Before getting into which of the products are suitable for you, there are some aspects that need to be considered so that you understand what the variations are among the products.

Active investing is when someone (a portfolio manager) picks the stocks that are in the fund and decides how much of each one to hold (the weighting). This portfolio manager would also monitor the portfolio and decide when a security should be sold off, added to or have its weighting decreased. Since there is ongoing research, meetings and analysis that must be done to build and monitor this portfolio, this fund manager would have research analysts and administrative personnel to help run the fund.

Passive investing has the same setup as active investing, but rather than someone deciding what securities to buy or how much of each one to buy, the portfolio manager would copy a benchmark. A benchmark is a collection of securities which the fund is compared against to see how well it is doing. Since everything in investing is about how much money you can make and how much risk it takes to make that money, every fund out there is trying to compare to all of the other funds of the same type to see who can make the most money. The basis for the comparisons is the benchmark, which can also become comparing between peers or funds managed the same way. Comparisons are general in done only for returns. The risk aspect of the equation is handled by looking at what type of securities the fund holds or how specialized the fund is.

The short answer is that you have to get to know how the fund manager operates the fund. Some clues to know more quickly if the fund is active or passive are given next. If they are intentionally trying to pick securities according to some beliefs that they have about the market, this is active management. If the fund description talks about “beating the benchmark” or “manager skill” then it is actively managed. Looking at the return history, if the returns vary versus the index by different amounts each year, then the fund is actively managed. Lastly, the fees may be expensive and have sales loads.

If the name of the fund says “Index” or “Index fund” there is a good chance that the fund is passively managed. If the name of the fund says “ETF” or “Exchange Traded Fund” this could be a passive fund, but you need to make sure of this because some ETFs are actually active funds, but they are managed in a certain way. Most of the passively managed ETFs are provided by BMO, iShares, Claymore, Vanguard and Horizons in Canada and Powershares, Vanguard and SPDR (or Standard and Poors) and others if the holdings are from the U.S. Most of the other companies would have actively managed funds only. If the fund description states that the fund is trying to “imitate” the performance of an index or benchmark, then this implies that it is copying the index and this is passively managed. From the return perspective, passively managed funds will be very close to the index that they claim to imitate, but slightly less due to fees each year. The amount that the returns are under the index will be close to identical each year unless there are currency conversions or variances in cost which may come from currency fluctuations or hedging that the fund may do. Passive funds typically do not have sales loads as they are geared toward people who invest for themselves.

Once upon a time, people saved for things before they were able to buy them. However, we have gradually drifted from being savers to spenders and being in debt, due to the easy availability of credit. For many people, their expenditure is more than their earnings, which means they are using credit to purchase things. Put another way, they are using tomorrow’s income to fund today’s consumption.

But another and better way is to live within your means and save for the things you want, particularly consumable items. While interest rates are low it may seem like a good idea to buy what you want now and pay for it later. Unfortunately, with the possible exception of housing, most items purchased are what’s known as depreciating items or assets, where the value of the good decreases over time. If this item has been purchased on credit, it is most likely that by the time the item has been paid off, the value of the good is far less than when it was purchased.

In addition, there has usually been interest charges applied to the loan, which means the actual cost of the item ends up being far more than the initial purchase price. Wouldn’t it be better to save the cash for the item, save on the interest expense and be in a better negotiating position to obtain a discount because you’ll be paying in cash?

The easiest way to start saving is to have this happen automatically without much or any effort required. This can be done by establishing a special savings account, preferably one that you can’t access easily or penalizes you, for example with lower interest rates, for withdrawals.

Then set up an automatic transfer to move a set amount from your regular account into this new savings account. Or you might be able to speak with your payroll department about having your salary paid into two accounts, your regular and your savings account.

How much should you put into your savings account? It’s completely up to you! A good rule of thumb is 10% of your income, but you can change this figure to suit you. Ten percent might be a bit much to begin with, especially if you do have outstanding debt. Start with whatever you can comfortably afford to begin with. This percentage can always be increased over time.

Be aware of all facets of your income which can include overtime, commissions, bonuses, tax returns, cash gifts, sales of assets and myriad other things. If your automatic transfer only transfers a set amount of your fixed base salary every pay cycle, you might need to manually transfer your percentage amount to your savings account on any additional income.

