Types of investments

There are many types of investments. If you are considering investing in stocks, bonds or any other investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition product, you’ll want to understand how they work. You should consider an investment’s level of risk and whether it fits with your portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition goals. Your portfolio can also change over time as your goals change.

No matter what you decide, remember to check before you invest.

On This Page

• Bonds
• Stocks
• Mutual funds
• Exchange traded funds
• Guaranteed Investment Certificates
• Annuity
• Real estate
• Crypto assets
• Exempt securities

Bonds

Bonds are a way of lending your money in return for a certain rate of interest. Bonds can be issued by companies or the government (the issuerIssuer An organization that offers securities for sale to investors. Examples: corporations, investment trusts and government bodies.+ read full definition), for a set period of time (the termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition). The term can be anywhere from less than one year to as long as 30 years.

On the date the bondBond A kind of loan you make to the government or a company. They use the money to run their operations. In turn, you get back a set amount of interest once or twice a year. If you hold bonds until the maturity date, you will get all your money back as well. If you sell…+ read full definition becomes due (the maturity dateMaturity date The date when an investment becomes due. On that date, you get your money back without any penalty. Any interest payments stop.+ read full definition), the issuer is supposed to pay back the face valueFace value What you pay to buy a bond or some other investment.+ read full definition of the bond in full.

You can make money on bonds by holding the bond until the maturity date and claiming the interest, or by selling a bond for more than you paid. You can lose money on bonds if you sell the bond for less than you paid.

Find out more about how bonds work, the types of bonds, and how to buy and sell bonds.

Stocks

Stocks are a type of security that give you part ownership in a company. They are also referred to as equitiesEquities Another word for investments in the stock market.+ read full definition. When you buy stocks, you are buying a shareShare A piece of ownership in a company. A share does not give you direct control over the company’s daily operations. But it does let you get a share of profits if the company pays dividends.+ read full definition of the company that issued them.

The majority of stocks are common stocks. Common stockCommon stock See Common Share.+ read full definition offers the potential for growth through rising share prices and dividends. Common shareholders are generally entitled to dividendDividend Part of a company’s profits that it pays to shareholders in proportion to the total number of shares held. The Board of Directors sets the amount. For common shares, the amount varies. It may skip dividends if business is poor or the directors invest money in things like new equipment or buildings.+ read full definition payments and voting rights at shareholderShareholder A person or organization that owns shares in a corporation. May also be called a investor.+ read full definition meetings. Preferred stock offers regular income through fixed dividends and potential for growth through rising share prices, but don’t normally come with voting rights.

You can make money on stocks by selling at a higher value than what you paid, or by receiving dividends paid by the company. You can lose money on stocks if you sell at a lower value than what you paid.

There are many factors that can affect stock prices. Learn more about where and how stocks are traded.

Bonds and stocks are both common types of investments — both have risk.

Mutual funds

A mutual fundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the fund’s goals for risk and return. You can redeem your fund units at any time.+ read full definition is a collection of investments, such as stocks, bonds, or other funds, owned by a group of investors and managed by a professional money manager. The composition of the fund is guided by its investment objective.  When you buy a mutual fund, you are pooling your money with other investors.

Most mutual funds are sold through financial advisors who are required to be registered with their provincial regulator (for example, the Ontario Securities CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets, and to contribute to the stability of the financial system and the reduction of systemic…+ read full definition). Learn more about how mutual funds work.

Exchange-Traded Funds (ETFs)

An ETF is an investment fund that holds a collection of investments, such as stocks or bonds. ETFs are managed by professional money managers and traded on a stock exchangeStock exchange A market in which securities are bought and sold.+ read full definition. Most ETFs are designed to track an indexIndex A benchmark or yardstick that lets you measure the performance of a stock market, part of a stock market or a single investment. Examples: S&P/TSX, S&P/TSX Canadian Bond Index.+ read full definition, such as the S&P 500 or S&P/TSX 60. This means that you would be investing in a large number of securities at once, rather than choosing specific companies.

Some of the main reasons why some investors choose ETFs is to diversify their portfolio, and to apply a passive investing strategy. Also, because most ETFs publish their holdingsHoldings Shares or other interests in a business. Also refers to investments in a portfolio.+ read full definition each day, investors can easily find out the current market priceMarket price The amount you must pay to buy one unit or one share of an investment. The market price can change from day to day or even minute to minute.+ read full definition and holdings of an ETF before buying.

Mutual funds and ETFs share some similar attributes of holding a collection of investments, which offers diversification. Both have potential for return and for risk. There are also some key differences between ETFs and Mutual Funds, including fees, how to buy and sell, and other aspects.

Guaranteed Investment Certificates (GICs)

A GIC is an investment that works like a special kind of deposit. When you buy a GIC, you are guaranteed to get the amount you deposited back at the end of the term. For this reason, GICs are considered one of the safest ways to investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition.

Most GICs pay a fixed rate of interest for a set term. When the term ends, you receive the amount you paid plus the interest. Usually the longer the term is, the higher the interest rateInterest rate A fee you pay to borrow money. Or, a fee you get to lend it. Often shown as an annual percentage rate, like 5%. Examples: If you get a loan, you pay interest. If you buy a GIC, the bank pays you interest. It uses your money until you need it back.+ read full definition you will receive. You may get paid interest monthly, at the maturity date, or at some frequency in between.

