| Investment
Descriptions |
Savings accounts are the most convenient
way to earn interest. The interest is generally
low (less than one per cent these days) because
the money can be withdrawn at whim. Interest can
also be determined by whether the savings account
is bundled with a chequing account.
Check Current Savings Rates
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Guaranteed
Investment Certificates (GICs) are for investing in for a
year or more - usually one to five years - and
come in various forms with different available
options. Check out the options offered and
determine which suit your needs and situation
most closely. For example, some can offer a low
interest rate in the first year and more
attractive returns in subsequent years. Always
check if there are penalties for early withdrawal
and how much those penalties are. It is important
to consider the liquidity of any investment.
Liquidity means how available your money will be
if you want to withdraw it on short notice.
Generally, the more liquidity you want, the lower
the interest-rate return. Long-term rates tend to
be higher, but in high-inflation and
pre-recession environments, this may not hold
true.
Check current GIC Rates
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Canada Savings
Bonds
typically offer more liquidity than GICs. They
can be cashed in without penalty after 90 days if
you do it at month end. Terms vary from issue to
issue. They have been made more attractive lately
because of stepped-up guarantees on rates beyond
the first year. For example, three per cent could
rise to 5.00 percent. Minimum purchase is usually
$100 and the maximum is $500,000.
Check Current CSB Rates
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Money Market Mutual
Funds
that invest in federal government treasury bills,
provincial treasury bills, and short-term
commercial paper issued by the most credit-worthy
corporations. The return for these funds are
expressed as a yield.
Check Current T-Bill Rates
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Bond Mutual Funds are a pool of investments
that are professionally managed. They have two
components: the rate of interest the bond is
paying and the price you pay for the bond. If a
bond is paying seven per cent and interest rates
go higher than seven, the bond is less attractive
and therefore worth less. The price of bond
mutual funds, therefore, moves in inverse
direction to interest rates. A purchaser should
look at the bond's performance and work out a
comfort level with the fund manager. Some
managers may tend to be more risk-oriented than
others in the investments they put into the
basket.
Check Current Bond Yields
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Balanced Mutual
Funds
are a combination of cash, fixed income (such as
bonds) and equities (such as stocks). These funds
are an efficient way to spread your money across
diffent types of investments. When stock markets
are down, for example, bond markets may be up, or
vice versa. Diversification by asset class is the
objective with these types of funds. They will
tend to produce a lesser rate of return over the
longer term, than equity-based vehicles, but will
tend to exhibit lower volatility.
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Equity Mutual Funds are mutual funds that
invest in a mixture of stocks. Equity funds are
categorized by the types of stocks in which they
invest. For example, by geography or industry
type. Usually, these types of funds will be more
volatile and generate the highest rate of return
over longer investment time frames.
Check Current Stock Market
Conditions
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Labour Sponsored
Mutual Funds are equity type investment funds
sponsored by labour to provide venture capital
for small and medium-sized businesses. Most of
these funds are provincially based, although some
national labour funds exist as well. Thanks to
the generous tax credits they offer investors,
these funds have proven quite popular. To benefit
from these tax credits, investors must typically
allow their investment to remain in the fund for
a minimum of eight years. It should be noted that
the large tax credits are offered as a "risk
premium" of sorts. These funds will tend to
be towards extreme end of potential volatility.
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