Stocks and Mutual Funds

Educate > Investing

Those looking into other options for investments are often faced with both stocks and mutual fund options. These options might be the best to go with for your investment needs if you find they offer the benefits you’re looking for.

Both types of investments are well known to the financial world in Canada. Learning more about these stocks and mutual funds can help you make a more informed decision.

Canadian Stocks

Stocks are also known as equities. They are pieces of security or parts of a company. This part of the company states that whoever holds it is the owner of this small fraction of the company that they hold. The better the company’s stocks do in the market, the more money you can make from that stock.

You can keep the money in the stock until you’re ready to cash out, or even just to hold as an asset.

People buy stocks for several reasons:

  • Have the ability to vote shares and have some influence in the company
  • Capital appreciation which is something that happens when stocks rise in price
  • Get dividend payments, when the company sends some of its earnings to the stockholders of the company

These companies offer this stock because they might have to pay off debt, launch new products, expand into new regions or better markets, or enlarging their company’s facility. There are many reasons why someone would want to invest in these.

Different Kinds of Stocks

There are two main kinds of stocks and preferred stocks that you can take advantage of.

Common stocks allow owners to vote during meetings and receive dividends from the company.

Preferred stockholders have more abilities. While, they don’t have voting rights, they do get dividends from the stock before the common stockholders. They also have priority over the common stockholders if the company ends up having to liquidate or if they go bankrupt.

Common and preferred stocks both can have specific characteristics that set them apart.

Growth stocks are stocks that grow at a faster rate than the average in the market. They rarely pay out any dividends though and investors usually choose these because of capital appreciation. Startup technology companies tend to be growth stock.

Income stocks are what pay dividends to the stockholder regularly. Investors love them for the income they bring. A long-time utility company would be an income stock.

Value stocks have a lower price to earnings ratio than others. They are cheaper to buy than other types of stocks. They could be a growth or income stock. These are purchased in the hopes that the stock prices for this specific company will rebound and come back.

Blue-chip stocks are shares that come from large, very well-known companies and corporations. They have a solid history of having great growth and they do pay dividends. They’re an all-in-one choice that is more stable and reliable compared to other stocks and companies.

Another great way to check out stocks is by looking at how large the company is. This is shown in the market capitalization with a large-cap, mid-cap, and small-cap. If the company is very small, then a microcap stock might be something offered. The lowest priced stocks you can possibly buy are penny stocks. These companies have little to no money coming in, and these stocks are highly speculative, and they do not pay back dividends.

Benefits and Risks of Stocks in Canada

There are many benefits and some risks associated with the stocks that you can purchase throughout Canada. Stocks offer one of the best potentials for growth over the years compared to other investments. Those investors who are willing to stick with the stocks they choose over a longer period of time, such as 15 years, are more likely to have the highest, strongest returns from those investments.

But since they’re stock, there is no guarantee that they will gain money. They can go down or up on the market. This means you could lose the money you put into the stock.

If the company ends up going bankrupt and the assets are liquidated, then the common stockholders are the last ones to get any part of the proceeds that are left over. You may end up with nothing after everything.

Even if the company is not set to fail, their prices might still fluctuate in the market. There might be factors inside the company that can control the stock’s prices. This could be anything from defective products to events that the company might have no control over such as major issues with the market.

These changes can be unnerving because you don’t want to lose money. But one stock that is losing money one day might end up making you more money in the long run.

Stocks are usually just one part of the investor’s portfolio. They generally reduce the risks of holding stock by having other investments throughout. Also investing in more than one stock can reduce the risks of holding them, as well. While they shouldn’t make up the entire portfolio of investment options.

Buying Stocks

There are several different ways you can buy stocks. You are able to buy stocks through:

  • Direct Stock Plan
  • Dividend Reinvestment Plan
  • Broker
  • Stock Fund

You might be able to buy the stock directly through the company, instead of having to find a plan or broker. There might be minimum amounts to purchase, or you may have to be an employee or current stockholder in order to purchase new stocks. Every company is different on how they hold and share stocks.

Remember, there will still be fees and you want to reduce the amount of fees you have to pay. The brokers who you work with are going to charge fees for using their services. These are extra amounts. There are ways to purchase stocks with minimal fees charged when doing a bit of research around the Canadian stock market.

Mutual Bonds

Mutual bonds have always been a staple for investors. With over 5,000 mutual funds available in Canada, there is plenty for everyone to choose from. Learning more about these funds can help you decide if they’re right for you.

Mutual funds pool money from different investors to invest their money into a portfolio of different assets such as stocks and bonds. With stocks, the investor purchases the stock from the company’s shares. One of the more popular choices of mutual funds are equity funds. These invest in stocks with small or large cap businesses. Other types of mutual funds include, but are not limited to: money market funds, fixed income funds, investment grade corporate bonds or high-yield corporate bonds. All of these have their own pros and cons.

The asset value or price of the loan is determined by the value of the securities within each of the portfolios which is added together by the fund’s outstanding shares offered. The prices fluctuate based on the value of these securities at the end of every business day.

