The different investment types available for your portfolio

A stock (or a “share”) is a type of investment that represents partial ownership of a company. When you buy a stock, you’re essentially buying a portion of a company and aiming to grow your investment as the company grows. As a company grows and its share value increases, stockholders may choose to sell the stock and lock in capital gains (once it’s sold). Investors may also receive dividend payments, depending on the stocks they own.

Before a stock is available for trading in the stock market, it undergoes a process called Initial Public Offering (or simply IPO) where private companies raise capital and go public for the first time. Some investors may invest in companies undergoing an IPO because they are long-term followers of the brand or want to purchase securities at the IPO price (or offering price). After an IPO, stocks become available in the open market for trading. In some cases, some companies offer a Direct Public Offering (or DPO) that directly offers securities to the public to raise capital. This process removes other intermediaries such as banks and venture capital funding which lowers the capital raised in DPOs.

A bond is a debt security where investors lend money to institutions like governments, corporations, municipalities, or other entities for a pre-determined term. Typically, a bond includes a maturity date when the principal loan is due. Until then, the issuers pay the creditors (or the investor) a coupon rate on regular intervals. Bonds are rated by their credit rating to see their trustworthiness or reliability in paying back the coupon rate to the creditors. The higher the credit rating is, the less likely the issuer will default on their payments (and vice versa).

Guaranteed Investment Certificates or GICs are investment contracts that allow you to deposit money to an account for a period of time (typically a few months to 5 years) and in return, earn interest. Similar to bonds, GICs let you lend your money to institutions (typically banks or trust companies) and they provide guaranteed interest returns to the deposited money. You can take out the money you invested from the account (except for non-cashable GICs), however, you may have to pay penalties depending on the type of GIC you hold. Generally, issuers pay a higher coupon rate when the GIC term is longer.

An ETF (or Exchange-Traded Fund) is an investment that contains an underlying basket of securities such as stocks, bonds, commodities, and other types of investments. Typically, an ETF follows a particular sector, index, or type of assets and can be traded on the stock exchange, similar to a stock. When you buy an ETF, you’re participating in the gains and losses on the underlying securities inside that fund. If the underlying securities increase in value, your shares will typically increase in value too and you may realize a capital gain (once it's sold). In contrast, if securities inside the fund decrease, the value of your share will also decrease and you may incur losses. Since an ETF can contain multiple assets, investors can see it as an option to diversify their portfolio.

A mutual fund is an investment product that pools money from investors in order to trade a basket of securities such as stocks, bonds, and other types of investments. When you buy a mutual fund, a portfolio manager allocates and manages assets in the fund according to its objectives (typically found in the fund’s prospectus, a formal document that is filed and approved before an investment becomes public). Similar to ETFs, investors can see mutual funds as an option to diversify while having a professionally managed portfolio.

An option is a financial contract between a buyer and seller. The buyer of an option contract gains the rights, but not the obligation, to buy or sell the underlying asset at a pre-determined date and price. On the other hand, the seller of the option is obligated to carry out the terms of the contract and complete the transaction if the buyer chooses to exercise their option to purchase. An option contract will have a stated expiration date where holders can exercise their option prior and a price of the option (called the strike price).

Foreign exchange (or FX) trading is the buying and selling of currencies with the intention of making a profit from the price differences on the currencies involved. Investors can trade foreign exchange in a decentralized electronic exchange that runs 24 hours, 5 days a week (from 5 PM EST Sunday to 4 PM EST Friday) Monday-Friday) and is the largest financial market in the world. Because of this, investors can have the opportunity to trade at their convenience from a global financial market.

You can also trade precious metals such as gold and silver to diversify your portfolio of commodities investments. Commodities are a type of asset class based on raw materials (usually from natural resources and agricultural produce) used to typically create products that consumers buy.