Equities (otherwise known as stocks or shares)
An equity is a direct investment in a business, purchased through a stock or share. Investment advisors often help investors in choosing which stocks to buy based on their risk tolerance, investment objectives and other factors. You can make money on a stock if the stock itself increases in value or if the company pays a dividend to shareholders like you. However, the stock price can also go down and the company may not pay a dividend. A stock’s value depends on factors from the size of the company to its profitability and financial stability. The value of a stock can fluctuate – sometimes frequently and sometimes by a lot. This is because stocks are exposed to various types of risk, including the size of the market, financial stability of the company, general economic conditions and exposure to fluctuations in currency values. If you sell a share for more than you paid for it, you will have a capital gain. If you sell it for less, you will have a capital loss.
Bonds
A bond is a fixed-income security offered by governments and businesses. Buying a bond means that you are lending money to a company or a government (the bond issuer). The loan will be for a set period of time, which is called the term. Over the term of the bond, the bond issuer will typically pay you interest. For example, many bonds have an interest rate that does not change over the term of the bond, which is called a fixed interest rate. At the end of a bond’s term, you can normally expect to receive back the original amount of money loaned, plus the interest accumulated on that loan over the term.
In addition to interest payments, you could also earn money on your bond if you sell it for more than you paid. Bond prices change based on interest rates. Generally, when interest rates go down, the value of a bond goes up. By selling the bond in this situation, you may get more than you paid for it. You will also have the interest payments you received while you held the bond. When interest rates go up, however, generally the value of a bond decreases. By selling the bond in this situation, you may get less than you paid for it.
Bonds and other fixed-income securities have a range of interest rates and risk levels. With both corporate and government bonds, one risk to consider is that the rate of inflation may be higher than the interest rate paid by a bond, which would mean that your investment isn’t keeping up with the cost of living. Another risk to consider is that a particular bond issuer may not have enough money to repay their loans. If this occurs then you may lose some, or all, of the money you invested. Bonds that are riskier often pay a higher interest rate. These bonds are often called high-yield bonds or junk bonds.
Mutual Funds
A mutual fund is a pool of investments. It allows you to hold a portion of many more investments than you could normally purchase on your own. A professional fund manager decides where to invest the money and when to buy and sell investments for the mutual fund. Investors hold units of mutual funds. A mutual fund’s value will change as the value of what it invests in goes up and down. The risk associated with a fund depends on what the fund invests in. The price of your units will go up if the investments in the fund do well. If they are not doing well, the unit price falls.
Details about the costs and the level of risk associated with a particular fund can be found in its Fund Facts document. Costs and fees are associated with every fund, although they can vary. These fees reduce the return you get on your investment in a mutual fund. It is important to understand not only what the costs and fees are, but also how they are paid and how they affect your return. Most funds are offered in different series or classes, usually for different types of investors. The fees and expenses will be different for each series. Your investment advisor can explain which series or class may be most suitable for you.
Exchange Traded Funds
Like mutual funds, exchange-traded funds (ETFs) are pools of investments. ETFs trade on a stock exchange and the process for buying or selling them is similar to buying stocks.
An ETF can invest in equities, bonds, or commodities, and may specialize by industry, sector, or country. ETFs can be attractive to retail investors because of their low cost, diversification, and share-like features. Like mutual funds the risk associated with a fund depends on what the fund invests in.
Details about the costs and the level of risk associated with a particular ETF can be found in its ETF Facts document.
Segregated Funds
Segregated funds are an investment product sold by life insurance companies. Segregated funds are similar to mutual funds; however, segregated funds provide a protection on your money that mutual funds do not. Even if the fund loses money, a portion of the money you invest is guaranteed (typically 75%-100%). For this guarantee to apply, however, you have to maintain your investment for a certain period of time. Segregated funds tend to have higher fees than mutual funds, and only advisors who are licensed to sell insurance can sell segregated funds.
GICs
Guaranteed Investment Certificates (GICs) are a lower risk investment that guarantees that you will get your deposited amount back. A GIC is a certificate of deposit at a bank or other financial institution for a fixed term, varying from six months to many years. GICs are guaranteed by the financial institution that issues them and are insured by deposit insurance agencies, like the Canada Deposit Insurance Corporation (CDIC) or the Credit Union Deposit Insurance Corporation (CUDIC).
Types of GICs
There are two main kinds of GICs: Interest-bearing GICs and Index-linked GICs.
Interest-bearing GICs pay a fixed interest rate over the course of the term. The primary risk of an interest-bearing GIC is that you may need the money before the term is up and have to pay a penalty or fee that will reduce your return, perhaps to zero. Another risk is that interest rates may rise while you hold a low rate GIC.
