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Canadian Dividend Stock Selection Still Made Easy - My Own Advisor

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This website informs you about stocks, and different investment available in Canada. The website  states that Canada has plenty of opportunities to diversify your stock portfolio and gives you great chances to invest in profitable stocks, such as marijuana stocks.it also leads you through how to get started in the stock market.

I chose this site because it pertains to the Canadian stock market, it gives helpful information about how to navigate it and also gives advice to Americans looking to invest in Canadian stocks can easily and comfortably invests. one thing that makes this site different from others is that its meant to help people from other places outside of Canada invest in Canadian stocks.

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When you think of Canada, what do you think of? Hockey, poutine, free healthcare, South Park songs? Well, it's time to expand your worldview ...

If you're looking for an accessible way to diversify and give your portfolio an international element, you may want to consider investing in the Canadian stock market.

Download the key points of this post as PDF.

As it turns out, our neighbor to the north offers plenty of investment opportunities for traders from the U.S., from commodities galore to a chance to take advantage of the super-hot marijuana stocks and marijuana penny stocks on the market.

But how can you get started in the Canadian stock market, and what do you need to know before you start investing?

This comprehensive primer on can help get you up to speed.

What is the Canadian Stock Market?

The Canadian stock market is composed of one large exchange and several small exchanges.

The main exchange is the Toronto Stock Exchange (usually shortened to TSX). The TSX is the ninth largest exchange in the world.

The TSX also has a smaller exchange associated with it called the TSX Venture Exchange (this one's called the TSX-V). This is where you'll find lower-priced stocks offered from up-and-coming or smaller companies.

There are other exchanges, but the aforementioned two are the key exchanges, so we'll mostly focus on the TSX and the TSX Venture Exchanges in this post.

Toronto Stock Exchange and The TMX Group

The Toronto Stock Exchange is owned by the TMX Group Limited. TMX is a financial services company headquartered in Canada that operates derivatives, equities, fixed income, and energy market exchanges.

The TSX exchange includes a wide range of Canadian businesses. Its listings include stocks, ETFs, income trusts, and investment funds.

Why is the group called TMX? A merger. In 2009, TSX joined with the Montreal Stock Exchange, and the parent company's name changed as a reflection.

Differences Between Investing in the U.S. vs Canadian Stock Market

It might be tempting to think that the Canadian stock market is pretty much the same as the U.S. stock market, just located a little further north. Sorry, but not quite.

While Canada is located close to the U.S., it's a different country, so we're dealing with some different things than what we're used to in the American market. As such, there are some important differences between the stock markets in both countries.

Size: The Canadian Stock market is much smaller than the U.S. exchanges, so there are significantly fewer stocks to choose from overall.

Currency: This might seem painfully obvious, but it's worth noting. The Canadian stock market is traded in Canadian dollars, not U.S. dollars.

Right now, one U.S. dollar equals $1.30 in Canadian dollars. This can fluctuate, of course, based on various factors. But don't get confused: the dollars listed on the exchange are not U.S. dollars.

Types of stocks. Canada's economy relies heavily on natural resources, and that is reflected in the market.

Between the TSX and the TSX Venture Exchange, there are over 3,000 companies. The Canadian exchanges have more mining, oil, and gas-related companies listed than any other stock exchange in the world.

Different laws. There is a different government in Canada, and therefore there are different laws. This can make for some big differences in the market.

For example, the recent legalization of recreational marijuana in Canada means that there is an entire sector of related stocks available that you won't have access to in the United States.

Benefits of Investing in Canadian Stock Market

The Canadian stock market isn't just for Canadians. Obviously, Canadians will invest here for simplicity and proximity, but there can be advantages for U.S. (and international) investors, too.

Here are some of the benefits of investing in the Canadian stock market:

A commodity buyer's dream: Canada's economy has a strong core of stocks related to natural resources like oil and gas, and it's one of the largest exporters of minerals in the world.

Canada is also the largest supplier of something called potash, which is used to make fertilizer and important in the world of agriculture.

Yes, commodities can be volatile, but they can offer growth opportunities, too. And with many commodities, you can invest intelligently if you consider reliable patterns like the seasonal aspect of these stocks.

A strong economy: Canada's banking system is largely considered safe and sound. The banks have great balance sheets and are considered strong.

This positive financial position means that the lending rates are lower than in many other countries. This has far-reaching positive effects in real estate and in retail sectors.

Different currency: Trading in a different currency can actually be a way to protect your U.S. dollars. If the U.S. dollar loses value, this may not rock foreign markets as hard as, say, the NASDAQ.

In this way, by purchasing Canadian stocks, you are, in a way, potentially protecting your investments in case the U.S. dollar decreases in value. There are actually opportunities where you can stand to profit in foreign markets because of the U.S. dollar losing value.

