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Some of the most common types of investments in Canada include the following:
An annuity is a type of investments in Canada contract that pays you income at regular intervals, usually after retirement.
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.
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.
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.
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.
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.
A security is a transferable certificate of ownership of an investment product such as a note, bond, stock, futures contract or option.
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.
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”.
A 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.
Before making investment decisions, it is important to understand basic concepts.
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 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:
You can also have a negative return if your investment loses value. This is also called a “capital loss.”
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:
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.
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.
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.
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:
Fixed-income securities are also considered low-risk investments.
Examples of fixed-income securities include:
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.
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.
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:
Not all costs apply to all investments. For example, the sales commissions when you buy bonds are often included in the purchase price.
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:
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:
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.
Investment funds, including mutual funds, charge a fee for managing the fund. The fees are called the management expense ratio (MER).
The MER:
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%.
| 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 |
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.
Former chief executive officer of RBC Dominion Securities Tony Fell is campaigning to require the Canadian financial industry to account for inflation in how it reports investment returns.Neville Elder/Handout
While the average Canadian is fixated on the price of gasoline and groceries, inflation may be quietly killing their investment returns.
Compounded across many years, even modest inflation can deal a powerful blow to a standard investment portfolio. And investors commonly underappreciate the threat.
But a legend of the Canadian investment banking industry is trying to change that.
Tony Fell, the former chief executive officer of RBC Dominion Securities, is campaigning to require the Canadian financial industry to account for inflation in how it reports investment returns.
“I think they will find this very hard to argue against,” he said in an interview. “It’s a matter of transparency and reporting integrity. But that doesn’t mean it will happen.”
Mr. Fell made his case in a recent letter to the Ontario Securities Commission, arguing that Canadian investors are being misled. He has not yet received a response from the regulator.
Canadians with an investment account receive a statement at least once a year detailing how their investments have performed. For the most part, rates of return are calculated on a nominal basis, meaning they have no inflation component factored in.
A real return, on the other hand, accounts for the hit to purchasing power from rising consumer prices.
These figures, Mr. Fell argues, would give investors a clearer picture of how much they have gained from a given investment.
And since Statistics Canada calculates inflation on a monthly basis, the investment industry would already have access to the data it needs to make the switch to real returns. It would be very little trouble and no extra cost, Mr. Fell said.
Still, he said he expects the investment industry will resist his proposal. “The mutual-fund lobby is so strong, and nobody wants to rock the boat too much.”
He points to the battle to inform Canadians of the investment fees they pay. For 30 years, investor advocates have been pushing for improvements to disclosure.
One major set of regulatory changes, which took effect in 2016, required financial companies to disclose how much clients paid for financial advice.
But the reforms left out one major component of mutual-fund fees. The cost of advice is there, but many investors still don’t see how much they pay in fund-management fees, which amount to billions of dollars paid by Canadians each year.
Total cost reporting, which should finally close the fee-disclosure gap, is set to come into effect in 2026. “It’s outrageous,” Mr. Fell said. “That should have been done years ago.”
So, it’s hard to imagine the industry warmly receiving his proposal, or the regulators enthusiastically pushing for its consideration.
The OSC said it agrees that retail investors need to be attuned to the effects of inflation, which is where investment advisers come in. “Professional advice requires an assessment of risk tolerance and risk appetite in order for an adviser to know their client, including the effect of the cost of living on achieving their financial objectives,” OSC spokesman Andy McNair-West said in an e-mail.
And yet, Mr. Fell said, the need exists for more formal reporting of inflation-adjusted performance.
Inflation often goes overlooked by the industry and investors alike. It can be seen in the celebration of stock indexes at all-time nominal highs, which wouldn’t look so great if inflation were factored in.
The inflationary extremes of the 1970s provide a stark illustration. In 1979, the S&P 500 index posted a total return of 18.5 per cent – a blockbuster year until you consider that inflation was 13.3 per cent.
That took the index’s real return down to a lacklustre 5.2 per cent.
More recently, investors in Canada and the United States piled into savings instruments promising 5-per-cent nominal rates of return. But the rate of inflation in Canada averaged 6.8 per cent in 2022, more than wiping out the return on things such as guaranteed investment certificates, in most cases.
“A lot of people don’t connect those dots,” said Dan Hallett, head of research at HighView Financial Group. “Over 10 years, even 2-per-cent inflation really eats away at purchasing power.”
He worries, however, that reporting after-inflation returns may confuse average investors, many of whom still fail to understand the basic investment fees they’re paying.
All the more reason to get Canadian investors thinking more about inflation, Mr. Fell argues.
“The impact of inflation on investing is sort of forgotten about,” he said. “The only way I can think of turning that around is to highlight it in investors’ statements.”
Capital gains tax hike a sure way to repel the tech sector
Published Apr 18, 2024 • Last updated 23 minutes ago • 4 minute read
If there’s an uncomfortable economic lesson of the past few years, it’s this: The vibes matter.
As much as economists point to data, the reality in politics and policy is that public expectations and perceptions are important too. And from a business perspective, the vibes of the 2024 federal budget are rancid.
