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Types of Investments in Canada

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Some of the most common types of investments in Canada include the following:

Annuity

An annuity is a type of investments in Canada contract that pays you income at regular intervals, usually after retirement.

Bond

A bond is a certificate you receive for a loan you make to a company or government (an issuer). In return, the issuer of the bond promises to pay you interest at a set rate and to repay the loan on a set date.

Canada Savings Bond (CSB)

A Canada Savings Bond is a savings product issued and guaranteed by the federal government. It offers a minimum guaranteed interest rate. Canada Savings Bonds have a three-year term to maturity, with interest rates remaining in effect for that period. At the end of the period, the Minister of Finance announces the new rates based on prevailing market conditions. It may be cashed at any time and earns interest up to the date it is cashed.

Canada Savings Bonds are only available through the Payroll Savings Program, which allows Canadians to purchase bonds through payroll deductions.

Learn about current interest rates and how to buy Canada Savings Bonds.​

Exchange traded fund (ETF)

An exchange traded fund is an investments in Canada fund that holds assets such as stocks, commodities or bonds. Exchange traded funds trade on stock exchanges and have a value that is similar to the total value of the assets they contain. This means that the value of an exchange traded fund can change throughout the day.

The risk level of an exchange traded fund depends on the assets it contains. If it contains high-risk assets, like some stocks, then the risk level will be high.

Guaranteed investment certificate (GIC)

A GIC is an investments in Canada that protects your invested capital. You will not lose money on the investment. GICs can have either a fixed or a variable interest rate.

Mutual fund

A mutual fund is a type of investment in which the money of many investors is pooled together to buy a portfolio of different securities. A professional manages the fund. They invest the money in stocks, bonds, options, money market instruments or other securities.

Security

A security is a transferable certificate of ownership of an investment product such as a note, bond, stock, futures contract or option.

Segregated fund

A pooled investment fund, much like a mutual fund, is set up by an insurance company and segregated from the general capital of the company. The main difference between a segregated fund and a mutual fund is the guarantee that, regardless of fund performance, at least a minimum percentage of the investor’s payments into the fund will be returned when the fund matures.

Stock

A stock is a unit of ownership in a company which is bought and sold on a stock exchange. Stocks are also called “shares” or “equities”.

Treasury bill (T-bill)

T-bill is a short-term, low-risk investment issued by a federal or provincial government. It is sold in amounts ranging from $1,000 to $1 million, and must be held for a fixed term which can range from one month to a year.

Common investment terms

Before making investment decisions, it is important to understand basic concepts.

Risk

Risk is the potential of losing your money when investing, or the level of uncertainty regarding what you will earn or lose on your investment.

Almost every type of investment involves some risk. Generally, the higher the potential return, the higher the risk.

Return

Return on your investment, also known as ROI, is the profit or growth that you make on an investment. It can vary greatly. For some investments, it can’t be predicted with certainty.

An investment’s return can come in two forms:

  • Income, including interest or dividends. A dividend is a portion of a company’s profit that is paid to its shareholders
  • Increased value, also called “capital gain,” which lets you sell your investment for a profit

You can also have a negative return if your investment loses value. This is also called a “capital loss.”

Risk tolerance

Risk tolerance is how comfortable you are with risk and not knowing what you will earn or lose on your investment.

If you prefer little or no risk, you have a low risk tolerance, or are “risk averse.”

You have a high risk tolerance if you are willing to risk losing some or all of your investment in exchange for the potential to earn more money.

You can ask yourself the following questions to help determine your risk tolerance:

  • when will you need the money
  • do you have enough money set aside for an emergency and to cover debts
  • is your job stable
  • can you tolerate investments where returns may be unpredictable or subject to sudden changes in value
  • how would you react if your investments declined in value

Liquidity

Liquid assets or investments are those you are able to cash in or sell quickly. Examples of liquid assets include savings accounts and most stocks. A house is considered a non-liquid asset.

Liquidity can be important if you are planning to use your savings or investments in the short term.

Diversification

Having a mix of investments in different asset classes is called diversification. This can help you to reduce risk.

There are two ways to diversify your investments: portfolio diversification and asset allocation.

Portfolio diversification means having a mix of investments to reduce risk. For example, having investments in many companies instead of just one. When you hold a variety of investments, you reduce the possibility that all of them will lose value at the same time. If you only own one stock and that company loses value, then you risk losing all of the money you invested.