How to Invest in the Canadian Stock Market

Looking to get started in the Canadian stock market? Here are some things you need to know.

Where there's a will there's a way. So, you have a will to invest in the Canadian stock market ... what is the way?

As an investor, you have a few different options for investing in the Canadian stock exchange.

Purchase stocks through a licensed broker. There are plenty of brokers who are licensed with the TSX. You can place orders directly with your broker. Be sure to check about fees associated with foreign investments, though - they can sneak up on you.

Purchase ETFs. You can purchase Canadian stocks and bonds via exchange-traded funds (ETFs), which are securities that track an index or a variety of assets like an index fund. They're kind of like mutual funds, but they are traded like stocks and listed on stock exchanges.

Seek out American Depository Receipts. An American Depository Receipt is a way of purchasing stocks from other exchanges through the U.S. market. ADRs are securities that allow foreign companies to trade on the U.S. financial exchanges. Learn more about them in this post.

What Time Does the Canadian Stock Market Open?

At least this part is easy to remember. The TSX and the TSX Venture Exchange operate the same hours as the major U.S. markets: 9:30 a.m. to 4:00 p.m. Eastern time, Monday through Friday.

The Canadian market has an extended session, too. It's not quite as robust as the pre-and-post-market trading hours offered in the U.S., but runs from 4:15-5:00 p.m. on trading days.

The market is closed Saturday, Sunday, and on major holidays. It's worth noting that the Canadian market holidays are not always the same as the U.S. holidays, since, you know, it's not the USA.

Canadian Financial Market Trends

In general, Canada is considered to have a pretty safe economy. It has strong industries, and its monetary policy is stable, and it has a fairly low deficit.

However, like any other market, it is subject to trends and other factors.

For instance, the Canadian market relies heavily on commodities. There can be definite seasonal aspects to commodities like oil and gas, which can set the tone of the market.

There's a pretty high level of volatility involved with commodities, and since the Canadian financial markets have tons of these types of stocks, the market can at times be similarly volatile.

Policy can have a big effect, too. For instance, one of the biggest market-shaping trends in recent months has been the much-talked-about legalization of marijuana in the country. While the law won't take effect until October, it's already causing big waves in the market.

Top Canadian Companies for Investing in the Canadian Stock Exchange

What companies should you consider trading on the Canadian stock exchange?

Like the U.S. exchanges, there are plenty of choices for stocks to trade. However, the market is set up a little bit different than in the U.S., so here are some things to consider when choosing stocks.

How Many Companies Are Listed on the TSX Stock List?

Over 1,500 companies are listed on the TSX, and about 2,000 more on the TSX Venture Exchange.

The TSX is the major and main exchange and includes bigger companies like the Canadian National Railway, Suncor Energy (which is the largest energy company in Canada), and Royal Bank of Canada (which is not only the largest bank in Canada but the twelfth-largest bank in the world).

The TSX Venture Exchange has a lot of smaller companies. This is where you'll find the up-and-coming companies, and also the ones that probably won't make it. This means that this is the exchange to look at for the equivalent of penny stocks.

Get to Know What Indices Matter for Canadian Stocks

FYI, the plural form of index is indices.

If you want to keep track of the movers and shakers in the Canadian stock market, you'll want to look at the S&P/TSX Composite Index.

This keeps track of the value of some of the biggest stocks on the market, which can account for 70 percent or more of the exchange's total volume.

The index is made up of 11 different categories: financial, energy, materials, industrial, consumer discretionary, telecommunication services, healthcare, consumer staples, utilities, information technology, and real estates.

The first two categories, financial and energy, are the biggest ones by far, with materials and industrial coming in after. That means that these industries really shape how the market is performing, and the economy or commodity price changes can have a pretty big impact.

In terms of the TSX-V, there's another index to look at: the TSX Venture 50.

According to the TSX website, "The 2018 Venture 50 is a ranking of top performers on TSX Venture Exchange over the last year. The ranking is comprised of 10 companies from each of five industry sectors, selected based on three equally weighted criteria: market capitalization growth, share price appreciation, and trading volume amount."

The weight of each of the index securities is determined through something called float-adjusted market capitalization. First, the market cap is determined by using the market-cap ratio. Then, restricted shares (such as those owned by publicly held companies, or executives) are taken out of the amount.

The S&P/TSX Composite Index is updated and reviewed each quarter. These are the times when companies might be added or removed from the index.

For eligibility, a security needs to meet certain criteria. For one, it needs to be incorporated, formed, or established in Canada and the TSX has to be the primary place it's listed. It also must have been part of the TSX for at least six months to be considered.

