Investment types title graphic

Do you ever feel confused about investments?

Like maybe you don’t know your GICs from your ETFs?

You know you should be investing in something, but you’re not sure what.

Well, that’s perfectly normal.

There’s a lot of information out there, and I know it can be intimidating.

Especially when you’re looking at where to park your life savings.

But don’t worry. By the time you’re done reading this post, you’ll not only know which investment types are what but also which to shy away from when you’re just getting started with investing.

Guaranteed Investment Certificates

GIC graphic

A Guaranteed Investment Certificate, or simply a GIC, is just that, a guaranteed investment.

It’s an investment vehicle where you agree to give a bank a certain amount of money for a certain period. In exchange, the bank will pay you an agreed-upon amount of interest.

GICs come in different lengths (usually 1 to 5 years) and can be either redeemable or locked-in. When they are redeemable, you have the option to get your money back before the end of the term. When they are locked in, you must leave your money in for the entire duration.

A GIC will typically have the lowest return out of all the other investments I’ll cover in this post. But that’s the sacrifice you make for the guarantee.

GICs would be a good investment if you don’t like market fluctuations and are good at saving money. They can also work if you need your money relatively soon and want a small, guaranteed boost in your savings.

But what if you don’t like how small of a return they offer?

Bonds

Loaning money graphic

If you’re looking for a bit more return on investment than what a GIC can offer while still staying low-risk, bonds might be your ticket.

Put simply, bonds are loans you make to companies.

They’re similar to GICs in that you give up a certain amount of money for a certain amount of time. But, again, in exchange, you get a specified amount of interest at specific intervals. And, once the bond matures, you get your principal back just like a GIC.

So what’s the difference?

Well, unlike a GIC, where you are guaranteed to always get your money back with the same value you put in, bonds aren’t always as safe.

There’s always the chance that the company that sold you the bond can struggle to make payments or even go bankrupt. If that happens, you might not be able to get your principal back.

In that case, you’d lose out on both your principal and the interest payments you were expecting.

Bonds will therefore offer a better return than a GIC to compensate for the added risk. They’re a good option if you’re okay with a lower return in exchange for less volatility.

But I know you didn’t read this far to just hear about low return options.

Stocks

exceptional stock growth graphic

Stocks are the investments that get all the attention.

When you buy a stock, you are essentially buying a small piece of a large company.

They’re similar to bonds in that companies will sell you shares to raise money for business activities. But, unlike bonds, you’re not promised any payment in return.

One of the ways you can make money with stocks is if you sell them for a higher price than you paid.

The other is through dividend payments that some more established companies may choose to pay regularly. But be warned that just because a company is paying dividends right now doesn’t mean they always will.

Stocks are the most volatile investments and carry the most risk, but they can provide the highest returns depending on the strategy.

As a result, they are the go-to option for people who need or want higher investment returns and are willing to accept the risks.

But what if there was a middle ground, like something that could offer higher returns than bonds, with less risk than stocks?

Mutual Funds

mutual fund graphic

Mutual funds are essentially a group of investors, like you and me, pooling their money together so that a fund manager can buy stocks and bonds with it.

This way, we don’t have to worry about picking the right stocks or bonds ourselves. Instead, the mutual fund company will do that for us.

They’re a good investment option if you want higher returns than bonds without the risks of holding just a few stocks.

Also, they’re effortless to get started with since most banks sell them. So you can start with very little money and regularly contribute without thinking about it.

Sounds great, right?

Hold on a second.

Although mutual funds offer many benefits, they can also be quite expensive.

So what’s the answer then?

Index Funds

etfs get average returns

Index funds are very similar to mutual funds, except they come at a fraction of the cost.

You can still regularly contribute to them like a mutual fund but they have one significant difference.

Mutual funds usually try to outperform the market by choosing specific stocks. On the other hand, index funds will try to match the market by investing in all stocks.

Because they invest in all stocks, they aren’t paying a fund manager to actively research and select stocks. They, therefore, have fewer fees associated with them and pass these savings on to you.

Since they cost less, index funds can also offer higher returns than mutual funds when you factor in fees over time.

In short, index funds are a way to capture the average market return while paying very little to do so.

They’re ideal if you’re okay with the average return and fluctuations of the stock market and want the convenience of mutual funds.

But what if you don’t need the convenience and wanna save even more money?

Exchange-Traded Funds

etfs are like if stocks and mutual funds had a baby

Exchange-traded funds, or ETFs, are essentially a cross between stocks and mutual funds.

They work like stocks in that you buy and sell them on an exchange. However, they’re also like mutual funds as they provide investors with a basket of holdings in one go.

Many ETFs are really just index funds and track the same indexes that index funds do. The difference, though, is they have even lower fees at the cost of convenience.

The downside is that you can’t contribute as easily since you need to place an order through a broker every time you want to add to your position. The inconvenience is often worth it, though.

ETFs are a good choice if you’re okay with average returns and want to save as much on fees as possible.

And in case you’re curious, I invest my money with ETFs.

Now, Get Invested!

Which of these investment types sounds most interesting to you?

Run with it and get your account opened or book that appointment.

Whatever you’ve got to do to get started with investing, do it.

Oh, and don’t forget, if you need help, I’m just a comment or email away.