More than just stocks — learn about the most popular types of investments

Stocks give investors an ownership stake in a business. When you own stock — even if it's just a few shares — you become one of the owners of a business. There are two main ways to earn a return on a stock investment. The first is from an increase in the value of your shares. The second is by receiving dividends — a portion of the company’s profits that it pays to investors.

Stocks can be risky to hold for the short term and are better if you can hold them for at least 5 to 10 years. Since stock prices tend to go up and down more than other investments, it’s important to diversify. Don’t put all your eggs in one basket, or all your savings in a single stock.

Bonds are loans that investors make to governments or corporations. Bonds typically pay a fixed rate of interest over the term of the loan and repay the full amount at the end of the term. The value of a bond may increase or decrease depending on how interest rates move, but the main reason to invest in a bond is to get a regular interest payment.

Bonds typically have somewhat lower risk than stocks, since the issuer of the bond doesn't need to grow or become more profitable. Instead, they simply make regular interest payments and repay your loan at the end of the term.

If a company goes bankrupt, the bond investors are paid back first, while the stock investors only get what's left over after doing so. That's a big part of the reason why bonds are less risky than stocks.

Cash and cash equivalents are assets that you can easily withdraw when you need your money. Cash holdings, like high-interest savings account deposits, are expected to have a positive return with very low risk of loss. But, the return is likely to be lower than from stocks and bonds over the long term.

Also included in cash are Guaranteed Investment Certificates (GICs). These have similarly low risk and may offer a higher rate of interest than some bank accounts, but funds are typically locked in for a period of at least one year. You may be subject to loss of interest if you withdraw the funds earlier than planned.

Many Canadians invest in real estate by owning their home and through investing in rental properties. Returns can come from an increase in the property value over time, as well as from rental payments.

To calculate the return on a real estate investment, it’s important to factor in the cost of mortgage interest, property taxes and maintenance. You also want to consider realtor fees and land transfer taxes.

In some ways, investing in real estate is like a mix of stocks and bonds. The land part of real estate is like a stock, in that it reflects the growth of the economy. The building part of real estate is like a bond, in that rental income can be a steady source of income. While most bonds lose value to inflation, rental income from a property typically rises with inflation. This is subject to rent control limits that vary by province or territory.

With financial assets, risk and return are somewhat related. We take more risk with stocks and expect a higher return; we take less risk with bonds and cash, but expect a lower return. Real estate is like a blend of stocks and bonds, though much less liquid.

The right mix of investments will depend on your time horizon, risk tolerance and investment goals. Consult with an advisor to build a mix of investments that helps you achieve your goals.