But wait, there's more. The company needs to represent a weight of at least 0.05 percent of the index. It also needs to have maintained an amount over 1 dollar (Canadian), as its a volume-weighted average price for the past three months and for the three days of trading prior to the month's end before the review.

Liquidity is also measured by dividing the number of shares traded during the past year by the float-adjusted outstanding shares. It needs to be at least 0.5.

Securities are subject to removal from the index if these criteria are not met, but they can also be removed at the index committee's discretion, too.

Indices from the U.S. Aren't Always Comparable with Canada

An index in Canada isn't the same as in the U.S. Be sure to check how the index is calculated to gain the best information on the stocks in question.

For instance, in the US, the S&P 500 index is what's called market weighted. This means that the stocks are shown on the index based on their market cap.

A stock in Canada might not be calculated using the same method, so you wouldn't get the same information from the listing.

Penny Stocks in Canada

Yep, there are penny stocks in Canada, too.

Penny stocks in Canada are the stocks which are traded on the TSX-V for anywhere from pennies to as much as $5 per share. Unlike in the U.S., they're not listed on separate pink sheets, but rather on a sort of spinoff of the main exchange.

However, other than that fact, generally penny stocks can be approached in similar ways in Canada as they can in the USA. Once again, you'll want to distill it down to a repeatable process of scanning for stocks, recognizing patterns, and taking advantages of dips and spikes to hopefully gain profits.

Unfortunately, penny stocks in Canada, like those in the U.S., are not as highly regulated and fraud can (and does) occur. So it's always important, even in Canada, to research a potential play before you pull the trigger.

Canadian Marijuana Stocks

Soon, recreational marijuana will officially become legal in Canada. According to Forbes, "The Cannabis Act, passed by the Canadian Senate on June 21, controls and regulates the growth, distribution and sale of recreational marijuana in Canada. Prime Minister Justin Trudeau expects everything to be in place for consumption to begin on October 17. "

As you might imagine, this is a huge news catalyst that's affecting the stock market. It's spawned a number of enterprises and investments.

As CNN Money reports, cannabis stocks have been sky-high since the makers of Corona beer invested a whopping $4 billion in a Canadian cannabis company called Canopy Growth. The idea is that the company may introduce cannabis-based beverages and other items. This announcement caused a 30 percent surge in the latter stock.

Obviously, this has spawned a lot of interest in other cannabis-related stocks. Several other tickers have seen huge surges, including 40-60 percent growth for some stocks in the past few weeks.

This is a phenomenon that is specific to the Canadian market because, as of yet, marijuana is still not legal in the entire U.S.

With recreational marijuana sales about to become legal in Canada, the stocks are on fire, and this is an advantage that simply can't be enjoyed in the U.S. markets. They're selling like potcakes - um, hotcakes - and this trend probably won't die down any time soon.

What are the Risks of Investing in the Canadian Stock Market?

There are still risks involved in the Canadian stock market. Here are some specific considerations to keep in mind:

The U.S. still matters. Sorry, but if the U.S. markets are in a slump, you can't simply go north of the border and trade up a storm without consequence.

Per the U.S. Census Bureau, the USA is Canada's biggest trading partner. As such, both countries' economies are linked, and the general tone of each market will affect the other.

Less diversity than you might think. Because of the fact that the U.S. and Canada are linked, trading in the Canadian stock market may not provide as much diversity as if you were to get involved in, say, the Asian markets.

Commodity prices matter. While the reliance on commodities in the Canadian stock market can be a good thing, it can also act to your detriment as a trader.

In Canada, since the economy relies heavily on the commodities market, it's subject to the volatility that naturally comes with the ever-changing demand for and prices of commodities.

Why You Need to Master Your Skills with Professional Assistance

It's hard to learn specialized skills on your own without assistance. If you want to learn something fast, it's often quickest to take lessons. This allows you to take a shorter learning curve and gain knowledge from the experts. Trading is no exception.

Yes, it's possible to become a trader without taking classes. That's how I did it - because there were no good trading classes around when I was coming up as a trader. However, I think that if I'd had a mentor or classes, I probably could have become a successful trader much faster.

Day-trading classes are an invaluable way to invest in your future as a trader. You'll receive a targeted education so that you don't have to learn things the hard way. You'll learn the market mechanics and things that might take you months or years to master on your own.

This means that you can maintain good motivation and begin to make use of your education faster as a trader. Sometimes, a little investment can help you avoid losing money, which makes it worthwhile.

Trading Challenge

My Trading Challenge was designed with long-term benefits in mind. I don't want to offer up a get-rich-quick scheme or just dole out hot stock tips - I want to teach you how to use your trading knowledge so that you can think for yourself.

