Stocks
A stock represents an ownership interest in a company. Its market price can rise or fall, and some companies pay dividends. Returns are not guaranteed, and shareholders can lose some or all of the amount invested.
Module 04 · Know what you own
The label is only the beginning.
Stocks, bonds, GICs, mutual funds and ETFs can play very different roles. Start by understanding what each one represents, what can change its value and how easily you can access your money.
Five common building blocks
Different structures create different trade-offs.
An investment type does not determine whether a particular product fits a person or goal. Terms, holdings, risks and costs still need to be examined.
Bonds
A bond is generally a loan to a government or company. The issuer promises interest and repayment under stated terms, but interest-rate, credit, inflation and liquidity risks can affect its value and repayment.
GICs
A guaranteed investment certificate is a deposit for a stated term and return formula. Understand when principal is repaid, whether early withdrawal is allowed and whether eligible deposits are covered by the applicable deposit insurer.
Mutual funds
A mutual fund pools investors’ money and holds a portfolio managed according to its objectives. Investors own units. Risk depends on the underlying holdings, and fees reduce the return investors receive.
ETFs
An ETF also pools investments, but its units trade on a stock exchange during the trading day. An ETF may be broad or highly concentrated; its holdings, strategy, trading costs and fund expenses all matter.
Fund is not asset class
A mutual fund or ETF is a structure. Either may hold stocks, bonds, cash, commodities or a mix. The name alone does not reveal the actual exposure or level of diversification.
A repeatable comparison
Ask the same questions every time.
- What do I own? A company interest, a loan, a deposit or units of a pooled fund?
- What drives the return? Interest, dividends, business results, market prices or a stated rate?
- What could cause a loss? Market declines, issuer default, changing rates, inflation, currency movements or fees?
- When can I get the money? Is it traded, redeemable, locked in or costly to sell?
- What does it cost? Include product expenses, advice, trading, spreads, administration and currency conversion.
- What is inside? Review concentration by company, sector, geography, currency and investment type.
Documents worth reading
Look past the product name.
For a mutual fund, review its Fund Facts document. For an ETF, review its ETF Facts document. For a GIC, review the term, interest calculation, maturity, redemption conditions and deposit-protection information. For individual securities, understand the issuer and the security’s specific terms.
Diversification is not automatic.
A fund may hold many investments and still be concentrated in one industry, country, currency or strategy. Diversification can reduce some risks, but it cannot prevent losses.
A fund may hold many investments and still be concentrated in one industry, country, currency or strategy. Diversification can reduce some risks, but it cannot prevent losses.
Verify before acting
Use current, authoritative information.
Product features, protections, fees and tax treatment can change and may differ by provider and account. This lesson is a starting framework, not a recommendation or assessment of suitability.
Primary references: Financial Consumer Agency of Canada: Savings and investments, CIRO: Types of investments and accounts, and FCAC: GIC and term-deposit disclosure rights.