Learn about the various types of investments

Learn about the various types of investments

At this point you’ve defined your investment objectives and your investor profile. You are therefore ready for step 3, and not the least important, of your investment approach: learning about the features of the various types of investments available to you.

Investments fall into 3 broad categories:

  1. Liquid assets :These include short-term deposits, redeemable savings and money market investments. These types of investments usually mature within 1 year.
  2. Fixed-income investments : These include term deposits of 1 year or more and bonds. The return on these investment vehicles is known in advance and the capital invested is guaranteed at maturity.
  3. Growth stocks : These include mutual funds, some indexed savings products and shares in companies listed on the stock exchange. There is no way of knowing in advance what the return on these investments will be.

There are many types of investment products.  You’ll need to choose the ones that best meet your financial needs and your investor profile.

Types of investments

Term savings

Capital invested in term savings is 100% guaranteed and can be invested for anywhere between 30 days and 10 years, at interest rates that are higher than those of regular savings accounts.

Some savings products are redeemable, meaning that you can withdraw your capital before maturity.

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Term Savings and guaranteed fixed-rate investments

Market-linked guaranteed investments

An investment similar to term savings, but with a rate of return that, instead of being fixed, fluctuates with the market. The yield is generally higher than term savings, but of course, it all depends on how well the stock market performs.

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Market-linked guaranteed investments

Investment funds

Investment funds, also known as mutual funds, provide access to markets usually reserved for seasoned investors. They have tremendous advantages. Your investment is pooled with those of other investors and placed in the hands of experts who manage the fund according to the fund’s investment policy. They are also extremely flexible because you can buy or sell shares at any time.

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Investment funds

Registered plans

Registered Retirement Savings Plans (RRSPs)

RRSPs are plans in which your investments grow tax-free. When the funds are withdrawn, they are added the investor’s gross income and become taxable. You may, however, withdraw money from an RRSP tax-free to finance advanced studies with the Lifelong Learning Plan (LLP) or to buy a home with the Home Buyers’ Plan.

Each year, you can contribute up to 18% of your previous year’s earnings to your RRSP. You may also add any unused contributions from previous years.

What kind of investments should be held in an RRSP? It all depends on the way investment earnings are taxed. See Investments and taxes.

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Registered Education Savings Plans (RESPs)

Like RRSPs, RESPs are tax-sheltered accounts in which you can save up for your children’s, grandchildren’s or other children’s post-secondary education.

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Tax-Free Savings Accounts (TFSAs)

The Tax-Free Savings Account (TFSA) is a registered savings plan in which income and withdrawals are not taxable. You can make your savings grow tax-free and access the money at any time. Compare TFSAs and RRSPs

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Tax-Free Savings Account

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