LEARN: SAVINGS : Stocks, Bonds and Commodities

Other Investment Opportunities: Stocks, Bonds, Commodities and Mutual Funds

The old expression “Nothing ventured, nothing gained” is especially true when it comes to investing, but some types of investments are definitely safer than others. Before considering investing in stocks, bonds or commodities, take the time to do a personal risk assessment.

Nobody wants to lose their shirt; a good investment is a wise investment. Do thorough research before making any major investment, but especially those in the high-risk category.

Stocks

A stock essentially represents a piece of a corporation. When you buy a stock, you own a small piece of that company. Depending on the size of the corporation, stocks fall into a number of different categories, including:

  • Growth stocks
  • Value stocks
  • Capitalization stocks

The type of stock offered depends on the size of the company, its prospects and
outside factors, including the current state of the market.

The Wall Street crash of 1929, kick started a downward spiral in the stock market. The Dow Jones Industrial Average lost 89% of its value before finally bottoming out in July 1932. How does this compare to the crash in 2008? From September 2008 to October 2009 The Dow dropped 54%.

Bonds

Bonds are an investment instrument issued by the government or a company. When the bond matures, the issue is required to pay back the principal plus interest. Canada Savings Bonds are fully backed by the government and have a guaranteed full return. There are no fees and they are available in both regular and compound interest. You can cash them at any time and they’re affordable – they can actually be purchased for as little as $100.

Commodities

Unlike other types of investment, when you invest in a commodity you are investing in a particular good. Popular commodities in Canada include:

  • Energy commodities: Oil, coal and natural gas
  • Metals and minerals: Gold, silver, nickel, copper, aluminum, zinc, potash, lead and iron
  • Forestry: Pulp, lumber and newsprint
  • Agriculture: Cattle, hogs, wheat, barley, canola, corn and potatoes
  • Fisheries: Salmon, lobster, shrimp, crab, ocean fish and shellfish

Keep in mind that investing in commodities can be risky. For this reason, they are not meant to be short-term investments.

Mutual Funds

A mutual fund is a managed product that pools money from many different investors to purchase a portfolio of investments that can be made up of t-bills, stocks, bonds and/or equities. Mutual funds are definitely not for everyone as they are deemed to be a riskier investment, fluctuating in value depending on current market conditions, both at home and abroad.

Although they can seem a little scary to a new investor, there are a lot of advantages to purchasing a mutual fund. They are professionally managed, they provide you with diversification that would otherwise be very expensive to do on your own (mutual funds can hold anywhere between 50-100 different investments, you try buying all of those on your own!), they are cashable at any time and may provide you with some savings at tax time too.

There are some disadvantages as well, the professional management does come with a fee (sometimes transaction fees, management fees or loads), there is no insurance available for mutual funds and of course the obvious – they fluctuate in value, meaning you can actually lose money on them.

If you are a fist timer, speak with a financial advisor to help you chose an appropriate fund specific to your risk tolerance.


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