Stocks are shares you own
Stocks are equity purchases that give you an ownership stake in a corporation or group of companies. Their value grows or decreases according to the organization's financial performance.
You can receive money either through dividends (a cash percentage of profits paid at intervals determined by the company's Board of Directors) or selling the stock.
"Blue chip" stocks from well-established companies offer reliable expectations of paying dividends; less established, smaller capitalized (small cap) companies may show greater potential, but have no track record of consistent earnings. Generally, the higher the potential return the higher the risk.
Bonds are loans you've made
Bonds are different; there's no ownership involved. They're actually loans to a corporation or government needing to raise funds without having to surrender ownership. Like a term deposit, bonds come with a fixed rate of return over a specified period, yet can still be subject to the risk of not being repaid.
Unlike stocks, bonds have a defined term, when the bond or loan is redeemed. Stocks can be held indefinitely.
Government-backed bonds are usually deemed "safe" investments, as are corporate bonds from large financial firms, industrial corporations, public utilities and transportation companies. Sometimes bond markets rise when stock markets fall, but generally they are less affected by market volatility.
The value of investing in stocks and bonds
Why include stocks and bonds in your portfolio as a Canadian investor? The advantages include:
- Long-term capital growth
- Lower tax rate (capital gains and dividends)
Spreading your investments among different stocks and bonds is always a good strategy. A mix of stable, fixed-income investments like bonds can provide a solid cushion against equity market volatility, while stocks can provide greater potential upside and long-term growth potential.
Part of a well-designed investment plan
Knowing when to invest takes time, experience, and knowledge. If you want a diversified portfolio and have an investment time horizon of five years or more, a Credential Securities investment advisor can provide you with personal wealth management and the best advice for investing in bonds, stocks and more. Active investors should consider the advantages of our Credential Securities full-service brokerage services.
Get started with your investment portfolio. Contact us today.
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