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The budget document’s title is “Fairness For Every Generation” and in practice, what that meant was a “soak the rich” tax hike on capital gains.
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You can see how this looked like good politics. In her budget speech, Finance Minister Chrystia Freeland said that only 0.13 per cent of Canadians with an average annual income of $1.4 million will pay higher taxes — hardly a sympathetic lot, at a time when many Canadians are struggling to pay for food and housing.
The problem is that the proposed capital gains tax hike won’t only soak a handful of rich Canadians as advertised. In its current design, it broadly punishes individuals and families of small business owners, tech entrepreneurs, dentists and countless others who have often spent decades trying to build their businesses for a potential once-in-a-lifetime capital gains event. Together, our analysis suggests that those people represent closer to 20 per cent of Canadians.
This tax proposal simply amounts to a systemic tapping on the brakes on the investment in a productive and prosperous future, being made by innovative, hardworking Canadians. And it does so at the very time Canada needs them to accelerate their investing.
But among the innovators and business leaders I talk to in the Canadian tech sector, this week’s budget was a chilling shock. There is a sincere and widespread belief that if something does not change, the budget will do widespread and irreparable damage to Canada’s tech sector.
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That’s why more than 1,000 CEOs have signed a public letter to Prime Minister Trudeau and Deputy Prime Minister Freeland at ProsperityForEveryGeneration.ca, calling on the government to stop this tax hike. Innovators understand what’s at stake.
Firstly, we are at a moment when capital is harder to access than at any time in the past generation. Higher interest rates and economic uncertainty mean that many high-growth companies with innovative products struggle to secure growth capital on favourable terms.
South of the border, we’re seeing strong growth, driven by significant government investment through strong industrial policy, alongside significant growth in bleeding-edge artificial intelligence applications. The U.S. is an exciting place to invest right now.
And capital is highly mobile. If Canada is seen as an unfriendly place to invest, due to high taxes, investors will simply take their money elsewhere, and propel the growth of promising tech companies in other countries.
What’s more, highly skilled talent is more mobile than ever before, and among innovative high-growth companies, stock options — subject to capital gains tax — are a key form of compensation.
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We’re not talking purely about CEOs and tech founders here either. The dedicated early players of a promising tech startup earn their stock options with sweat equity. Their dedication, taking a risk in the prime of their career, is often the key ingredient for the success of future innovation champions.
Innovators are intimately aware of these concerns, because this isn’t the first time the Liberal government has tried to tax stock options. Nearly a decade ago, they promised to hike taxes on stock options in their 2015 campaign platform, and it took years of public advocacy from tech leaders to help the government understand the potential unintended damage that a reckless tax hike could do on the ability to attract and retain talent.
All along the way, we were assured by the government that they knew what they were doing, and there was nothing to worry about. In truth, after many frank conversations, they changed course.
In the days and weeks ahead, I’m expecting to hear the same kind of thing again. Already we’ve heard from government officials pointing to the “Canadian Entrepreneurs’ Incentive” carve-out, which will soften the blow of higher capital gains tax rates overall. The details of this carve-out are not yet fully clear, and it’s possible that the government will tinker with the thresholds to help mitigate the damage of a tax hike on capital gains.
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But the reality is that without a significant change in messaging, the danger to Canada’s economy is real.
Capital gains are taxed at a different rate because they are taxes on investment. Every investment comes with risk; you are not guaranteed to make a profit. The tax code takes this into account.
If the vibes are off, and the global perception of Canada is that we’re not a place where the investment risk is worth it, because the federal government is just going to tax you to death, then we simply won’t see capital or talent flow to Canada.
Innovation and entrepreneurship are about hope. You fundamentally need to be an optimist to risk it all, and invest yourself in growing a business. Right now, Canada’s federal government is not sending a hopeful vibe. And the vibes matter.
Benjamin Bergen is president, Council of Canadian Innovators.
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‘If I try to put myself back into the shoes of me as a 21-year-old, all I can tell you is this: I was hungry,’ writes Gary Stevenson in his recently released memoir, The Trading Game, which tells the story of how the son of a Post Office worker briefly became the highest-paid trader working on Citi’s bond trading floor at London’s Canary Wharf. He sits down with host Claer Barrett to talk about what he learned about trading and how the wider economy works – and why he’s worried.
Find Gary @garyseconomics on YouTube, X, Facebook, Instagram and TikTok. Read Gary Stevenson’s recent FT Magazine profile by Miles Ellingham.
For more tips on how to organise your money, sign up to Claer’s email series ‘Sort Your Financial Life Out With Claer Barrett’ at FT.com/moneycourse.
If you would like to be a guest on a future episode of Money Clinic, email us at money@ft.com or send Claer a DM on social media — she’s @ClaerB on X, Instagram and TikTok.
Want more?
Check out Claer’s column, The hunt for good value UK stocks.
Listen to more episodes, such as Investment Masterclass: An insider’s view of the City of London, Investment masterclass: what’s one of the world’s leading investors buying?, and more.
Presented by Claer Barrett. Produced by Tamara Kormornick. Our executive producer is Manuela Saragosa. Sound design by Breen Turner, with original music from Metaphor Music. Cheryl Brumley is the FT’s global head of audio.
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