Investment products
Some of the most common types of investments include the following:
Stocks
When you buy stock — or equity — in a company, you own a share of the company.
You pay a fee to your advisor or investment firm when you buy or sell stock. This fee is called a commission. Commissions reduce the return on your investment in a stock.
There are two main types of stocks:
The majority of stocks sold are common stocks. Common stock offers the potential for growth through rising share prices and increasing dividends.
Preferred stock offers regular income through fixed dividends and the potential for growth through rising share prices. The prices of preferred stock tend to be more stable than the prices of common stock.
There are fees associated with buying stocks that may differ depending on the type of investment firm you choose to invest with.
Remember it’s important to ask questions about the costs of making the investment.
Learn more about stocks
Bonds
A bond is a kind of loan you make to the government or a company. When you purchase a bond the investment firm marks up the price of the bond slightly to cover the costs of selling the bond.
When you buy a bond, you’re lending your money to a company or a government (the bond issuer) for a set period of time (the term). If you hold bonds until the maturity date, you will get all your money back as well. If you sell early and bond prices are up, you will make money. If prices are down, you will lose money.
With most bonds, you’ll get regular interest payments while you hold the bond. Most bonds have a fixed interest rate that doesn’t change. Some have floating rates that go up or down over time. On the bond’s maturity date, you’ll get back the face value.
Types of bonds:
You buy these bonds for a set amount and for a set period of time. You get regular interest payments while you hold the bond. On the maturity date, you get back the face value of the bond.
These bonds have certain features that may improve the return on your investment. These include strip, index and real return bonds.
Mutual funds
A mutual fund is an investment that pools money from many people and invests it in a mix of investments such as stocks and bonds.
The types of fees associated with the purchase of a mutual fund may include sales charges, other transaction fees, account fees and fund expenses. You don’t pay fund expenses directly, but they affect you because they reduce the fund’s returns.
There are different types of mutual funds. They may invest in short-term fixed income securities, stocks, indexes, or a balanced mix. Some specialty funds may focus on specific mandates such as real estate or socially responsible investing.
Learn more about mutual funds
Exchange-traded funds
An exchange-traded fund (ETF) is an investment fund that holds a collection of investments, such as stocks or bonds owned by a group of investors and managed by a professional money manager. This means that you would be investing in a large number of securities at once, rather than choosing specific companies.
Unlike mutual funds, ETFs trade on a stock exchange.
Types of ETFs
These ETFs are built to closely follow a benchmark (for example, the TSX/S&P 60). These are passive investments – they aim to closely track an index, and generally have less ETF fees and expenses. These ETFs do not attempt to outperform the benchmark.
Actively managed ETFs do not track an index. An actively managed ETF buys and sells investments based on the ETF’s investment objective and the portfolio manager’s strategy and generally has higher fees than index ETFs.
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.
Because GICs are lower risk, the rate of return may be lower compared to other investments. GICs can be a helpful short-term investment to support your financial goals less than a few years away.
Learn more about GICs
Crypto assets
Crypto asset is an umbrella term for all digital assets that use cryptography (a method of securing data), a peer-to-peer network and a digital ledger system to record transactions.
Before you consider purchasing a digital coin or other crypto asset, make sure you understand what it is, how it works and the risks associated with it.
Some common types of crypto assets include:
It is intended to work like a digital or virtual currency and facilitate the sale, purchase or trade of goods between two parties. It can also be saved, retrieved and exchanged at a later time. Unlike traditional currencies, cryptocurrencies are not issued or backed by a government or a central bank. For example, bitcoin is the most popular cryptocurrency on the market but there are many others with different specifications and functions.
A type of crypto asset that can be traded and tracked on a ledger. There are many types of digital tokens such as utility tokens, governance tokens, security tokens and non-fungible tokens. They have specific functionality, permissions and terms associated with them. For example, non-fungible tokens allow investors to have ownership of a unique asset, often digital artwork.
Crypto funds allow you to access crypto assets without directly buying, owning or trading them. These funds may appeal to investors who see the potential of the technology but don’t want the complexity of owning the assets themselves.
In addition to being highly volatile, crypto assets can be vulnerable to fraud, manipulation and cyberattacks.
It’s important to understand that some crypto assets fall under Ontario securities law, while others may not. Anyone selling securities or offering investment advice must be registered with their provincial securities regulator.
If you plan to use a crypto asset trading platform to buy or sell crypto assets, check that it is registered with the securities commission.
Learn more about Crypto Assets
Real estate
Investing in real property is a very hands-on way of investing in real estate, usually at a higher cost and demanding more time to manage.
Because of the time, cost and risks that come with owning a property as an investment, you may instead choose to invest in real estate through funds, trusts and other investment products that provide exposure to the real estate market without being required to manage and maintain properties on your own.
Purchasing these products, such as a share of a publicly-traded real estate company, means you are investing in the real estate market without maintaining any properties yourself.
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.
Learn more about investing in real estate
Buying a home as an investment
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.
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
Risk and return
Risk involves the possibility of an investment’s actual return differing from its expected return and the potential to lose some or all of the money you have invested.
Understanding risk and return
Risk involves the possibility of an investment’s actual return differing from its expected return and the potential to lose some or all of the money you have invested.
You invest to earn a return on your money, but returns are not the only consideration. Risk and return are connected. Generally, the higher the risk of an investment, the higher the potential return.
As an investor it’s important to know your risk tolerance before you buy. If you have a low risk tolerance, you will likely choose a portfolio with lower risk investments and therefore a lower potential return. If you have a higher risk tolerance, you will likely choose a portfolio with higher risk investments and therefore a higher potential return. There are no risk-free investments, but some have lower risk than others.
Your risk tolerance may also depend on how long you expect to hold on to your investment – this is known as your time horizon. Someone with a short time horizon may want to choose lower risk investments, while someone with a longer time horizon may be more comfortable managing investments with higher risk. Your level of risk and time horizon will relate to your personal investing goals.
Diversification
If you hold a diversified portfolio with a variety of different investments, it’s much less likely that all of your investments will perform badly at the same time.
The profits you earn on the investments that perform well offset the losses on those that perform poorly.
One way to diversify your portfolio is to have a mix of investment classes in different asset classes. Investments that share similar risk and return characteristics are grouped by asset class. There are three main asset classes:
Include savings accounts, fixed-term deposits such as guaranteed investment certificates (GICs), currency, money market funds and government and corporate bonds maturing in less than one year.
Include government and corporate bonds maturing in more than one year, preferred shares and other debt instruments.
Include common stocks, some derivatives (rights, warrants, options), convertible bonds and convertible preferred shares.
Types of investment risks
View this chart to see the risk-reward trade-off for different types of investments.
Interactive investment chart
Getting advice
If you’re not sure how to choose investments that can help you reach your financial goals, you might want to work with an advisor.
Choosing the right advisor depends on what help you need. If you need specialized advice, look for an advisor with expertise in that area.
Advisors can help with:
- Investing
- Financial planning
- Insurance
- Tax planning
- Estate planning
Ask your friends and family if there is an advisor they recommend. Meet with several potential advisors. Check their registration category. Choose one that you’re confident has the experience, expertise and credentials to help you reach your financial goals.
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