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Investment Vehicles

Although there exists numerous ways to invest your hard earned cash, we will focus in this guide on four of the most popular methods: savings accounts, guaranteed investment certificates, stocks and mutual funds.

We can classify investments into two broad categories: fixed income and equity.

Fixed income investments carry little or no risk. You simply put your money aside for a certain period of time and usually receive a fixed amount of money back for having loaned your money to someone else. With these investments, you become a "creditor". The cash you get for lending your money to a "debtor" is called "interest". There is no risk, because there is usually no chance of losing the money you invested or of making less interest than you had anticipated (as your investment is often insured by some level of your countries' government). Savings accounts and guaranteed investment certificates (GICs) are fixed income investments.

Equity investments, in contrast, carry risk. When you invest in equity, you are purchasing part of a company. When the company becomes more valuable, your part (i.e. your "share") of the company increases in value proportionately. When the company makes a profit, part of this profit may be distributed to you as a cash "dividend". However, the downside to owning part of a company is that the company might also go through tough times and decrease in value as well as lose money. You may therefore lose some of the money you invested in the company. Should the company go bankrupt, you may very well lose all of the money you invested. Stocks and mutual funds are equity investments.

Let's begin by taking a look at savings accounts.

Continue to Part 3

Article Table of Contents:
1 - Introduction
2 - Investment Vehicles
3 - Savings Accounts
4 - GICs
5 - Stocks
6 - Mutual Funds
7 - The UniversityAdvice Bottom Line

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