There are many types of investments including real estate, commodities and more, but stocks, bonds, money-market instruments and mutual funds are the major products for the average investor. Remember your savings account should not normally be considered an investment vehicle.
Stocks represent shares of ownership of companies and are traded on public markets. Their value fluctuates based on many factors including company performance, sector trends and economic cycles. Stocks in public companies tend to perform well in the long term and will tend to outpace other investments and inflation. They also tend to offer dividends – payout of part of the profits that the company makes each year. The long-term performance and the dividends together make stocks an important part of any investor’s portfolio.
When you buy a bond, you are lending money to the company or government that issues the bonds, not taking a share of ownership as with stocks. Bonds pay interest and can move up or down in value, but generally not as much as with common stocks.
Money Market Instruments
Money market instruments are interest bearing securities that are very stable in value but can fail to outstrip inflation over the long term.
Mutual funds are investment products that pool funds of many investors and invest them in a mixture of stocks, bonds, money market instruments and more. They can focus on sectors of the economy, bonds, stocks or a mix and can invest locally, regionally or internationally. When you purchase mutual funds, you are buying units of the fund and you share in its gains and its expenses.
Tip: Foreign investing is a wise way to bring diversity and stability to your portfolio. If you are subject to foreign exchange control, geographically diversified global mutual funds are an excellent way to invest in international markets.
Tip: The way in which your investments are taxed can make a significant difference to their attractiveness. Capital gains and losses (changes in the value of an investment), dividends and interest all have different tax treatment in different countries. Please ask your Sagicor Advisor to explain your local tax rules and how they should influence your investment strategy.