Investing Quick Reference Guide

This post is an introduction to some of the concepts and terms of investment that will appear on this website and throughout financial literature.

Investing is to use the money you have now, to create more money in the future.  You can invest by loaning money to someone using bonds, GICs, or savings accounts.  You can also purchase stocks or shares of a company for a share in their profits, or real estate for the income that it can generate.

Interest is the money that you would receive in exchange for lending someone or a bank your money.  Interest on deposits in savings accounts are usually paid once a month.  Interest is paid on GICs is periodical as well (it can be anywhere from monthly, to quarterly, to annually or at maturity).  You can also receive interest payments for lending your money to a company or government with a bond.

Dividends are payments that a company gives to its shareholders, sharing company profits with its investors.  Though every company is different, typically companies will pay out dividends once per quarter.

Capital Gains are realized when an investor sells shares for more than they had originally paid for them.  The opposite, when an investor sells shares for less than their initial investment, is called a capital loss.  Share prices tend to increase when there is a corresponding growth in the companies profits, and conversely, a reduction in profitability will often lead to a drop in share prices.  While interest and dividends can provide regular cash flow for your portfolio, portfolio growth through capital gains is unrealized (you won’t receive an increase or decrease in the cash balance of your account) until you close your position by selling your shares. Continue reading Investing Quick Reference Guide