Types of Investments Stock Stock refers to shares

Types of Investments Stock: Stock refers to shares in a company. An individual can purchase stocks of a company as a form of investment.

The person then owns a small percentage of the financial well -being of the company.

A person who does this is essentially predicting that the company will do well financially, so that the value of the stock will rise.

However, if the value of the company decreases, so does the value of the stock.

Two different types of stocks include blue-chip stocks and speculative stocks.

Blue-chip stocks – typically conservative, these are stocks in companies that have a steady history of steady earnings.

Speculative stocks – these stocks, on the other hand, have the potential to vary wildly in their future behaviour.

One phrase that could be used to describe these stocks is “high risk, high reward”.

Bond – A bond is essentially a promise by one party to pay another party a guaranteed amount after a certain length of time in return for lending money now.

For example, one party may borrow $1000 from another party based on a promise to pay the first party $1050 in one year’s time.

Governments frequently issue bonds as a means of raising money.

Guaranteed Investment Certificate – is similar to a bond and is issued by the Canadian government.

For instance, suppose that Jenny goes to her bank and purchases a GIC.

Imagine that the terms of the GIC are as follows: –Purchase price of $1000 –Ten year term – 4. 4%/a compounded semiannually

Jenny is pleased because in ten years she will be able to cash in her GIC for the following amount:

Calculations …

The government is pleased because it gets $1000 to use as it sees fit for the next ten years.

It will likely invest this money in the hopes of raising more money that what it paid back to Jenny.

Jenny is pleased because she is guaranteed to have $1545. 32 in ten years.

However, a risk to Jenny is that she cannot cash the GIC in before ten years (i. e. , before the date of maturity) or else she will have to pay a penalty.

Mutual Fund – a mutual fund is a type of investment where people pool their money together to buy stocks, bonds and other assets.

A mutual fund is managed by an investment company that charges a fee.

Registered Education Savings Plan – an investment set up to save for a child’s education. The income from the plan grows tax-free.