So a few months ago I finished my investing website, Oneyounginvestor.com. It had been a goal of mine for a few years now and thanks to plenty of free time lately, I finally polished it off (though it's far from polished). It just seems to me like crucial knowledge that our educational system, including University and College, completely ignores. I even hear of business students, accountants and other financial graduates saying they don't even really know how the stock market works!
This was my motivation for making the site, and although there is plenty of great info already on the internet, I wanted to filter all the unnecessary stuff and just focus on the basics, written in a logical, structured and easy-to-read format.
Why don't I summarize what I do talk about on my website?
Let's just do some good old basic definitions of some main investing tools
What is a....?
G.I.C. – G.I.C. stands for Guaranteed Investment Certificate….this doesn’t really help understand what it is any better. It’s a ‘certificate of deposit’ that banks let you to purchase for a certain amount of time- usually anywhere from 1 month to 5 years. The money you use to buy it disappears into the bank’s giant vault in the back (picture Gringotts bank from Harry Potter) and you don’t see it again until the time is up. While it’s gone, it is compounding interest at a fixed rate that you agreed on when you bought it, and the longer you stash it away, the better the interest rate. So for example, as of today RBC Bank offers a 3-month GIC for 0.9% interest and a 5-year GIC for a 2.15% interest rate. GIC’s are pretty much zero-risk investments so they’re a great place to stash away savings for a house in 5 years, instead of splurging it on that gold fountain in your living room you’ve ALWAYS wanted.
Tip: Try buying a 5-year GIC every year. That way in 5 years you’ll be receiving your money back every year at the highest possible rate.
BONDS – A bond is an investment tool that is shaken…not stirred. Haha…ha. Investing jokes are hard! Okay, a bond is essentially a fancy IOU. Businesses and banks borrow your money to either fund their business operations or invest in other useful stuff and in return for the nice favor they’ll pay you interest every so often. In the world of bonds this interest is called the coupon. The date a bond expires, usually called the maturity date, can vary from one month (short-term bond) to more than 30 years! (long-term bond). At the maturity date you’ll receive your initial cash back in full plus your interest: like if you buy a 10-year bond for $1000 you’ll get exactly $1000 back in 10 years plus interest. It's quite simple, 007.
MUTUAL FUNDS – Here’s the basic principle behind a Mutual Fund: you, along with a bunch of other investors give your money to a professional investment manager and he/she invests that money over a wide range of stocks or bonds. In doing so, you reduce the risk of losing all your cash on one bad company. This is called “diversifying”. You can buy Mutual funds through most big banks, and if you ask nicely, they’ll even take a specified amount of money every month from your savings and buy more mutual funds. Thanks guys! Mutual Funds will pay you dividends and might increase in value after time. More risky than GIC’s and Bonds, less risky than the Stock Market.
ETF’s – Very very similar to Mutual Funds except instead of buying them from a guy with a fancy suit at the bank, you buy them on the Stock Market, just like a stock. They stand for Exchange Traded Funds, meaning they trade on a stock exchange. So instead of buying $1000 worth of stocks in McDonalds, you instead buy a Food and Beverage ETF. The company who made this Food and Bev ETF invested your cash and all the other investors’ cash into hundred’s of different fast food companies, including McDonalds. This way you’ve diversified: if McD’s goes under (however doubtful at the rate I support them), it will have little effect on your ETF. This form of investing is very popular right now! And there’s a ton of them: Utility ETF’s, Oil and Gas ETF’s, Brazil Top 100 ETF, Gold and Silver ETF, Small company ETF’s , Big companies ETF’s, some the size of your head. You name it!
STOCKS – the big kahuna, the cream of the crop, the main event etc. etc. When you purchase a share or stock in a company (share = stock. Same thing), you now hold part ownership of a company. This is a really cool concept when you think about it: with around $50 you can be a part-owner of Coca-Cola or Walt Disney Corp. Though when I say part-ownership, it’s about 1 millionth of a huge corporation like that. At the core, stocks are very straightforward. If the company whose stock you own increases their earnings and experiences growth, the price of your stock goes up, and vice versa. Some companies will also pay their shareholders “dividends.” This is just a cash payment for being such a considerate person to buy stocks in their company and not someone else’s. There’s a LOT more to stocks but I guess you’ll just have to read my website now, hey?