Hello there. As an investor, there are a variety of investment products available to you for purchase. In this video, I’ll take you through four common types of investments: equities, bonds, mutual funds, and exchange-traded funds.
Equities are commonly known as stocks or shares. When you buy equities in a company, you receive a piece of the company and become a part owner.
Generally, shares are traded on an exchange.
There are two main types of shares: common shares and preferred shares.
Common shares offer the potential for returns through rising share prices and increasing dividends.
Holders of common shares have voting rights; for example the right to elect the board of directors of the company. Prices of common shares tend to be more volatile than the prices of preferred shares.
Preferred shares offer regular income through fixed dividends and the potential for growth through rising share prices. Preferred shares may offer features such as the right to redeem your shares at certain times or to convert your shares to common shares at a certain price. Holders of preferred shares generally do not have voting rights.
In general, there are four types of bonds: government bonds, treasury bills, corporate bonds, and strip bonds.
When you buy a bond you are lending money to a company or government that issues bonds for a set period of time, during which you typically receive interest payments. When the bond becomes due (known as the maturity date) the bond issuer is supposed to pay back the full amount of your original investment.
There are two ways to make money on bonds: through interest payments and by selling a bond for more than you paid.
Mutual funds pool investors’ money together and use it to invest in stocks, bonds, money market instruments, and other assets. Mutual fund shares trade on stock exchanges and are overseen by a fund manager.
You can earn money on a mutual fund through capital gains and distributions of dividends, interest, or other income the fund earns on its investments.
If you sell your mutual fund for more than you paid for it, you will have a capital gain. If you sell your mutual fund for less than you paid for it, you will have a capital loss.
Exchange-traded funds – or ETFs – are pools of investments similar to mutual funds that trade on a stock exchange. ETFs are attractive to investors because of their low cost, diversification, and share-like features. Some ETFs pay out the money they make to investors as distributions.
You can earn money on an ETF through capital gains, and distributions of dividends, interest, or other income the fund earns on its investments.
Investing in shares, bonds, mutual funds, and ETFs each come with different risks and costs for buying and selling. Make sure you understand these factors before making your purchasing decision.
You should also consider your time horizon before you purchase an investment.
And definitely reach out to the BC Securities Commission for more information.