In the Trading Challenge, I offer my students tips, lessons, and frequent webinars so that they can get a real-life education. You'll learn the basics, of course, but you'll also learn on the ground by seeing what I and my best students are doing. By adopting the trading lifestyle and proper mindset, you're more likely to stick with it in the long run.

The Bottom Line

Investing in the Canadian stock market can be a great way for investors to dip into the world of foreign investment.

It's similar enough to the U.S. markets to feel familiar to investors but offers the opportunity to add diversity to their portfolio and to take advantage of Canada's many booming industries.

However, there are some important differences between the U.S. and Canadian stock markets, so it's important to do your research before investing.
Have you invested in the Canadian stock market?

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Canadian Stock Market: In-Depth Guide on How to Invest in Canada

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When you think of Canada, what do you think of? Hockey, poutine, free healthcare, South Park songs? Well, it's time to expand your worldview ... If you're looking for an accessible way to diversify and give your portfolio an international element, you may want to consider investing in the Canadian stock market.

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This website informs you about bonds, it explains to you what they are and how you get profit from them. A bond issuer promises to repay you an interest over a select. Of time until your original investment is paid off.

I chose this website because it is a big sight and I thought they'd have a interesting point of view on bonds. Something that makes this website unique is that they offer benefits to people who invest in bonds through them. The benefits they have are large inventories, a large range of bonds to choose from, and the filter opportunities to find the best one for you.

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Search RBC ...

Predictable Income and Returns

If you're looking for a conservative investment to reduce the overall risk in your portfolio, consider bonds. When you purchase a bond, you become a creditor to the bond issuer, who promises to pay you a certain amount of interest for a specific time period, and to repay your principal investment at the bond's maturity.

Benefits of Investing in Bonds With Us

Large Inventories

Access one of the largest bond inventories in Canada.

Wide Range of Choices

Choose from government, provincial and municipal bonds; investment grade corporate bonds; high yield bonds; strip bonds1 and residual bonds.

Filter Opportunities

Use the Fixed Income Screener to filter and identify investments that meet your needs.

Access to New Issues

You can sign up for customized email alerts for new issues including a variety of newly issued investment products such as preferred shares, follow-on equity offers, closed-end funds, principal protected notes and bonds.

"What are the Commissions on Bonds and GICs?"

The commission for GICs is included in the quoted price2. For T-bills, Bonds, Debentures and Money Market Instruments, a commission of $25 - $250 per transaction3 is included in quoted price.
Read Related FAQs

"I need my investments to provide regular income."

Try investing in different bonds through a Practice Account and see how they can satisfy your cash flow needs.

Practice Accounts

"How can I find investment opportunities?"

Easily search for bonds, money market instruments and GICs based on your specific needs using the Fixed Income Screener.

Fixed Income Screener

I'm Ready to Get Started With RBC Direct Investing

Open an account online or try out our actual investing site - not a demo - with a practice account.

View Legal Disclaimers Hide Legal Disclaimers

Strip bonds are not suitable for all investors. Regulations require that all existing and potential strip bond clients be provided with the Strip Bond Risk Disclosure in advance of any strip bond transaction. This document is provided to you when you opened your accounts and can be found in your Welcome kit.

GIC remuneration does not have a maximum or minimum amount per transaction.

For Treasury bills, bonds, strip bonds, debentures and other money market instruments, the commission is included in the quoted price. The minimum commission is $25 per transaction ($43 minimum commission for orders placed using an Investment Services Representative) and the maximum commission is $250 per transaction for all orders. Commissions for exchange-listed debentures are charged according to the Stocks Commission Schedule.

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corporate government high yield strip canadian provincial municipal bonds

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Search RBC ... If you're looking for a conservative investment to reduce the overall risk in your portfolio, consider bonds. When you purchase a bond, you become a creditor to the bond issuer, who promises to pay you a certain amount of interest for a specific time period, and to repay your principal investment at the bond's maturity.

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This website informs us about mutual funds, a mutual fund is a pool of money collected from many other investors to invest in stocks and bonds. Mutual funds are handled by money managers, who tried to gain Capital interest to pay the investors in the mutual fund. Mutual funds individual or a small investors access to professionally managed portfolios and equities.

I chose to use this site because it provides a lot of information and insight about mutual funds which many people do not know much about. This site is unique because of the amount of information it gives me about mutual funds such as the fact that they charge a annual fee.

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What Is a Mutual Fund?

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund-derived by the aggregating performance of the underlying investments.

The Basics of a Mutual Fund

Mutual funds pool money from the investing public and use that money to buy other securities, usually stocks and bonds. The value of the mutual fund company depends on the performance of the securities it decides to buy. So, when you buy a unit or share of a mutual fund, you are buying the performance of its portfolio or more precisely, a part of the portfolio's value.

