There are thousand of investment products that you can invest in. Below we’ll list some of the most common ones that you’ll probably hear about during the course of investing.
Stocks
Stocks also known as “shares” or “equity” allow you to buy a certain percentage of ownership of a public company trading on the stock market. The number of shares that you buy would represent a claim on the company’s assets and earnings. As a shareholder, you’re eligible to share in the company’s profits through pay out of dividends plus you’re eligible for voting rights.
Keep in mind that when you these investment products, you may end up paying commission to the brokerage facilitating your trade.
Bonds
Bonds are loans made to large corporations, cities, and governments. When you buy these investment products from bond issuers, they’re obligated to pay you interest which is known as the coupon payment. Bonds pay at fixed intervals, usually semi-annually, unless stated otherwise. At maturity, the bondholder will receive the principal payment + interest. Bonds are considered an fixed income investment.
Mutual Funds
Mutual funds are investment products managed by a portfolio manager who scans investment opportunities and decides what to buy and sell. Instead of you doing your own investment research, the portfolio manager would decide what stocks or bonds to buy and for this, they charge you a fee, known as the Management Expense Ratio.
Mutual funds are known for their diversification as they’re able to buy investments from different sectors and geographic locations. Diversification lowers the volatility of your portfolio.
Exchange Traded Funds
Exchange Traded Funds are investment products construction in a similar fashion to mutual funds with lower fees. ETFs are able to invest in various asset classes such as stocks, bonds, currencies, commodities and more. ETFs are listed as shares on the stock market which means more liquidity. You can buy and sell them with a click of a button.
Segregated Funds
Segregated funds are an insurance product, similar to mutual funds in a way that your capital is pooled with other investors for the purpose of generating long term growth through the buying and selling of securities. The cost in comparison to mutual funds is much higher. Segregated funds are known for the death benefit and maturity guarantee. In addition, they offer creditor protection and probate bypass.
Guaranteed Investment Certificates
Guaranteed Investment Certificates also known as GICs are popular low risk and safe investment products. As the name states, the amount of money you invest, you’re guaranteed to receive it at a later date plus interest. When you’re buying a GIC, you are lending the bank money for a stated number of months or years. In exchange, the bank would pay you interest. The rate of return on GICs are conservative in nature.
Hedge Funds
Hedge funds are unregulated investment products that pool capital from accredited or institutional investors for the purpose of generating absolute return. There is a lack of regulatory oversight when it comes to hedge funds and high degree of risk due to the fact that fund manager have the options to use leverage, options and short investments. There is often also a lack of liquidity due to lock-up periods and advance redemption notices.
Options
Options are financial derivatives which provides the buyer of the option the right to buy or sell an underlying asset at a specified strike price by a certain date. They’re considered complex investment products and one should have good knowledge investing in them.
There are two types of options – call options and put options. With call options, you have the right but not the obligation to buy the underlying asset (could be a stock) at a specific price in the future. Buyers of call options believe that the price of the underlying asset will increase. Put options Put options are the opposite of call options. Buyers of put believe that the price of the underlying asset will decrease.
Annuities
An annuity is an investment with an insurance company where you deposit a lump sum amount which guarantees to pay you income for life. There are usually two types of payout annuities – term certain annuity and life annuity. Term certain annuity provides you a monthly income stream for a certain term while a life annuity provides you a stream for life. The good thing about lifetime annuities is that you aren’t prone to stock market fluctuations or changes to interest rates.
