Understanding Investments: The Basics

Investing can feel overwhelming. Stocks, bonds, funds, real estate, private deals — there’s no shortage of choices. But at its core, investing comes down to one simple idea: putting your money to work so it earns more money over time.

This post is the first in our Understanding Investments series, designed to give everyday Canadians a clear framework for how different investments work and what to consider before making decisions.

Why Do We Invest?

The purpose of investing isn’t just to grow wealth. It’s about meeting specific goals:

• Retirement – building enough to stop working.

• Education – saving for a child or grandchild.

• Security – creating steady income that covers expenses.

• Legacy – leaving something behind for the next generation.

Understanding your why is the first step.

The Main Types of Investments

1. Public Market Investments

• Stocks: Ownership in a company. Potential for growth, but prices can swing daily.

• Bonds: Loans to governments or companies. More predictable, though often modest, returns.

• Funds (Mutual/ETF): Diversification across baskets of stocks or bonds.

2. Private Market Investments

• Real Estate: Rental properties or development projects. Tangible, but capital-intensive.

• Private Lending: Investors can participate in lending secured by real estate. Mortgage Investment Corporations (MICs) are one example — they pool investor capital and lend on mortgages. MICs have been part of the Canadian investment landscape for decades, offering regular distributions and exposure to real estate without the need to own property directly.

• Private Equity/Venture Capital: Investments in private companies, often high risk/high reward.

Private investments are generally less liquid than public ones, and not every product is suitable for every investor.

Cash Flow vs. Growth

A useful lens for comparing investments is whether they generate cash flow or aim for growth:

• Growth Investments (like many stocks) are designed to appreciate in value over time.

• Cash Flow Investments (like rental properties or MICs) provide regular distributions that can be reinvested or used to offset other expenses.

Balanced portfolios often include both, but investors nearing retirement may find the income orientation of products like MICs appealing.

Risk and Return

Every investment involves trade-offs:

• Higher potential return = higher risk.

• Lower risk = lower return.

Public markets can be volatile day to day, while private lending products like MICs focus on secured lending — mortgages registered on real property — to provide investors with a different risk profile.

The Canadian Advantage

Canadian investors can take advantage of tax-advantaged accounts like RRSPs, TFSAs, and FHSAs. Beyond that, the Mortgage Investment Corporation structure is unique to Canada and has been regulated here for over 50 years. For eligible investors, MICs provide access to the real estate lending market without becoming a landlord or taking on property management.

Bottom Line

Understanding investments doesn’t mean becoming an expert in every product. It means knowing your goals, your tolerance for risk, and how different products line up with your needs. While public markets provide growth opportunities, private options like MICs can play a role for investors looking for steady cash flow and diversification.

Disclaimer: This article is for educational purposes only and does not constitute investment, tax, or legal advice. Investments in public and private markets carry risk, including possible loss of capital. Mortgage Investment Corporations (MICs) are offered in Canada under prospectus exemptions to qualified investors only. Consult with a licensed financial advisor or exempt market dealer representative to determine suitability before making investment decisions.