Different Types of Investments

Over the past decade people have been looking at new ways tog et more out of their investments, often looking for better returns.  Annual returns are very important, and will greatly impact your retirement planning, but they are not the only thing you should look at.  The following are some general descriptions and their advantages and disadvantages:

Savings accounts
Pros:  Very flexible, immediate access to cash, few penalties at withdrawal, low risk of losing investment
Cons:  Lower rate of return

Term Deposits or GIC (Usually 1 to 5 years, redeemable or non-redeemable)
Pros:  Guaranteed rate of return, can be cashable with some penalties, low risk of losing investment
Cons:  Locked in means you get a flat rate

Stocks – ownership of a specific company’s shares
Pros:  Returns can be very good, can get increase from stock price and dividends
Cons:  Stocks can be difficult to sell during downturn, there is a risk of losing investment

Bonds – ownership of government or corporate debt
Pros:  Corporations pay bond debt before paying shareholders, fixed interest rates, can be easy to sell
Cons:  Risk of company or government defaulting on bonds, bond values go up and down with market rates, higher risk bonds usually have higher rates

Mutual funds – pool of money owning a variety of investments (stocks, bonds…) and managed by an investment fund manager
Pros:  Returns can be very good, diversity of investments can help stability of value, can be cashed in without too many problems
Cons:  risk of losing investment, fund management fees, depends on expertise of fund manager

The above are just general descriptions of some of the most common investments.  There are many other types as well, but it would be best to talk to a planner about all the options.

Quite a few people had a good shake up in 2008/09, seeing their investments drop by over 20% in a very short time.  Keep in mind that most experts recommend a combination of the above investments to help diversify your risk while protecting and growing your assets.  And there are tax implications that I have not mentioned at all.  Again, talk to an expert before you start putting your hard earned money into anything that could lose money.
Happy investing, Jerry