• Characteristics of Various Types of Securities
• The Ins and Outs of Income Trusts
• The Prospectus – Being Informed
• Understanding Mutual Fund Fees
• Stock Options
• Offshore Investments Sold Through Internet Can Wash Your Savings Away

This guide provides an overview of some common types of securities in terms of three basic characteristics – liquidity, expected return and risk:

Liquidity (or Marketability) is the ease with which you can turn your investment quickly into cash, at or near the current market price. Some securities, such as mutual funds, offer liquidity by allowing investors to redeem their securities (return them to the issuer) on short notice. For non-redeemable securities, liquidity will depend on the owner’s ability to sell the securities to other investors in the open market. Listing on a stock exchange may help, but does not guarantee liquidity. With some securities, investors may be restricted by law or contract from reselling the securities for months or even years, or they may find that there is no market for the securities when they want to sell.

Expected Return is the overall profit that you might expect to receive from your investment – either as income, in the form of interest or dividends, or as capital gains (or losses) resulting from changes in the market value of the security. In theory, the higher the expected rate of return of a security, the greater the risk.

Risk is the degree of uncertainty about your expected return from an investment including the possibility that some or all of your investment may be lost. With some securities there is very little risk that investors will lose any of their initial investment. With some other securities, the risk of loss can be very substantial.

In addition to considering these factors, you must also consider your own financial needs and objectives, your tolerance for risk and other issues, such as taxes, before making any investment decision.

Income tax considerations are important because they will affect your net return from an investment. Interest, dividends, capital gains and capital losses are all treated differently for tax purposes. For example, if the return on your investment is in the form of:

• Interest – it will generally be treated as ordinary income for tax purposes and taxed at the same rate as your earnings from employment
• Dividends from a corporation – you will generally be able to claim a dividend tax credit that will result in the dividend income being taxed more favorably than interest or other ordinary taxable income
• Capital Gains – you will generally be entitled to exclude a portion of the capital gain from your income for tax purposes
• Capital Losses – you will generally only be able to use the capital loss to offset capital gains

Tax legislation provides some significant tax benefits for individuals who make qualifying investments through tax-deferral plans. Consult your financial advisers about your eligibility to contribute to plans and whether or not they will meet your financial needs and objectives.

Some types of securities – like units of labor-sponsored funds and flow-through shares – also take advantage of special tax incentives provided by the federal or provincial governments. The tax implications of these securities for individual investors can be complex and expert advice should always be sought.

Remember though, that tax implications should not be the only factor you consider when making an investment decision. Each potential investment should be analyzed first on its own merits, on how it will affect the risk and expected return of your overall investment portfolio and on how it will fit your personal financial objectives and investment time horizons.