Asset allocation means having different types of asset classes in your investment portfolio, for example: stocks, bonds and cash. When you have different types of assets, you reduce the risk that all assets will lose value at the same time.

Risk level of investments

Each type of investment option has its own level of complexity and risk. Before choosing an investment, it’s important to understand what level of risk you are comfortable with.

The most common categories of investments have varying levels of risk.

Low, or no, risk investments

Savings-like investments are generally low-risk, or even no-risk, investments Canada. This is because the capital, and often the return, is guaranteed.

Examples of savings-like investments include:

  • guaranteed investment certificates (GICs)
  • treasury bills

Fixed-income securities are also considered low-risk investments.

Examples of fixed-income securities include:

  • government bonds
  • corporate bonds

High-risk investments

Equities, also called stocks or shares, are considered high-risk investments.

The risk level of mutual funds and exchange-traded funds depends on the type of investment included in the fund.

Get an overview of different investment types in Investments at a glance, published by the Canadian Securities Administrators.

How taxes apply to investments

You may need to pay taxes on the money you make from your investments. There are different tax rules for different types of investments.

Unless your investments are very simple, seek professional advice on tax planning.

Learn more about filing your taxes by taking an online course, Learning About Taxes.

Fees and costs of investments

There are different fees and costs depending on the investment type. These costs can impact your return, so it’s important to be aware of them.

Most fees and costs relating to investments fall into the following categories:

  • costs to buy an investment
  • costs when you sell an investment
  • investment management fees
  • financial advisor fees
  • administration fees for registered plans

Not all costs apply to all investments. For example, the sales commissions when you buy bonds are often included in the purchase price.

Cost of buying an investment depends on the type of investment.

The cost of buying an investments in Canada depends on the type of investment. You may pay a trading fee every time you buy a stock or exchange traded fund. For this reason, you may want to limit the frequency of your purchases. Brokerages and investment firms set their own fees, so the trading fee depends on the company you use.

Mutual funds can have different fees when you buy them:

  • “front-end load” mutual funds do have a fee. The fee is generally a percentage of the fund’s purchase price
  • “no load” mutual funds don’t involve an up-front fee

Costs when you sell an investment

The cost of selling an investments in Canada depends on the type of investment. With some mutual funds, instead of paying a fee, or “front-end load” fee when you buy, you pay a fee when you sell. This is known as a “back-end load” fee.

The back-end load fee:

  • is generally a percentage of your selling price
  • is normally highest in the first year after purchase
  • gradually decreases for every year you hold the investment
  • may be waived by the fund dealer if you hold the investment long enough

Think carefully before buying funds with “back-end load” fees. The fees are charged when you sell the funds and are based on a percentage of the selling price. You may be charged fees as high as 7% if you sell in the first year. To avoid this cost, you may have to hold the investment for several years.

Costs to manage the fund

Investment funds, including mutual funds, charge a fee for managing the fund. The fees are called the management expense ratio (MER).

The MER:

  • may include an ongoing commission paid to advisors who sell the fund (also known as a trailer fee)
  • is paid regardless of whether the fund makes money
  • is deducted before calculating the investor’s return
  • is set at a percentage of the fund’s value

The percentage varies depending on the fund. This can be from less than 1% to over 3%. For example, you may have a fund with an annual return of 5%. If the fund’s MER was 3%, your net annual return would be 2%.

Table 1: How the management expense ratio may affect the return on your investment
Fund A Fund B Fund C
Total investment ($1,000 a year over 20 years) $20,000 $20,000 $20,000
Annual return (before MER is deducted) 5.0% 5.0% 5.0%
MER 3.0% 1.5% 0.5%
Net annual return (after MER) 2.0% 3.5% 4.5%
Fund value after 20 years2 $24,783 $29,269 $32,783
Difference from fund A n/a +$4,486 +$8,000
  1. For illustration purposes only
  2. Assumes the annual return was 5% over 20 years. In real life, a fund’s return could vary from year to year

The fund must tell you about the MER. The fund’s prospectus shows returns with the MER already removed. Beyond the MER, you may pay other financial advisor fees.

Calculate how fees and other costs affect your mutual funds with the Ontario Securities Commission’s mutual fund fee calculator.

Source: Government of Canada

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Simon Kronenfeld: Emerging investment opportunities – mtltimes.ca

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Smart investment can radically change your quality of life. Investing wisely has been one of the biggest contributors to entrepreneur Simon Kronenfeld’s journey from a dishwasher to becoming major player in Canada’s real estate market. Following his example by finding the right investment can open up a lot of opportunities for the individuals who seek them out. These are the investments that have the potential for growth with minimal risk. These top investment options can help you get ahead in 2021.

