Everything You Need To Know About Investment Products
May 5, 2016
We hope that by this point, you’ve chosen the investment account that’s right for your goals and investment horizon. Now it’s time to figure out what products you want to put inside of these accounts.
When it comes to investment products, there are a lot of different ones out there. However, most investment products fall into two categories: fixed income, and equities.
Guaranteed Investment Certificates (GICs) – Offered by banks, GICs are products where you give the bank a fixed amount, and the bank will give you a fixed interest rate depending on the term. There is no risk, because even if the stock market plunges, you are always GUARANTEED the fixed amount you gave to the bank. Because there is little risk, banks offer a very small interest rate (~1%) for GICs.
Bonds – Similar to GICs, large corporations and Governments will issue bonds in order to raise money. In exchange for giving a company or Government money, a ‘bond’ is a promise to pay back your money, plus some interest. There are chances that these corporations or Governments won’t be able to pay back the bond, but it is very unlikely.
Stocks – Buying part-ownership in a company. As the value of the company goes up, the value of your company goes up as well. But if the company doesn’t perform well, then the value of your investment goes down.
Mutual Funds – A bank will start a mutual fund by pooling money from different advisors into one ‘fund’. Using the money is this large pool, they will invest in various stocks, bonds, and other investment products. Then they will issue units of this fund to all of their investors. So rather than investing in individual products, a mutual fund lets you invest in a small chunk of a big pool of investments.
Note that the interest rates or returns from Fixed Income is relatively low compared to Equities.
But these investments are way more stable in the event of a market downturn. We’ll talk about this later but it is ALWAYS a good idea to invest in both Fixed Income and Equities.
In this video, we compare the popular investment products available to you.