That's why the price of a mutual fund share is referred to as the net asset value (NAV) per share, sometimes expressed as NAVPS. A fund's NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding. Outstanding shares are those held by all shareholders, institutional investors, and company officers or insiders. Mutual fund shares can typically be purchased or redeemed as needed at the fund's current NAV, which-unlike a stock price-doesn't fluctuate during market hours, but is settled at the end of each trading day.

The average mutual fund holds hundreds of different securities, which means mutual fund shareholders gain important diversification at a low price. Consider an investor who buys only Google stock before the company has a bad quarter. He stands to lose a great deal of value because all of his dollars are tied to one company. On the other hand, a different investor may buy shares of a mutual fund that happens to own some Google stock. When Google has a bad quarter, she only loses a fraction as much because Google is just a small part of the fund's portfolio.

KEY TAKEAWAYS

How Mutual Funds Work

A mutual fund is both an investment and an actual company. This dual nature may seem strange, but it is no different from how a share of AAPL is a representation of Apple, Inc. When an investor buys Apple stock, he is buying part ownership of the company and its assets. Similarly, a mutual fund investor is buying part ownership of the mutual fund company and its assets. The difference is that Apple is in the business of making smartphones and tablets, while a mutual fund company is in the business of making investments.

If a mutual fund is a virtual company, its CEO is the fund manager, sometimes called its investment adviser. The fund manager is hired by a board of directors and is legally obligated to work in the best interest of mutual fund shareholders. Most fund managers are also owners of the fund.

There are very few other employees in a mutual fund company. The investment adviser or fund manager may employ some analysts to help pick investments or perform market research. A fund accountant is kept on staff to calculate the fund's NAV, the daily value of the portfolio that determines if share prices go up or down. Mutual funds need to have a compliance officer or two, and probably an attorney, to keep up with government regulations.

Most mutual funds are part of a much larger investment company; the biggest have hundreds of separate mutual funds. Some of these fund companies are names familiar to the general public, such as Fidelity Investments, the Vanguard Group, T. Rowe Price, and Oppenheimer Funds.

Types of Mutual Funds

Mutual funds are divided into several kinds of categories, representing the kinds of securities they have targeted for their portfolios and the type of returns they seek.

Equity Funds

The largest category is that of equity or stock funds. As the name implies, this sort of fund invests principally in stocks. Within this group is various sub-categories. Some equity funds are named for the size of the companies they invest in small-, mid- or large-cap. Others are named by their investment approach: aggressive growth, income-oriented, value, and others. Equity funds are also categorized by whether they invest in domestic (U.S.) stocks or foreign equities.

Fixed-Income Funds

Another big group is the fixed income category. A fixed income mutual fund focuses on investments that pay a set rate of return, such as government bonds, corporate bonds, or other debt instruments. The idea is that the fund portfolio generates interest income, which then passes on to shareholders.

Index Funds

Another group, which has become extremely popular in the last few years, falls under the moniker " index funds." Their investment strategy is based on the belief that it is very hard, and often expensive, to try to beat the market consistently. So, the index fund manager buys stocks that correspond with a major market index such as the S&P 500 or the Dow Jones Industrial Average (DJIA). This strategy requires less research from analysts and advisors, so there are fewer expenses to eat up returns before they are passed on to shareholders. These funds are often designed with cost-sensitive investors in mind.

Balanced Funds

Balanced funds invest in both stocks and bonds to reduce the risk of exposure to one asset class or another. Another name for this type of mutual fund is "asset allocation fund." An investor may expect to find the allocation of these funds among asset classes relatively unchanging, though it will differ among funds. This fund's goal is asset appreciation with lower risk. However, these funds carry the same risk and can be as subject to fluctuation as other classifications of funds.

There is a fund for nearly every type of investor or investment approach. Other common types of mutual funds include money market funds, sector funds, alternative funds, smart-beta funds, target-date funds, and even funds-of-funds, or mutual funds that buy shares of other mutual funds.

Mutual Fund Fees

A mutual fund will classify expenses into either annual operating fees or shareholder fees. Annual fund operating fees are an annual percentage of the funds under management, usually ranging from 1-3%. Annual operating fees are collectively known as the expense ratio. A fund's expense ratio is the summation of the advisory or management fee and its administrative costs.

Shareholder fees, which come in the form of sales charges, commissions and redemption fees, are paid directly by investors when purchasing or selling the funds. Sales charges or commissions are known as "the load" of a mutual fund. When a mutual fund has a front-end load, fees are assessed when shares are purchased. For a back-end load, mutual fund fees are assessed when an investor sells his shares.

Sometimes, however, an investment company offers a no-load mutual fund, which doesn't carry any commission or sales charge. These funds are distributed directly by an investment company rather than through a secondary party.