Use the miracle of compound interest. It is said that Albert Einstein referred to it as the eighth wonder of the world. This is when you start earning interest on your previously earned interest, although its most dramatic effect is after a longer period of saving.

Eventually you might think about setting up a number of savings accounts such as a consumable items savings account (there’s that TV, car and holiday we were talking about) and what you might want to call your “wealth account”. This is your investing account and from where you purchase income producing assets.

How much you earn has no bearing on your ability to save. It’s not about how much you earn, it’s what you do with what you earn that’s important. The point is, it doesn’t matter how much you save or when you start saving, what matters is that you start.

Growing up I think it’s safe to say that, we all learned how to earn money. Go to school, do well then get a good job. A good job with benefits that pay well and has security. Then there are jobs that aren’t secure and most times don’t require good education. They are the jobs that are based on commission. For many people, it’s a bad word that they run away from but for the ones that work at it, it pays well. Dividends. Whichever way you choose to earn money, your goal should be to earn as much as possible when you’re young. Earning money is simpler than making money but the result is the same, you would have obtained money that needs to be managed. The choice to make money instead of earning money will most times depend on how you were raised. Employees earn money and the self-employed or business owner make money. Either way we choose to get money, we are all subject to laws that regulate the various methods. If you are an employee then your concern should be the Employment Standards Act, which protects the rights of employees. The ESA sets out the minimum you should be paid, how you should be treated and a few benefits that you are entitled to such as vacation pay and holiday pay. If you’re self-employed or own a business then Income Tax Act and various Municipal By-laws should be of more concern for you.

Managing money, not a lot of us were taught this or it wasn’t emphasized. Managing your money is all about budgeting it. Simple, yes but a difficult habit for many to adapt. Most people just think of their bills when they get paid. Now the tools for creating a budget can be as simple as a piece of paper and a pen or a software like excel or even more advance Microsoft Money. Whichever you choose it is important that you make it a habit. Don’t worry too much about staying on track because that comes with time. Just start. When you start try to create budgets that are one to two months ahead only till you get better at staying on track. If you are not paying your bill on time you may end up in collection where a collection agency starts calling you to get you to pay your debts. In this case you would be affected by Consumer Protection Act and the Collection Agency Act. “The average Canadian’s consumer debt load hit $27,485 at the end of 2012, a six per cent increase over the previous year’s level and the first time the figure has been above $27,000.”, according to http://www.cbc.ca. This amount doesn’t include mortgage debt but things like credit cards, car loans and lines of credit. Here is a tip about dealing with collection agencies, you can request that they only contact you by mail and not call you anymore. If they don’t comply with your request then you can report them to Consumer Affairs which would issue them a fine. Individuals whose income and other assets are not sufficient to pay their financial obligations as they come due are insolvent. At this point you might have to declare bankruptcy. In which case, you would be affected by the Bankruptcy and Insolvency Act. This act performs 3 functions: protect creditors, give debtors a clean slate and help debtors and creditors compromise. So it is important that you manage your money well.

Now if you can do a decent or great job at the former two then you have some money to invest. Now you’re ready to have money work for you instead of you working for money. At this point I suggest you speak to a financial professional. Make sure they are qualified. It’s best to talk to your bank. Make your banker your friend. Have a regular dialogue with an account manager at your bank. Do your own research on investments but keep it simple. If the book starts out with formulas then put it down and look for another book. There are 4 basic things you should know about investing. One, start now. Long-term compounding is one of the most powerful tools available to investors. With compounding, your savings generate earnings, which are then reinvested to generate their own earnings. It’s never too late to start, but the sooner you begin, the better. Two, don’t avoid risk; manage it. A well-balanced portfolio divided among asset classes such as stocks, bonds and cash equivalents may help you manage risk and reduce the ups and downs of the market. This is where your banker plays a big part when you’re starting. Three, maintain a long-term outlook. Investing is not a sprint, it’s a marathon. Four, Avoid or postpone taxes when possible. This means deposit heavily into your RRSP then into your TSFA then if you got any left over to invest talk to your banker. The Securities Act protects investors from unscrupulous investment professionals and other investors.