The mutual fund owners do not actually own the securities that the fund invests, but the shares from the fund itself.

Portfolio managers are who make the decisions on what to place inside the portfolio and actively manage the portfolio after that. You want to check the fund relative to the benchmark that you have for the funds. Additionally, it might be tempting to see how well a mutual fund is doing in the short term, but it is always advisable to check the long-term performance of the fund to make sure it is being cared for. 3 to 5 years is generally a good idea to stick with but remember that even if the stocks are doing well at this point, it is not an indicator that the stocks will continue to move up in the future.

Investing in Mutual Funds

Portfolio managers decide when to buy and sell these mutual funds. The portfolio managers job is to find investment opportunities that help the fund outperform its benchmark that is set in place. The better It does, the better the investment.

Mutual funds are a lot like McDonalds. They want to be seen and known. There are thousands of them, and anyone is able to purchase them and invest with them. These managers want to sell them and have a person to hold the stocks. There are steps you want to take to purchase these mutual funds.

Select the mutual funds to invest in

You want to make sure that this is the investment product you want to put your money into. Most mutual funds will fail to perform as the managers would like them too. You can choose the company and the products you want to invest in.

You want to consider investing in a bunch of different mutual funds and not put a lot of your money into one big investment, as this can ensure you will lose your money in the long run. You want to think about your investment goals and what you’re willing and able to take on as a mutual fund portfolio. Additionally, if you’re looking at longer term funds then it would be okay to take a bit of risk.

Once you find the types of funds to invest in, you will want to find out their quality in comparison to the other mutual funds in the market. You want to look at the unbiased facts on how the funds have performed in the past, so you’re able to look at the rating and find if you want to put in the specific amount of risk according to this.

One of the best ways you know you’re getting all high-quality funds is by buying all of the mutual funds you have from one company or through a “family” of mutual funds. This might also mean lower fees because they’re coming from the same place, saving you some money in the investment.

Pick the right investment provider to work with

Unlike with stocks, you can go right to the company itself and purchase the mutual funds. These companies want you to purchase the funds from them, so they make them as easy as possible to purchase. Whichever company you want to work with, you’re able to do so.

You can work with an advisor who can recommend the best mutual fund to invest your money into. You can ensure your investments don’t go off course with help from one of these professionals.

Watch out for those fees

Fees are important to think about because they can add up to be a lot. The fees will eat your returns if you’re not careful. If you put down $100k into a mutual fund that has an average fee on it, you will end up paying $25k in fees over the course of 10 years. Had this money gone into a passive EFT or with an advisor who charges a fraction of those fees – you will have saved money in the long run.

Load mutual fund fees are common. They are a sales charge for the shares that you're purchasing. This fee is used to compensate an intermediary like a broker, financial planner, or advisor. This is to pay them for their time in selecting the appropriate fund for you.

These high fees add up over time and can cause you to miss out on a lot of the money you’d otherwise be making.

Front and back fees are both important fees to note.

Front fees are those fees charged when you purchase the fund. They're usually around 3% to as high as 6%. Some could also be charged as flat fees.

Back fees are also known as contingent deferred sales charges. This means that these fees are charged when the investor redeems the fund.

Manage and plan your portfolio accordingly

You should never take mutual funds for emotional reasons. If the stock market ends up crashing one day and moving in an undesirable location, you may be tempted to move your money to a different market. This is not always ideal. The market changes from day to day and these changes could mean great things for your portfolio.

With that being said, it is important to periodically plan and adjust your investments as you see fit. Some investments will end up doing better than others, and you want a healthy balance between them all to keep up with the fees, amounts, and money coming in. Plan to do this rebalance of your portfolio annually. Extra points for working with an investment manager throughout it.

Alternative to Mutual Funds

There are also alternatives to these mutual funds if you want something a bit different that might better align with your needs and/or wants from an investment.

The fees for many other types of funds and investments tend to be a bit lower than others. Don’t let that discourage you from mutual funds though, because they have more benefits that the others do not have.


Exchange traded funds help investors buy investments in one large swoop. This gives investors different ranges of portfolios to invest in while keeping them all in one place. They both work to keep those investments in a particular area or market. The price for entry into an EFT is often lower. Not just that, but if you choose to go with a exchange-traded fund then they generally have lower fees than actual mutual funds you can invest in.

Disadvantages of Investing in Mutual Funds

There are some expensive mutual funds out there, so you want to make sure you do your research. These funds might just only perform any passive automated investments as well that you make. Here are a couple disadvantages to keep in mind.

  • Spotty returns sometimes happen, and this might be troubling for some investors. Many of these funds fail to outperform.
  • There might be a decent amount of built-in fees.
  • The cost of managing mutual funds tend to be pretty high, so this can eat into any returns that you have.

Regardless of which investment option you choose to go with, it is always advisable to have a mix of different investments without your portfolio. Looking to make an investment is ideal for when you want to investigate passive income that is going to increase your overall worth and asset value. Mutual funds may or may not help with increasing this.