In the beginning it can seem like a daunting task to learn the ins and outs of investing. The learning curve can seem as difficult as a climb up Mount Logan. You’ve never done anything like this before, others have been successful, but you don’t believe you can be a successful investor. There are those who have tried in the past only to miss the mark because the did not have enough knowledge about the types of investments and how to make then work in their portfolio. Getting started let’s define a portfolio. This is a collection of all your investments. So inside will be the types of investments you have.
For some people, this is a way to improve their standard of living. Others might think of investing as a chance to gain a controlling interest in a company. Other might think investing goes beyond their financial abilities. For example, that it’s something only for the ‘well off’. The goal of this article is to help you learn more about the types of investments.
Types of Investments
Here are some of the different types of investments to consider.
Just As the name implies, low risk investments do not give you a large return although you do get some return. The return for every CAD you invest is very small. The risk is low and so is the return. For example, short-term government bonds. The risk is low, the cost is low and the return is low. This type of investment might not pay much but the investment is a safe strategy. The benefit is short term government bonds are very stable, low cost and consistently rising. Vanguard Canadian Short-Term Government Bond Index is a type of low risk investment you might want to consider.
An example of a medium risk investment is an index fund such as Scotia Canadian Index Fund. This type of investment is a barometer of the equity market. In an index fund you invest in an entire market instead of a single company. If you can handle some risk you will find this type of investment might be right for you. The risk should be equal to your tolerance or you just might not be able to manage the ups and downs.
Simply put, if you are not careful can lose your investment. You take a risk that your investment will not shrink based on the performance and other factors that you cannot control.
A perfect example is cryptocurrency. Hotter than a firecracker right now. Investors risk huge sums of money in hopes of getting a big return. For instance, let’s say you invested CAD 1,000 last year ago, you might have realized a 10% return on investment or CAD 10,000 today. On the other hand, you could lose all your investment Why? Cryptocurrency does not have a long history or track record so investor speculate that it will grow. If investment does not grow but begins to drop, there goes your investment.
. If you do not have the tolerance for market volatility, this is not for you. On the other hand, if you can manage the day to day discipline to watch your investment this high risk investment might be right for you.
What are stocks? Stocks are shares or ownership of a portion of a company. The values of each share of stock is based on the what a company is worth. Each percentage of the company that a business owner gives up as a share is how much less they own of their own company. For example, let’s say you own a small home-based clothing business and you want to start a retail store that will cost CAD 100,000 but you only have CAD 10,000. In order to come up with the rest of the money you could look for investors to put up the remaining CAD 90,000. So, you give up 90 percent ownership of your own company. You sell stock in the company. The company is worth CAD 100,000.
So, you get nine of your friends to invest CAD 10,000 each. In five years, you company is doing great. Now the value is CAD one million. That initial CAD 1, 000 that your friends invested is now worth CAD 100,000.
You can buy shares of stock in publicly traded companies. If the stock does well, you gill get a nice return on your investment. Consider investing in stock in Canadian banks. Another example of a good stock to invest in is Coca Cola. This company has continued to rise since it became a publicly traded company years ago. Stocks tend to be a good long term safe investment when you invest in companies that have been around for a long time.
Other Investment Vehicles in Canada