Investment has played a huge role in Simon Kronenfeld’s success. Making his way from washing dishes to making major investments in Canadian real estate, Kronenfeld has always shown excellent investment instincts for emerging opportunities. Simon focuses on finding the best risk-adjusted returns, maintaining a diverse portfolio of different asset classes. These are the key areas Simon has focused his investments into for decades, and continues to invest into in 2021.

Eentrepreneur Simon Kronenfeld

Exchange Traded Funds

Exchange traded funds, also known as ETFs, provide a simple way to diversify your portfolio while minimizing risk. By investing into an ETF, you are investing into certain sectors of the market, allowing yourself to capitalize on the growth of the overall industry, not just individual companies. While this somewhat flattens out your gains from the sudden growth of a single company, it also counteracts the impact of individual losing companies on your returns from the fund.  This makes ETFs an effective method of capitalizing on the long-term success of a market sector or group of companies.

Real Estate

Real estate investment turned Simon Kronenfeld from a small business owner to a major industry figure, and it remains one of the most viable (and popular) investments in 2021. Analyzing the future potential to transform the value of land enables smart long-term investment decisions. Kronenfeld’s story is proof that forward-looking investments are the key not just to creating financial value, but to transforming communities for the better. Timing has always been one of the challenges of the real estate market but investors who get it right can make returns significantly above the market average.

Real Estate Investment Trusts (REITs)

With Kronenfeld’s experience in both real estate and accessing the stock market through ETFs, he sees Real Estate Investment Trusts (REITs) as an ideal combination of capital appreciation, practical real estate market experience, and steady dividends. An individual can use REITs to gain exposure to companies like RioCan and Allied properties, receiving 4-6% returns on dividends alone, in addition to capital appreciation. REITs give investors exposure to real estate, while still having liquidity comparable the stock market, in contrast to the illiquidity of real estate.

Initial Coin Offerings

Initial coin offerings, also known as ICOs, have major potential for growth but also carry greater risk and volatility. ICOs are tokens that are sold by startups to fund the creation of new services, apps, and often cryptocurrencies and other blockchain-related products. While this space has the possibility of high returns, smart investors keep only minimal assets of this class in their portfolio, as it shares the high volatility and lack of regulation that makes cryptocurrency a risky investment.

Smart investors pay close attention to both emerging and flourishing markets, enabling them to take swift action when the time is right. Using Simon Kronenfeld’s roadmap to successful investment, combined with your your own knowledge and experience, will enable you to make the right investing choices in 2021.

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Stocks gain as earnings provide some optimism; 10-yr yield climbs

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Stock indexes around the world jumped on Tuesday as U.S. technology shares extended recent gains and earnings reports were upbeat, while the 10-year U.S. Treasury yield rose to its highest in more than four months.

The U.S. dollar was lower on the day as other currencies, including sterling, were supported by investor expectations that interest rates could be increased sooner than some had forecast.

On Wall Street, the technology sector boosted the S&P 500 the most, while recent stronger-than-expected results have bumped up the forecast for S&P 500 earnings for the third quarter.

Investors remain worried, however, about the impact that higher costs, supply disruptions and labor shortages are having on companies.

“The key for the market to going up from here will not be higher multiples, it will have to be higher earnings. That’s why it’s so important to pay attention to what those profit margins do going forward and what the trajectory of GDP looks like,” said Eric Marshall, portfolio manager at Hodges Funds.

Among U.S. companies reporting results on Tuesday, insurer Travelers Cos Inc beat estimates for third-quarter profit and its shares rose. Johnson & Johnson raised its 2021 adjusted profit forecast and its shares jumped 2.3%.

The Dow Jones Industrial Average rose 198.7 points, or 0.56%, to 35,457.31, the S&P 500 gained 33.17 points, or 0.74%, to 4,519.63 and the Nasdaq Composite added 107.28 points, or 0.71%, to 15,129.09.

The pan-European STOXX 600 index rose 0.33% and MSCI’s gauge of stocks across the globe < .MIWD00000PUS> gained 0.73%.

The MSCI index reached its highest in about a month.