Some funds also charge fees and penalties for early withdrawals or selling the holding before a specific time has elapsed. Also, the rise of exchange-traded funds, which have much lower fees thanks to their passive management structure, have been giving mutual funds considerable competition for investors' dollars. Articles in the financial media about how fund expense ratios and loads can eat into rates of return have also stirred negative feelings about mutual funds.

Classes of Mutual Fund Shares

Mutual fund shares come in several classes. Their differences reflect the number and size of fees associated with them.

Currently, most individual investors purchase mutual funds with A shares through a broker. This purchase includes a front-end load of up to 5% or more, plus management fees and ongoing fees for distributions, also known as 12b-1 fees. To top it off, loads on A shares vary quite a bit, which can create a conflict of interest. Financial advisors selling these products may encourage clients to buy higher-load offerings to bring in bigger commissions for themselves. With front-end funds, the investor pays these expenses as they buy into the fund.
(Investopedia's broker reviews offer insight into the firms offering the best mutual fund choices)
To remedy these problems and meet fiduciary-rule standards investment companies have started designating new share classes, including "level load" C shares, which generally don't have a front-end load but carry a 1% 12b-1 annual distribution fee.

Funds that charge management and other fees when an investor sell their holdings are classified as Class B shares.

A New Class of Shares

The newest share class, developed in 2016, consists of clean shares. Clean shares do not have front-end sales loads or annual 12b-1 fees for fund services. American Funds, Janus and MFS, are all fund companies currently offering clean shares.

By standardizing fees and loads, the new classes enhance transparency for mutual fund investors and, of course, save them money. For example, an investor who rolls $10,000 into an individual retirement account (IRA) with a clean-share fund could earn nearly $1,800 more over a 30-year period as compared to an average A-share fund, according to an April 2017 Morningstar report, co-written by Aron Szapiro, Morningstar director of policy research, and Paul Ellenbogen, head of global regulatory solutions.

Advantages of Mutual Funds

There are a variety of reasons that mutual funds have been the retail investor's vehicle of choice for decades. The overwhelming majority of money in employer-sponsored retirement plans goes into mutual funds.

Diversification

Diversification, or the mixing of investments and assets within a portfolio to reduce risk, is one of the advantages of investing in mutual funds. Buying individual company stocks and offsetting them with industrial sector stocks, for example, offers some diversification. However, a truly diversified portfolio has securities with different capitalizations and industries and bonds with varying maturities and issuers. Buying a mutual fund can achieve diversification cheaper and faster than by buying individual securities.

Easy Access

Trading on the major stock exchanges, mutual funds can be bought and sold with relative ease, making them highly liquid investments. Also, when it comes to certain types of assets, like foreign equities or exotic commodities, mutual funds are often the most feasible way-in fact, sometimes the only way-for individual investors to participate.

Economies of Scale

Mutual funds also provide economies of scale. Buying one spares the investor of the numerous commission charges needed to create a diversified portfolio. Buying only one security at a time leads to large transaction fees, which will eat up a good chunk of the investment. Also, the $100 to $200 an individual investor might be able to afford is usually not enough to buy a round lot of the stock, but it will purchase many mutual fund shares. The smaller denominations of mutual funds allow investors to take advantage of dollar cost averaging.

Professional Management

Most private, non-institutional money managers deal only with high-net-worth individuals -people with at least six figures to invest. However, mutual funds, as noted above, require much lower investment minimums. So, these funds provide a low-cost way for individual investors to experience and hopefully benefit from professional money management.

Freedom of Choice

Investors have the freedom to research and select from managers with a variety of styles and management goals. For instance, a fund manager may focus on value investing, growth investing, developed markets, emerging markets, income or macroeconomic investing, among many other styles. One manager may also oversee funds that employ several different styles.

Disadvantages of Mutual Funds

Liquidity, diversification, and professional management, all these factors make mutual funds attractive options for a younger, novice, and other individual investors who don't want to actively manage their money. However, no asset is perfect, and mutual funds have drawbacks too.

Fluctuating Returns

Like many other investments without a guaranteed return, there is always the possibility that the value of your mutual fund will depreciate. Equity mutual funds experience price fluctuations, along with the stocks that make up the fund. The Federal Deposit Insurance Corporation (FDIC) does not back up mutual fund investments, and there is no guarantee of performance with any fund. Of course, almost every investment carries risk. It is especially important for investors in money market funds to know that, unlike their bank counterparts, these will not be insured by the FDIC.

Heavy Cash Supplies

Mutual funds pool money from thousands of investors, so every day people are putting money into the fund as well as withdrawing it. To maintain the capacity to accommodate withdrawals funds typically have to keep a large portion of their portfolios in cash. Having ample cash is excellent for liquidity, but money is sitting around as cash and not working for you and thus is not very advantageous.