Index-linked GICs pay interest based on changes in a standard, such as a stock exchange index. The greatest risk for index-linked GICs is that you may not earn a return if the markets do not rise during the term. These GICs are higher risk than interest-bearing GICs because you don’t know your rate of return even though you know you will get back your principal.
Most GICs are designed to be held to maturity meaning you can’t sell them until the term is up. GICs that allow you to redeem before maturity may charge a fee or impose a reduced interest rate. Some GICs let you access your money any time, but these pay lower rates of interest.
Alternative Investments
Alternative investments are some of the most complicated types of investments. They can offer higher-than-average returns, but also come with higher-than-average risks. It’s important that you be comfortable with all risks and costs involved, and never invest in anything you don't fully understand. These are just some examples of alternative investments:
Crypto Assets
Crypto assets are digital assets that use cryptography (a method to secure data), peer-to-peer networking, and a public ledger to create, verify and record transactions. Crypto assets include cryptocurrencies, crypto funds and digital tokens. Bitcoin and Ether are examples of cryptocurrencies. Crypto assets are very risky. Changes in the crypto asset space are constant, and prices may change dramatically with little warning. If you chose to buy, sell, or speculate in crypto, be aware you could lose some or all of your funds. Learn more about the risks of crypto assets.
Options
The right to buy or sell an asset at a specific price for a specific period of time.
A call option gives the holder the right to buy an asset at a specified price within a specified time. A put option gives the holder the right to sell an asset at a specified price within a specified time. The underlying asset may be a stock, a commodity, a currency or an index.
Futures and forward contracts
A contract where the seller agrees to deliver a specified amount of an asset to the buyer, at a specified price on a given date.
Limited partnerships, including flow-through limited partnerships
An interest in a partnership consisting of:
- a general partner who manages the partnership
- limited partners who provide the investment capital
Limited partnerships typically seek to achieve capital appreciation by investing in a specific industry sector (such as real estate or oil and gas). Flow-through limited partnerships invest in sectors that provide tax credits to investors.
Hedge fund
An investment pool that uses advanced investment strategies not generally permitted for traditional mutual funds, such as leverage, long and short positions and derivatives.
Foreign currency
Investing in different currencies to make money on changes in exchange rates. Also known as "forex" or "FX trading".
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Equities (Stocks or Shares): Equities represent direct ownership in a business, acquired through stocks or shares. Investors choose stocks based on factors like risk tolerance and investment objectives. Earnings come from stock appreciation or dividends. Factors affecting stock value include company size, profitability, and financial stability. Stocks are exposed to market size, company stability, economic conditions, and currency fluctuations.
Bonds: Bonds are fixed-income securities from governments or businesses, representing a loan to the issuer. Bonds have a set term, with interest payments. Bond values change with interest rates; when rates drop, bond values rise. Risks include inflation outpacing bond interest and issuer insolvency. Higher-risk bonds, like junk bonds, offer higher interest rates.
Mutual Funds: Mutual funds pool investments, allowing diversification managed by professionals. Fund values fluctuate based on underlying investments. Risk depends on the fund's assets. Costs and fees vary, impacting returns. Different fund series cater to diverse investors.
Exchange Traded Funds (ETFs): ETFs, like mutual funds, are investment pools traded on stock exchanges. They can invest in various assets and offer diversification. ETFs appeal due to low costs and share-like features. Risks align with the fund's investments.
Segregated Funds: Segregated funds, from life insurance companies, resemble mutual funds but offer capital protection (typically 75%-100%) even if the fund incurs losses. Higher fees are common, and only licensed insurance advisors can sell them.
Guaranteed Investment Certificates (GICs): GICs are low-risk investments guaranteeing the return of the deposited amount. Two types are interest-bearing and index-linked. Risks include early redemption penalties and interest rate changes. GICs are typically held until maturity.
Alternative Investments: These complex investments offer potential high returns but come with higher risks. Examples include:
- Crypto Assets: Digital assets like cryptocurrencies; extremely volatile.
- Options: Contracts allowing buying or selling assets at set prices.
- Futures and Forward Contracts: Agreements to deliver assets at set prices on specified dates.
- Limited Partnerships: Investment partnerships with general and limited partners, seeking capital appreciation.
- Hedge Funds: Investment pools using advanced strategies like leverage and derivatives.
- Foreign Currency (Forex) Trading: Investing in different currencies, profiting from exchange rate changes.
It's crucial to thoroughly understand risks and costs associated with alternative investments and only invest in what you fully comprehend. Feel free to seek professional advice for personalized guidance.
