Investing some of your income is a great way to plan for the future, and when done correctly, it helps your money hold its value. Lucky investors will even make money in the long term. Investment products often offer a better return than a simple savings account. That’s why it’s a good idea to know the basics of investing.
Of course, increased rewards come with increased risks. Careful investors make sure to balance their portfolios and spread the risk around. A balanced portfolio contains different types of investments. These can include publicly traded stocks that go up and down daily, as well as government-backed securities with fixed interest rates.
Securities are some of the most common ways people invest their money. A security is a certificate. It shows that the holder owns an investment product. Securities can be traded, that is, sold from one holder to another. Security types include bonds, notes, stocks, futures, and options.
Canada Savings Bonds are one example of safe, government-backed security. In return for investing their money for three years, bondholders receive the face value of the bond plus interest. The interest is paid at a guaranteed minimum rate. These are available through a payroll deduction plan.
Treasury bills, commonly called T-bills, are short-term investments backed by federal and provincial governments. They are sold with face values ranging from $1,000 to $1,000,000. They are issued for a fixed term, from one month to one year.
Guaranteed investment certificates are designed to protect an investor’s capital. The interest rates paid on these can be fixed or variable. These are a low-risk investment because the capital cannot be lost.
Mutual funds are a type of investment where investors pool their money to buy a portfolio of securities. The securities in the fund include bonds, stocks, ETFs and other investments. Mutual funds are a feature of many retirement plans. Mutual funds are managed by financial professionals. Because of this, there are various fees associated with mutual funds.
For more information about investment instruments, including stocks and annuities, see the Government of Canada website. It’s an invaluable resource for the basics of saving and investing. This website offers definitions, basic information. It also explains the costs associated with investments, from fees to taxes.