Mutual funds provide investors with professional management, but it comes at a cost-those expense ratios mentioned earlier. These fees reduce the fund's overall payout, and they're assessed to mutual fund investors regardless of the performance of the fund. As you can imagine, in years when the fund doesn't make money, these fees only magnify losses.

Diworsification

Diworsification-a play on words-is an investment or portfolio strategy. Many mutual fund investors tend to overcomplicate matters. That is, they acquire too many funds that are highly related and, as a result, don't get the risk-reducing benefits of diversification. These investors may have made their portfolio more exposed; a syndrome called diworsification. At the other extreme, just because you own mutual funds doesn't mean you are automatically diversified. For example, a fund that invests only in a particular industry sector or region is still relatively risky.

Lack of Transparency

One thing that can lead to diworsification is the fact that a fund's purpose or makeup isn't always clear. Fund advertisements can guide investors down the wrong path. The Securities and Exchange Commission (SEC) requires that funds have at least 80% of assets in the particular type of investment implied in their names. How the remaining assets are invested is up to the fund manager. However, the different categories that qualify for the required 80% of the assets may be vague and wide-ranging. A fund can, therefore, manipulate prospective investors via its title. A fund that focuses narrowly on Congolese stocks, for example, could be sold with a far-ranging title "International High-Tech Fund."

Evaluating Funds

Researching and comparing funds can be difficult. Unlike stocks, mutual funds do not offer investors the opportunity to juxtapose the price to earnings (P/E) ratio, sales growth, earnings per share (EPS), or other important data. A mutual fund's net asset value can offer some basis for comparison, but given the diversity of portfolios, comparing the proverbial apples to apples can be difficult, even among funds with similar names or stated objectives. Only index funds tracking the same markets tend to be genuinely comparable.

Real World Example of a Mutual Fund

One of the most famous mutual funds in the investment universe is Fidelity Investments' Magellan Fund (FMAGX). Established in 1963 the fund had an investment objective of capital appreciation via investment in common stocks. Fidelity founder Edward Johnson originally managed it. The fund's glory days were between 1977 and 1990 when Peter Lynch served as its portfolio manager. Under Lynch's tenure, Magellan regularly posted 29% annual returns, almost double that of the S&P 500. Both the fund and Lynch became household words.

Even after Lynch left, Fidelity's performance continued strong, and assets under management (AUM) grew to nearly $110 billion in 2000, making it the largest fund in the world. By 1997, the fund had become so large that Fidelity closed it to new investors, and would not reopen it until 2008.

As of April 2019, Fidelity Magellan has over US$16 billion in assets and is managed by Jeffrey Feingold since 2011. The fund's performance has pretty much tracked or slightly surpassed that of the S&P 500.

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A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds or other securities, which is overseen by a professional money manager. Long a favored choice for retail investors, mutual funds have both advantages and disadvantages compared to other asset classes.

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This website informs you about the risks and Rewards of Investments. Regardless of the type of investment there will always be some sort of risk according to this site the higher the risk then the higher the reward. The different types of Investments such as stocks bonds and mutual funds all carry a select amount of risk. Understanding the difference between the risks can help you build a diverse portfolio.

I used this site because it provided a why do on risk and how the rewards affect the risk, my understanding the amount of reward you may have coming your way you will be able to judge the amount of risk.

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Regardless of the type of investment, there will always be some risk involved. You must weigh the potential reward against the risk to decide if it's worth putting your money on the line. Understanding the relationship between risk and reward is a crucial piece in building your investment philosophy. Investments-such as stocks, bonds, and mutual funds -each have their own risk profile and understanding the differences can help you more effectively diversify and protect your investment portfolio.

While the traditional rule of thumb is "the higher the risk, the higher the potential return," a more accurate statement is, "the higher the risk, the higher the potential return, and the less likely it will achieve the higher return." To understand this relationship completely, you must know what your risk tolerance is and be able to gauge the relative risk of a particular investment correctly. When you choose to put your money into investments that are riskier than a standard savings or money market deposit account, you run the possibility of experiencing any or all of the following to some degree:

Losing your principal: Individual stocks or high-yield bonds could cause you to lose everything.

Not keeping pace with inflation: Your investments could rise in value slower than prices. This is more likely to happen if you invest in cash equivalents, like Treasury or municipal bonds.

Coming up short: There is a real chance that your investments don't earn enough to cover your retirement needs.

Paying high fees or other costs: Expensive fees on mutual funds can make it tough to make a good return. Beware of actively-managed mutual funds or ones with sales loads.

Three main investment vehicles are readily available to most investors: stocks, bonds, and mutual funds. Some of these carry more risk than others, and within each asset class, you'll find that risk can also vary quite a bit.

