Bonds
Bonds are a way of lending your money in return for a certain rate of interest. Bonds can be issued by companies or the government (the issuer), for a set period of time (the term). The term can be anywhere from less than one year to as long as 30 years.
On the date the bond becomes due (the maturity date), the issuer is supposed to pay back the face value of the bond in full.
You can make money on bonds by holding the bond until the maturity date and claiming the interest, or by selling a bond for more than you paid. You can lose money on bonds if you sell the bond for less than you paid.
Find out more about how bonds work, the types of bonds, and how to buy and sell bonds.
Stocks
Stocks are a type of security that give you part ownership in a company. They are also referred to as equities. When you buy stocks, you are buying a share of the company that issued them.
The majority of stocks are common stocks. Common stock offers the potential for growth through rising share prices and dividends. Common shareholders are generally entitled to dividend payments and voting rights at shareholder meetings. Preferred stock offers regular income through fixed dividends and potential for growth through rising share prices, but don’t normally come with voting rights.
You can make money on stocks by selling at a higher value than what you paid, or by receiving dividends paid by the company. You can lose money on stocks if you sell at a lower value than what you paid.
There are many factors that can affect stock prices. Learn more about where and how stocks are traded.
Bonds and stocks are both common types of investments — both have risk.
Mutual funds
A mutual fund is a collection of investments, such as stocks, bonds, or other funds, owned by a group of investors and managed by a professional money manager. The composition of the fund is guided by its investment objective. When you buy a mutual fund, you are pooling your money with other investors.
Most mutual funds are sold through financial advisors who are required to be registered with their provincial regulator (for example, the Ontario Securities Commission). Learn more about how mutual funds work.
Exchange-Traded Funds (ETFs)
An ETF is an investment fund that holds a collection of investments, such as stocks or bonds. ETFs are managed by professional money managers and traded on a stock exchange. Most ETFs are designed to track an index, such as the S&P 500 or S&P/TSX 60. This means that you would be investing in a large number of securities at once, rather than choosing specific companies.
Some of the main reasons why some investors choose ETFs is to diversify their portfolio, and to apply a passive investing strategy. Also, because most ETFs publish their holdings each day, investors can easily find out the current market price and holdings of an ETF before buying.
Mutual funds and ETFs share some similar attributes of holding a collection of investments, which offers diversification. Both have potential for return and for risk. There are also some key differences between ETFs and Mutual Funds, including fees, how to buy and sell, and other aspects.
Guaranteed Investment Certificates (GICs)
A GIC is an investment that works like a special kind of deposit. When you buy a GIC, you are guaranteed to get the amount you deposited back at the end of the term. For this reason, GICs are considered one of the safest ways to invest.
Most GICs pay a fixed rate of interest for a set term. When the term ends, you receive the amount you paid plus the interest. Usually the longer the term is, the higher the interest rate you will receive. You may get paid interest monthly, at the maturity date, or at some frequency in between.
If you choose a GIC you will have the comfort of knowing how much your investment will go up by the end of its term. This may or may not be higher than the rate of return on other types of investments, whose value fluctuates with the stock market.
GICs can be a helpful short-term investment to support your financial goals less than a few years away.
Annuity
Annuities are most commonly used to generate retirement income. An annuity is a contract with a life insurance company. You deposit a lump sum of money, and they agree to pay you a guaranteed income for a set period of time, or for the rest of your life.
You can buy an annuity from a licensed insurance agent or broker, online from a broker or insurance company, or from a licensed financial advisor. Annuities can be purchased using income from an RRSP, a RRIF, or a non-registered account. Once you purchase an annuity, you can’t make changes to it – your regular payment amounts are locked in.
Learn more about how annuities work.
Real estate
Buying a home is one common way to invest your money. It provides a place to live and may gain value over time if housing prices increase. Others may invest in real estate by purchasing multiple properties to then lease out and gain the rental income.
Investing in property is a more hands-on way of investing compared to traditional investments. It involves many different types of transactions including mortgages, maintenance costs and property repairs, taxes, and more.
Another way to invest in real estate is through real estate investment trusts (REITs). REITs are companies that own multiple properties such as offices, warehouses, shopping malls, or apartment buildings. REITs are generally considered riskier investments as they are sold in the exempt market rather than being listed on an exchange.
Real estate investments can play a role in diversifying an investment portfolio. However, like any investment, there are risks associated with real estate. Real estate prices can fluctuate along with the economy and interest rates, as well as location and the housing market. Learn more about investing in real estate.
Real estate is not the only type of investment that is affected by changes in interest rates. When the overnight rate changes, this tends to have a ripple effect on the economy. Learn more about how interest rates affect your investments.
Crypto assets
Crypto assets are digital assets that are traded on online platforms. The most common crypto asset is cryptocurrency. It is intended to work like a digital currency, and allows its owners to buy or sell goods or services. It can also be saved and exchanged at a later time. Many investors hold cryptocurrencies in the hope it will increase in value.
Unlike traditional currencies, cryptocurrencies are not issued or backed by a government or central bank. Crypto assets are distributed through a digital ledger system called a blockchain. The blockchain is distributed through a network of computers, and manages the chain of custody of the crypto asset.
Crypto asset prices can be very volatile and increase or decrease many times during the day. In addition to being volatile, crypto assets can be vulnerable to fraud, manipulation, and cyber attacks. While some crypto assets fall under Ontario securities law, others may not.
Learn more about crypto asset terms, trading, rules and regulations, and frauds.
Exempt securities
The “exempt market” describes a section of Canada’s capital markets where securities can be sold without the protections associated with a prospectus. Generally, securities offered to the public in Ontario must be offered with a prospectus, which provides detailed information about the security and the company offering it.
Investments such as debt, equity, asset-back securities, investment funds, and derivatives can be sold in the exempt market.
Investing in the exempt market offers investors an opportunity to participate in early stage companies with innovative products that are not large enough to be a public company. It also provides another option to diversify a portfolio.
Exempt securities also come with risks. These risks include:
- Risk of loss
- Lack of information, compared to a publicly traded company
- Locked-in investments that may not be able to be sold quickly or at all.
Learn more about exempt securities and prospectus exemptions.
Key points: Investment types
1. There are many different ways to be an investor.
2. Choosing the investments that are right for you will depend on your time horizon, risk tolerance, and your investing goals.
3. Consider your investing personality before getting started.
4. Working with an advisorcan also help if you are looking for advice or need answers to specific questions on investment products.
