Do you understand the investments that you have?

 

 

 

 

 

 

 

Stocks - Represent shares of ownership in a public company. Examples of public companies include MacDonald's, Microsoft, Coca-Cola, and Google. Companies issue stock as a means to raise money for their operations and as owners you get to participate in their profits by receiving dividends or price appreciation of the stock price.

Bonds - When you buy a bond you are essentially lending money out to the government or a company and you are entitled to receive interest payments and return of your original principal over a predetermined period of time.

Mutual Funds - Are an arrangment to allow a group of investors to pool their money together to buy a wide range of different companies. Mutual funds have an active fund manager who oversee the buy and sell of the underlying stocks of the mutual fund on your behalf. An analogy that you can think about is that mutual funds and stocks are like an elevator. Both goes up and down however the stock has a single cable attached to the elevator where a mutual fund has 20 or 50 cables. In this light, mutual funds are safer than stocks because a downturn in a single stock will not result in a major decline in the value of your investments.

Dollar Cost Averaging - This is an investment strategy when the investor invests a continuous amount of money each month into a particular investment without trying to time the market. The advantage of using dollar cost averaging is that it takes away your emotions when investing. This is a systematic way to buy more when the prices are low and buy less when the prices are high. It is an effective long term strategy to reduce risk and improve returns.

ETF's - Exchange Traded Funds. - These are a basket of stocks just like a mutual fund but the difference here is that they are not actively managed. There are ETF's that respresent a particular region in the world, an industry, a market indice and commodities. ETF's have very low MER fees as they are passive investments and are not actively managed by a fund manager. You can buy and sell ETF's with a discount brokerage just like buying and selling stocks.

Equity Options - An option is a contract that gives the holder the right to buy or sell a particular stock within a defined period of time and at a predefined price.

Call Option - Gives the holder the right to BUY a particular stock within a defined period of time and price

Put Option - Gives the holder the right to SELL a particular stock within a defined period of time and price. A PUT option is a form of insurance that protects the holder of a stock against a decline in the stock price. In exhange for this "insurance" the holder pays a premium to obtain this right.