I hope this letter finds you in good health (physically and financially). Today I want to talk about public investments and how they can help you meet your goals.
Your job isn’t to become an expert in investments (that’s why you hired me), but it helps to know the basic options you have in the public markets.
Public investments are any type of investment that trade on public exchanges or is easily exchangeable. This includes stocks, bonds, ETFs, and mutual funds, and these are usually the first investments people get into when they start to save.
There are a lot of benefits to dealing in these markets, but the most important aspect is that you are holding liquid investments that you can get out of at any time. There is also more information available on these investments, and you can deal in relatively low purchase amounts.
Stocks are the most well-known and accessible of all investments, and tend to dominate the news for that reason. A stock represents a share in a company, which generally comes with voting rights and ownership privileges. There are two ways to get a return on your investment with stocks: the equity of the company increases in value, or a dividend is paid out.
Bonds, on the other hand, represent the debt of a company. These are purchasable through brokerages, and though a little bit less liquid, they are still simple to trade. Generally, bonds will pay interest, or “coupons”, throughout the life of the bond, and then the full value of the bond will be repaid when it matures.
Then we have exchange-traded funds, or ETFs, which are investment funds that trade on stock exchanges. Generally an ETF represents a “basket of goods” and may hold a wide variety of assets, such as stocks, commodities, or bonds.
They are designed to follow a specific mandate, whether it is sector, asset class, or investment strategy dependent. Depending on the ETF, you may earn the dividend that is paid by the underlying stocks or it may just increase the net asset value of the ETF.
Finally, we have mutual funds, which are publicly available shares in an investment fund. There are actively-managed and passively-managed mutual funds. With the former, there is a fund manager making decisions about the allocation of funds, whereas a passively managed mutual fund would follow a market index and not have a management team making investment decisions.
Mutual funds are very similar to ETFs in that they pool the money of investors to purchase securities, but the shares are sold directly back to the fund rather than being traded on any exchange.
With these 4 types of investments, we are merely brushing the surface of the broad number of options available for investing. We at Kismet Wealth Group make it our duty to stay up-to-date on all of these public investments, as well as many more niche ones that we’d be happy to discuss with you.
If you’d like to schedule a call to go over your asset allocation and make sure we are fitting it to your needs, please contact us at info@kismetgroup.ca
