you’re thinking about investing in crypto assets, you can consult the OSC’s website for helpful information, including:

• Finding out if a crypto asset trading platform is registered in Ontario. Only consider investing with a registered platform.
• Determining if the crypto asset trading platform has any investor alerts or warnings issued against it. You can also checking if the platform has been sanctioned by a member of the Canadian Securities Administrators (CSA) on the Disciplined List. And avoid platforms banned by the CSA.
• Checking the registration of any person or firm trying to sell you an investment fund that holds crypto assets.

If you have any questions about crypto assets or you want to report suspected fraud or other possible misconduct, you can reach the OSC Inquiries and Contact Centre using an online form, or call 1-877-785-1555 or email: inquiries@osc.gov.on.ca

For general tax information for the most common tax issues related to crypto assets, visit the Canada Revenue Agency.

What is an investment policy statement?

An investment policy statement outlines the rules you want to follow for your portfolio. These rules can help you avoid making decisions based on your emotions — in good or bad times.

An investment policy statement can be a useful tool for working with a financial advisor (or switching to a new advisor). It contains information that will help your advisor manage your portfolio. It provides a guide when they’re making investment decisions with you or on your behalf.

An investment policy statement starts with your needs and objectives as an investor. Many of these things your advisor will likely discuss with you at your first meeting. Knowing your investing goals and your risk tolerance will help inform your advisor’s advice. This information provides a clear sense of what you want to accomplish with your investments. It also gives you guidelines to avoid making investing decisions based on short-term emotions, like following the crowd.

If you are a DIY investor, an investment policy statement can also be very useful. It can help you clarify your investing goals and the types of investing decisions that would, or would not, be the right fit for you. You can also use the statement when reviewing your portfolio performance, to gauge how well it is doing compared to your goals.

An investment policy statement is not the same thing as a financial plan. However, if you don’t have a financial plan yet, making an investment policy statement could be a step toward creating one.

What kind of information should you include on your investment policy statement?

Your investment policy statement doesn’t need to include the same information as your financial plan, however, there can be overlap. It can also include your answers to the know your client information your advisor is required to ask you to confirm your identity and to give them a good understanding of your investment style and needs.

Your investor policy should include:

1. What you’re investing for, and when. These are the goals you want to reach, such as retirement, education savings, or other reasons. If you know how much money you need to reach those goals, that’s even better. Your advisor may also be able to help with this kind of financial planning — but it’s important that the goals come from you. You should also decide when you want to reach these goals, so that you’ll have a clear time horizon for your investments.

2. Your investing experience. This includes information about your current investing accounts, how much you already have invested, and how long you’ve been investing. You can also include your level of investing knowledge and how comfortable you are reading documents such as account statements and disclosure documents.

3. How much risk you’re comfortable with. Your rate of return will depend on many factors, including your risk profile. It’s made up of two considerations:
i. Risk tolerance – How much risk you are willing to handle.
ii. Risk capacity – How much risk you can endure financially.
If your risk tolerance is very low, you may also earn lower rate of returns than what you need to reach your goals. If your risk tolerance is very high, you may earn higher returns, but there is a greater likelihood that you will lose some of all of your money. Your risk profile will also affect the asset mix of your portfolio. For example, a conservative investor might hold a higher percentage of their portfolio in fixed-income securities than an investor with a moderate risk level.

3. Your investing strategy. This is related to your investing goals and time horizon. Your strategy also includes the type of asset mix that you prefer, and any investment selection concerns such as ESG investing or a particular industry you want to invest in — or not invest in.

4. How often you want to monitor your investments’ performance. It’s a good idea to meet with your advisor at least once a year, to review how your portfolio is doing. However, depending on your current goals, you may want to meet more frequently. If you don’t have an advisor, set aside time during the year to review your progress.

5. What your current financial picture looks like. Your financial picture includes how much you earn and owe, what assets you own, and how much you already have saved or invested. If you have debt you are repaying, this can affect how much you have available to save or invest over the course of a year.

If you don’t have answers to all these areas right now, start with the ones you do know. The others may be good opportunities to learn more about either before you meet with an advisor, or before you start investing.

Try our investment policy statement worksheet to help you prepare for a meeting with your advisor.

How can you decide your investing strategy?

Your investing strategy is influenced by many factors. Your strategy be a key part of your investment policy statement and your relationship with your financial advisor. If you are not working with an advisor, it’s just as important to define your investing strategy to help guide your decisions. Consider the following components of building your investing strategy:

• Your time horizon for each of your financial goals – Each of your investing goals should have a specific time horizon attached to it, so that you’ll know when you’ll need the money. This also affects steps like how much you should invest each year, and the rate of return you should expect to earn on your investments to meet your goals. You may have a different level of risk associated with different goals, depending on the time horizon. For example, you might apply more conservative strategies with goals that you want to reach within a few years, to avoid the risk of loss.

• Whether you’re investing for growth or income – This decision will be related to your individual investing goals. For example, if your goal is to accumulate a certain amount of money in order to retire, you may need to apply a growth-oriented strategy. There are different ways of doing this, such as a ‘bottom-up’ approach that evaluates companies to invest in based on different metrics. Alternatively, a ‘top-down’ approach considers macro-level economic factors that can affect stock prices in different industries. And income-oriented investing strategies are most concerned with investments that pay regular interest or dividends. Learn more about investing for growth, income, or both.

• How your values may influence your investing preferences – If you have concerns about aligning your investments with certain environmental, social, and governance priorities, then ESG investing may be for you. Consider whether there are certain types of investments or companies you would like to prioritize, or whether there are others you’d like to avoid. For example, an investor with environmental concerns may seek to avoid investing in companies related to fossil fuel production. Learn more about ESG investing strategies.

• Your preferred asset allocation mix – Your asset mix is about how you want to divide your portfolio across different asset classes. The three main types of assets are equities (stocks or shares), cash and cash equivalents (such as GICs), and fixed-income securities (such as bonds). You may also want to include alternative types of investments such as real estate. How you allocate your asset mix will depend on how much risk you’re willing to take on, as well as your time horizon. For example, a fairly risk tolerant investor with a longer time horizon may be willing to allocate more of their portfolio towards equities, and less towards cash equivalents or fixed-income securities. You can also consider how you want to divide your portfolio between different markets (Canadian, U.S., international, or emerging markets).

• How you would manage a loss – Knowing how you would react to a loss in value in your investments, or a drop in the market in general, is extremely valuable for your advisor to know. And if you are investing on your own, it’s good to prepare yourself for the days when the markets decline. It may depend on the goal you are investing for and how soon you will need the money. During any period of market change, you have the choice to either buy (or buy more), sell at the current price, or do nothing. It’s worth considering if you have a tendency towards loss aversion, as this can lead you to respond emotionally during times of market change.

Your investment policy statement can also be part of your annual portfolio review. You can review it when checking in with your advisor, and with yourself, on how your investing strategy or goals have changed over the previous year. There may also have been changes in the market or in your personal life that affect how you want to invest.

What’s your investing personality?

Take this quiz to learn about how behavioural insights might help explain your investment decisions.