If you're completely new to investing, you may have heard these fancy terms being thrown around, things like GICs, Stocks, Bonds, Mutual Funds. But what do they all mean?
In this video, we try our very best to explain all of these terms in just under 1 minute! Try to keep up :)
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Investing is one of the most important sections we’ll be covering on this channel. It’s also one of the most highly requested topics by you guys.
A lot of people are either scared of losing money in the stock market or unsure of where to start.
With investing, there are also a lot of confusing terms out there that you might have heard before. Things like GICs, bonds, stocks, mutual funds, all of which just sounds like noise.
So today, we are going to explain the different investment products and how they work.
You know how we mentioned all those investment terms in the beginning. Well... I’ll try to not bore you by explaining all of them… in one minute.
Investing in a GIC is like giving the bank $100.
The banks keep your money for an agreed period of time, and will guarantee an agreed % of return.
The only catch is that you can’t touch that money in those three years
After afterwards, the bank returns your money with some interest.
GIC - Low Risk, But Low Rewards
Investing in bonds, you are lending money to a corporation or government. These corporations or governments agree to pay you back after a set amount of time, and reward you with interest. It’s a bit riskier than GICs, but it’s unlikely that large corporation or government will fail to pay you back.
Bonds - Low Risk, low rewards
When you invest in stocks, you are buying part ownership of a company at a certain price, let’s say $10. If the stock goes up to $20 and you sell your stock, you make money. But if the stock goes down to $2 and you sell your stock, you lose money
Like most investments, you don’t really have control in whether the price goes up or down.
Stocks - High risk, high reward
Mutual fund is a mix of stocks, bonds, with the stocks usually of the same industry. Rather than buying Apple stock, Google stock, Microsoft stock individually, you buy this “fund” that contains all those stocks together.
Mutual Funds - Medium risk, medium reward
Now let’s look at everything. You can see here that low risk gives low rewards, and high risk gives high rewards. Pretty obvious right?
Need more examples?
Betting in the Casino or buying Lottery tickets, thats High Risk, High Rewards. Lending Money to a Friend, Collecting inheritance from Nigerian Princes - thats, High Risk, Low Rewards.
So.. what is in this quadrant? Everyone is interested in investments that have relatively low risk, but still provides a good return.
And what goes here are Index Funds.
Index funds are similar to mutual funds, but a collection of stocks. But instead of owning maybe 50 or so stocks within a mutual fund, an index fund owns almost all of the stocks in a certain market.
For example, the U.S. Index fund will not only own Apple, Google, Microsoft, but also every other major company in the united states.
We’ll talk more about index funds in a later video, and in the meantime, you can look at this chart and think for yourself what kind of investments are right for you.