Investments have three different types of return:
When you put your money in a bank account, Guaranteed Investment Certificate (GIC), or savings bond, it earns interest.
When you buy stocks or bonds and their value goes up, you make capital gains if you decide to sell. This means that you gained money from the dollars you invested (your capital).
Some stocks may pay you a share of the company's profits as income from time to time. These are your dividends.
How does a guaranteed investment work?
- You know when you buy it how much you'll make and when.
- You get more peace of mind, but you give up the chance to grow your money faster.
- Your money often grows slowly but steadily over time.
- Interest rates determine how much your money will grow. Examples: GICs, Canada Savings Bonds (CSBs)
How does a non-guaranteed investment work?
- You could lose some or all of your money. However, you could also get a higher return - often as capital gains.
- The value can go up or down from day to day and month to month. It may grow quickly for a while and then slow down or even drop.
- The key is to choose something that has more chance of gain than loss over time. This can be a good way to make your money grow if you are sure you won't need it for a while. Examples: stocks, stock mutual funds, real estate
Remember: Investment return comes in many forms
Many people choose a combination. With a guaranteed investment, you always know where you stand. Still, it may not be the best choice if you want your money to grow faster and are willing to take some risk. In this case, you might pick non-guaranteed investments.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.