Most people have stocks in their investment portfolio, and for a good reason. According to Ibbotson Associates, stocks have reliably returned an average rate of 10% annually since 1926. This is higher than the return you're likely to get from many other investments, especially less risky ones such as bonds. However, be cautious with stocks. You could buy stock in established, blue-chip companies that have a fairly stable stock price, pay out dividends, and are considered relatively safe. Or, you could choose to invest in smaller companies, such as startups or penny-stock firms, where your returns are much more volatile.

A popular way to offset some of the risks from investing in stocks is to keep a certain amount of your money invested in bonds. When you purchase bonds, you're essentially lending money to a corporation, municipality, or other government entity, depending on which bonds you buy. Bonds generally provide more safety than stocks and are given a rating from agencies such as Moody's and Standard & Poors. Ratings act like a credit score or report card, and AAA-rated bonds are considered the safest.

When you buy government bonds, you receive a guarantee from Uncle Sam that you'll get your money back plus interest. At the other extreme are junk bonds, which are sold by corporations. Junk bonds promise much higher returns than long-term government bonds, but they're high-risk, and in some cases not even considered investment-grade securities.

Mutual funds make sense for many investors because they're managed by professional portfolio managers so that you don't need to worry about watching the market or monitoring a stock portfolio. Mutual funds work like a basket of stocks or bonds, and when you buy shares of a mutual fund, you get the benefit of the variety of assets held within the fund.

You can choose from a wide variety of funds with different risk profiles. Some hold large-company stocks; some blend large- and small-company stocks; some hold bonds; some hold gold and other precious metals; some hold shares in foreign corporations; and just about any other asset type that comes to mind. While mutual funds don't completely take away risk, you can use them to hedge against risk from other investments.

The most common type of risk is the danger that your investment will lose money. You can make investments that guarantee you won't lose money, but you will give up most of the opportunity to earn a decent return in exchange. For example, U.S. Treasury bonds and bills carry the full faith and credit of the United States behind them, which makes these issues the safest in the world. Bank certificates of deposit (CDs) with a federally insured bank are also very secure. However, the price for this safety is a very low return on your investment. When you calculate the effects of inflation on your investment and the taxes you pay on the earnings, your investment may return very little in real growth.

The elements that determine whether you achieve your investment goals are the amount invested, length of time invested, rate of return or growth, fees, taxes, and inflation. If you can't accept much risk in your investments, then you will earn a lower return. To compensate for the lower anticipated return, you must increase the amount invested and the length of time invested. Many investors find that a modest amount of risk in their portfolio is an acceptable way to increase the potential of achieving their financial goals. By diversifying their portfolio with investments of various degrees of risk, they hope to take advantage of a rising market and protect themselves from dramatic losses in a down market.

All investors need to find their comfort level with risk and construct an investment strategy around that level. A portfolio that carries a significant degree of risk may have the potential for outstanding returns, but it may also cause you to lose your life savings. Your comfort level with risk should pass the "good night's sleep" test, which means you should not worry about the amount of risk in your portfolio so much that it causes you to lose sleep.

There is no right or wrong amount of risk; it is a very personal decision for each investor. Young investors can afford higher risk than older investors because they have more time to recover if the market declines. If you are five years away from retirement, you probably don't want to be taking extraordinary risks with your nest egg, because you will have little time left to recover from a significant loss. Of course, a too-conservative approach may mean you don't achieve your financial goals.

Investors can control some of the risks in their portfolio through the proper mix of stocks and bonds. Most experts consider a portfolio more heavily weighted toward stocks riskier than a portfolio that favors bonds. Risk is a natural part of investing. Investors need to find their comfort level and build their portfolios and expectations accordingly.

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Regardless of the type of investment, there will always be some risk involved. You must weigh the potential reward against the risk to decide if it's worth putting your money on the line. Understanding the relationship between risk and reward is a crucial piece in building your investment philosophy.

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how to invest

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explains proper ways to invest

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Best ETFs For Passive Investing In Canada (For BEGINNERS)

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Distinguishes risks and rewards

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how to identify a good stock

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Warren Buffett: On How To Pick Stocks and Invest Properly

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1. What did you learn about your topic that surprised you the most?

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1. What did you learn about your topic that surprised you the most?

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I learned about all the different types and terminologies that must be considered when planning to invest

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2. Provide a real-life example of how this topic is relevant or interesting for you.

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2. Provide a real-life example of how this topic is relevant or interesting for you.

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This topic is relavent to me because i plan to start investing with a friend soon, this will help us invest properly and responsibly

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3. If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

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3. If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

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the most important thing i could past on is the fact that they should be investing to help prepare themselves for the future