If you choose a GIC you will have the comfort of knowing how much your investment will go up by the end of its term. This may or may not be higher than the rate of return on other types of investments, whose value fluctuates with the stock marketStock market The collection of markets and exchanges where stocks, bonds and other securities are issued or traded.+ read full definition.

GICs can be a helpful short-term investment to support your financial goals less than a few years away.

Annuity

Annuities are most commonly used to generate retirement income. An annuityAnnuity A contract usually sold by life insurance companies that guarantees an income to you or your beneficiary at some time in the future. An annuity is a contract with a life insurance company. When you buy an annuity, you deposit a lump sum of money, and the insurance company agrees to pay you a guaranteed…+ read full definition is a contractContract A binding written or verbal agreement that can be enforced by law.+ read full definition with a life insurance companyInsurance company A company that sells insurance products. Some companies sell only life insurance. Some sell only property insurance. Others sell all types of insurance.+ read full definition. You deposit a lump sum of money, and they agree to pay you a guaranteed income for a set period of time, or for the rest of your life.

You can buy an annuity from a licensed insurance agentInsurance agent A person who is trained and licensed to give expert advice and sell insurance. Some get extra training so that they can also sell investments. They get paid by the companies whose products they sell.+ read full definition or brokerBroker A registered person who brings together someone who wants to buy investments with someone who wants to sell. Brokers often charge a fee or commission for buying and selling investments for you.+ read full definition, online from a broker or insurance company, or from a licensed financial advisor. Annuities can be purchased using income from an RRSPRRSP See Registered Retirement Savings Plan.+ read full definition, a RRIFRRIF See Registered Retirement Income Fund.+ read full definition, or a non-registered accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition. Once you purchase an annuity, you can’t make changes to it – your regular payment amounts are locked in.

Learn more about how annuities work.

Real estate

Buying a home is one common way to invest your money. It provides a place to live and may gain value over time if housing prices increase. Others may invest in real estateEstate The total sum of money and property you leave behind when you die.+ read full definition by purchasing multiple properties to then lease out and gain the rental income.

Investing in property is a more hands-on way of investing compared to traditional investments. It involves many different types of transactions including mortgages, maintenance costs and property repairs, taxes, and more.

Another way to invest in real estate is through real estate investment trusts (REITs). REITs are companies that own multiple properties such as offices, warehouses, shopping malls, or apartment buildings. REITs are generally considered riskier investments as they are sold in the exempt market rather than being listed on an exchange.

Real estate investments can play a role in diversifying an investment portfolio. However, like any investment, there are risks associated with real estate. Real estate prices can fluctuate along with the economy and interest rates, as well as location and the housing market. Learn more about investing in real estate.

Real estate is not the only type of investment that is affected by changes in interest rates. When the overnight rate changes, this tends to have a ripple effect on the economy. Learn more about how interest rates affect your investments.

Crypto assets

Crypto assets are digital assets that are traded on online platforms. The most common crypto assetAsset Something of value that a company or an individual owns or controls. Examples: buildings, equipment, property, a car, investments, or cash. Can also include patents, trademarks and other forms of intellectual property.+ read full definition is cryptocurrencyCryptocurrency See Digital Coins.+ read full definition. It is intended to work like a digital currency, and allows its owners to buy or sell goods or services. It can also be saved and exchanged at a later time. Many investors hold cryptocurrencies in the hope it will increase in value.

Unlike traditional currencies, cryptocurrencies are not issued or backed by a government or central bank. Crypto assets are distributed through a digital leger system called a blockchain. The blockchain is distributed through a network of computers, and manages the chain of custody of the crypto asset.

Crypto asset prices can be very volatile and increase or decrease many times during the day. In addition to being volatile, crypto assets can be vulnerable to fraud, manipulation, and cyber attacks. While some crypto assets fall under Ontario securities law, others may not.

Learn more about crypto asset terms, trading, rules and regulations, and frauds.

Exempt securities

The “exempt market” describes a section of Canada’s capital marketsCapital markets Where people buy and sell investments.+ read full definition where securities can be sold without the protections associated with a prospectusProspectus A legal document that sets out the full, true and plain facts you need to know about a security. Contains information about the company or mutual fund selling the security, its management, products or services, plans and business risks.+ read full definition. Generally, securities offered to the public in Ontario must be offered with a prospectus, which provides detailed information about the security and the company offering it.

Investments such as debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition, equityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds.+ read full definition, asset-back securities, investment funds, and derivatives can be sold in the exempt market.

Investing in the exempt market offers investors an opportunity to participate in early stage companies with innovative products that are not large enough to be a public company. It also provides another option to diversify a portfolio.

Exempt securities also come with risks. These risks include:

• Risk of loss
• Lack of information, compared to a publicly traded company
• Locked-inLocked-in An account that you cannot take money out of until you retire. In most cases, you can’t get a cash payout. Your plan may make exceptions if you have a terminal illness, or a small pension benefit.+ read full definition investments that may not be able to be sold quickly or at all.

Learn more about exempt securities and prospectus exemptions.

Key points: Investment types

1. There are many different ways to be an investor.
2. Choosing the investments that are right for you will depend on your time horizon, risk tolerance, and your investing goals.
3. Consider your investing personality before getting started.
4. Working with an advisor can also help if you are looking for advice or need answers to specific questions on investment products.