2009-03-03

To understand basic investment characteristics

To be successful in investing, we should understand the essence of investment well. It will help us to make decisions. Though there are many investment options, every investment has three key common characteristics:.

Expected return

Refers to the amount of interest, dividends or capital gains that you expect to receive from your investment. (Actual returns may, of course, be quite different.)

As noted before, there is a direct correlation between expected return and risk. The higher the expected return, the greater the risk.

Risk

Is the possibility that you could lose some of, all of, or more than your principal investment, or that you could earn less return from the investment than you expected.

Lower risk investments include government treasury bills and Canada Savings Bonds. At the higher end are investments like futures and shares of junior venture companies. Mutual funds have a wide range of risk profiles.

Marketability (or 'liquidity')

Refers to whether you can sell or redeem your investment quickly at or near the current market price.

Term deposits are an example of an illiquid investment, since you generally can't withdraw your money before the end of the term without paying a significant penalty.

Many other investments, such as mutual funds or listed securities, are very marketable because they can be quickly sold or redeemed on short notice and at low cost.

Marketability is an important factor to be considered when selecting your investments

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