 

MSCI World Index https://fingfx.thomsonreuters.com/gfx/mkt/zgvomrjmavd/world%20stocks%20oct%2019.PNG

 

The dollar index against a basket of other currencies was last down 0.22% on the day at 93.73, after earlier dropping to 93.50, the lowest since Sept. 28.

The euro gained 0.25% to $1.1640. Currencies, including sterling and the New Zealand dollar, are benefiting from rising interest rate increase expectations.

Bitcoin last rose 3.49% to $64,201.08.

In the U.S. Treasury market, the yield curve widened, reversing the recent trend.

In afternoon U.S. trading, U.S. 10-year yields were last up nearly six basis points at 1.6407%. The yield hit a 4-1/2-month peak of 1.6440%.

The U.S. 5-year yield, which has been on a tear the last two weeks, was last down at 1.1586%.

Oil prices climbed and were near multi-year highs as an energy supply crunch continued across the globe. Brent crude rose 75 cents to settle at $85.08 a barrel. U.S. West Texas Intermediate (WTI) futures rose 52 cents to settle at $82.96.

In other commodities, U.S. gold futures gained 0.15% to $1,769.70 an ounce.

 

(Additional reporting by Tommy Wilkes in London, Shreyashi Sanyal and Devik Jain in Bengaluru, Karen Brettell, Stephanie Kelly and Sinead Carew in New York, and Saikat Chatterjee; Editing by Jason Neely, John Stonestreet, Steve Orlofsky and Cynthia Osterman)

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In highly uneven recovery, global investment flows rebound – UN News

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That’s according to the latest Investment Trends Monitor, released this Tuesday by the United Nations Conference on Trade and Development (UNCTAD).  

It shows the increase in the first two quarters in FDI, recovered more than 70 per cent of the losses stemming from the COVID-19 crisis in 2020. 

For the UNCTAD‘s director of investment and enterprise, James Zhan, the good news “masks the growing divergence in FDI flows between developed and developing economies, as well as the lag in a broad-based recovery of the greenfield investment in productive capacity.” 

Mr. Zhan also warns that “uncertainties remain abundant”. 

Global outlook  

The duration of the health crisis, the pace of vaccinations, especially in developing countries, and the speed of implementation of infrastructure stimulus, remain important factors of uncertainty. 

Other important risk factors are labour and supply chain bottlenecks, rising energy prices and inflationary pressures.  

Despite these challenges, the global outlook for the full year has improved from earlier projections. 

The growth in the next few months should be more muted than the in the first half of the year, but it should still take FDI flows to beyond pre-pandemic levels. 

Uneven recovery 

Between January and June, developed economies saw the biggest rise, with FDI reaching an estimated $424 billion, more than three times the exceptionally low level in 2020. 

In Europe, several large economies saw sizeable increases, on average remaining only 5 per cent below pre-pandemic quarterly levels.  

Inflows in the United States were up by 90 per cent, driven by a surge in cross-border mergers and acquisitions. 

FDI flows in developing economies also increased significantly, totalling $427 billion in the first half of the year.  

There was a growth acceleration in east and southeast Asia (25 per cent), a recovery to near pre-pandemic levels in Central and South America, and upticks in several other regional economies across Africa and West and Central Asia. 

Of the total recovery increase, 75 per cent was recorded in developed economies. 

High-income countries more than doubled quarterly FDI inflows from rock bottom 2020 levels, middle-income economies saw a 30 per cent increase, and low-income economies a further nine per cent decline.  

Mixed picture for investors 

Growing investor confidence is most apparent in infrastructure, boosted by favourable long-term financing conditions, recovery stimulus packages and overseas investment programmes. 

International project finance deals were up 32 per cent in number, and 74 per cent in value terms. Sizeable increases happened in most high-income regions and in Asia and South America. 

In contrast, UNCTAD says investor confidence in industry and value chains remains shaky. Greenfield investment project announcements continued their downward path, decreasing 13 per cent in number and 11 per cent in value until the end of September.  

Agenda 2030 

After suffering double-digit declines across almost all sectors, the recovery in areas relevant to Sustainable Development Goals (SDGs) in developing countries remains fragile. 

The combined value of announced greenfield investments and project finance deals rose by 60 per cent, but mostly because of a small number of very large deals in the power sector.  

International project finance in renewable energy and utilities continues to be the strongest growth sector. 

The investment in projects relevant to the SDGs in least developed countries continued to decline precipitously. New greenfield project announcements fell by 51 per cent, and infrastructure project finance deals by 47 per cent. Both had already fallen 28 per cent last year.

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