Equities
An equity represents ownership shares or stock in a company. An equity investment refers to the buying and holding of shares of stock in anticipation of income from dividends and capital gains. When you buy shares of a company you become a shareholder and own a fractional portion of the company.
Owners of common shares can vote in the election of the board of directors and some other major corporate decisions.
Preferred shares are a class of share capital that generally entitles shareholders to fixed dividends ahead of the company's common shares and to a stated dollar value per share in the event of liquidation. Owners of preferred shares have limited or no voting rights.
Income trust units are designed to distribute taxable income from the trust to the unit holders. Unit holders often do not have the same investor rights as the owners of common shares.
EXAMPLE. A client of Odlum Brown could buy 100 common shares of the Toronto-Dominion Bank (TD Bank) through the Toronto Stock Exchange (TSX). As a shareholder of TD Bank, you would be entitled to receive dividends and vote on certain corporate matters. If the shares of TD Bank appreciate in value, you can sell them at a profit (capital gain). Conversely, if the shares decline in value, you would incur a loss (capital loss) when you sell them.
Fixed Income
Fixed income investments provide investors a return in the form of interest payments and the repayment of principal at maturity. Fixed income investments include government bonds and Treasury bills (T-bills), corporate bonds, money market instruments, Guaranteed Investment Certificates (GICs), and Canada and Provincial Savings Bonds.
A bond represents a loan from the investor to the issuer. In return for the loan, the issuer promises to pay the investor fixed periodic amounts of interest and repay the principal amount of the loan at a predetermined maturity date. Most bonds can be bought and sold in the marketplace. Bond prices are not fixed but will fluctuate with the general level of interest rates and changes in the creditworthiness of the issuer. An investor may realize a capital gain or loss depending on the prices at which a bond is bought and sold.
Odlum Brown has a fixed income trading desk that will help you and your advisor purchase fixed income securities. Our fixed income strategist, Hank Cunningham, provides expert advice and bond recommendations to Odlum Brown’s advisors.
Mutual Funds
A mutual fund is a professionally managed type of collective investment that pools money from many investors and invests in a basket of investment securities (typically stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities such as precious metals). The mutual fund will have a fund manager who trades (buys and sells) the fund's investments in accordance with the fund's investment objective.
Mutual funds are an excellent way for smaller investors to diversify their portfolios. Specialized mutual funds such as precious metals funds, high yield funds, or overseas investment funds help investors access the specific expertise and concentrated efforts of different fund managers.
Exchange Traded Funds
An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. It holds the same mix of investments as a stock or bond index. An ETF holds assets such as stocks, commodities, or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index, such as the S&P 500. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.
Options
An option is a financial instrument that establishes a right to buy or sell an asset at a specific price for a specific period of time. The price of an option derives from the value of an underlying asset (commonly a stock, a bond, a currency or a futures contract) plus a premium based on the time remaining until a specified expiration date. Other types of options exist, and options can in principle be created for any type of valuable asset.
Options are sophisticated financial instruments that can only be traded by approved advisors and within client accounts that are approved for option purchases.