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Types of Investments

Cash and cash equivalents

This includes money in your bank account and investments that are generally very safe and give you quick access you your money. Risks associated with these investments range from very low to medium, and returns are earned in the form of interest. However, the rates of return are relatively low compared to other types of investments.

Savings bond
A loan to a government that is secured by the general credit and taxation powers of the government.

Guaranteed investment certificate (GIC)
A deposit certificate issued by a financial institution.

Treasury bill (T-bill)
A fixed income security in short-term debt instruments guaranteed by the federal government.

Money Market Fund
A mutual fund that invests in short-term fixed income securities.

Fixed Income Securities

Bonds and other "fixed income securities" are investments based on debt. When you buy a bond, you are lending your money to a government or company for a certain period of time. In return, they promise to pay you a fixed rate of interest at certain times and to repay the "face value" at the end of the bond's term (its "maturity date"). The face value is the value the bond was issued at. Bonds tend to offer better rates of return than cash equivalent investments (such as a GIC or T-bill), because you're taking on more risk by lending out your money for a longer period of time.

Bond
A loan to a government or company that is secured by the government's power to tax or by specific company assets.

Debenture
A loan to a company that is not secured by specific assets, but may be secured by the issuer's general assets.

Stripped bonds (strips)
Interest payment coupons and the principal portion of a bond that have been separated from each other and are sold as individual investments.

Mortgage-backed securities (MBS)
An ownership interest in a pool of mortgages.

Equities

When you buy stocks (also known as shares or equities), you become a part owner in a company. You may be entitled to vote at shareholder meetings and each stock you own represents a claim on a company's earnings and assets. Any profits the company allocates to its shareholders are called dividends. Compared to some other types of investments, stocks can be riskier but can potentially offer higher returns. The value of a stock can go up and down - sometimes frequently and sometimes by a lot.

Common share
A share that has voting rights.

Restricted voting share
A share that has restricted or no voting rights.

Preferred share
A share that pays a fixed dividend.

Flow-through share
A special type of common share issued by oil and gas or mineral exploration companies that allows certain tax deductions.

Rights and warrants
The right to buy additional securities from the company at a certain price within a certain period of time.

Investment Funds

Investments funds are a collection of investments from one or more asset classes. Each fund focuses on specific investments, like government bonds, stocks from large companies, stocks from certain countries, or a mix of stocks and bonds. When you buy an investment fund you are pooling your money with many other investors. This allows you to invest in a variety of investments at a relatively low cost. Most funds are managed by a professional manager, freeing the investors from making complex investment decisions.

The value of a fund will change as the value of what it invests in goes up and down. The amount of risk associated with a particular fund depends on what the fund invests in.

Mutual fund
A fund that continually issues units or shares to investors.

Closed-end investment fund
A fund that issues a finite number of units or shares, which may trade on a stock exchange.

Exchange-traded fund (ETF)
A fund that holds the same mix of investments as a stock or bond market index and trades on a stock exchange.

Segregated fund
An insurance product that combines investment funds with insurance coverage.

Labour-sponsored investment fund (LSIF)
A fund that provides venture capital to new and small businesses and offers tax incentives to investors.

Commodity pool
A fund that invests in derivatives or commodities that conventional mutual funds are not permitted to invest in.

Alternative Investments

Alternative investments are some of the most complicated types of investments. They can offer higher-than-average returns, but also come with higher-than-average risks. Alternative investments are typically meant for very sophisticated investors or investors who can afford to take higher risks.

Although you may be offered an investment in this class, it is important that you be comfortable with all risks and costs involved, and never invest in anything you don't fully understand.

Options
The right to buy or sell an asset at a specific price for a specific period of time.

A call option gives the holder the right to buy an asset at a specified price within a specified time. A put option gives the holder the right to sell an asset at a specified price within a specified time. The underlying asset may be a stock, a commodity, a currency or an index.

Futures and forward contracts
A contract where the seller agrees to deliver a specified amount of an asset to the buyer, at a specified price on a given date.

Income Trust
A trust that is designed to distribute cash to investors. The most common types are:

  • Real Estate Investment Trusts (REITs)
  • Oil and Gas Income Trusts, also known as Royalty Trusts
  • Business Income Trusts

Limited partnership, including flow-through limited partnership
An interest in a partnership consisting of:

  • a general partner who manages the partnership
  • limited partners who provide the investment capital

Limited partnerships typically seek to achieve capital appreciation by investing in a specific industry sector (such as real estate or oil and gas) that provides tax credits to investors.

Principal Protected Note (PPN)
An investment that promises to return to you the original amount you invested (usually after 6 to 10 years).

Any potential return above the principal is typically variable and is usually linked to a market index, a fund or another underlying investment.

Linked Note
A hybrid investment product that combines the features of fixed income investments and derivatives.

The return is linked to the performance of an underlying benchmark, such as one or more stocks, a stock market index, a commodity, a currency, an investment fund or other portfolio.

Hedge fund
An investment pool that uses advanced investment strategies not generally permitted for traditional mutual funds, such as leverage, long and short positions, and derivatives with the goal of generating high returns.

Foreign currency
Investing in different currencies to make money on changes in exchange rates. Also known as "forex" or "FX trading".