Each type of plan we looked at is not just about putting money away, but growing it as well to provide you with a retirement income, or to fund whatever it is you’re saving up for.
Here, we’re going to look at different types of investments commonly offered in various plans.
Guaranteed funds
Guaranteed funds bear minimal financial risk, and provide a promise that a predefined minimum value of the fund (usually, the initial investment amount plus a certain interest rate) will be available when your investment in the fund reaches maturity. Guaranteed funds typically give a lower rate of return over the long run than market-related funds.
Though it rarely happens, guaranteed funds are exposed to a certain risk linked to the financial situation of the company that offers the funds. If the company is bankrupt or insolvent, you may not get back your entire investment except to the extent protected under the Assuris program.
To learn more about this program, visit the Assuris website.
Market-related funds
With a Market-related fund, your money is pooled with the money of others and invested in various securities. A fund manager decides which securities to buy or sell in accordance with the investment policy of the fund. The fund also allows you to have a diversified portfolio, spread out over a large number of stocks, bonds and other securities. A fund’s performance depends on the combined overall performance of the different securities it holds.
Market-related funds invest in a variety of securities (e.g. Treasury bills, bonds, stocks) with different risk levels depending on the specific investment objectives of each fund. Your investments in these funds are not guaranteed. Also, market-related funds may give you higher returns than guaranteed funds, but may also generate losses.
Typically, a plan will contain a mix of the following types of market-related funds, each offering varying degrees or risk vs. return (PDF, 182 kb). And the higher the chance of return, the higher the risk of losing money:
Money market funds
Money-market funds invest in short-term securities, and their objective is to earn interest for unitholders while maintaining the initial investment (although this is not guaranteed). They are considered low-risk investments.
Fixed income funds
These funds aim to provide regular income payments with some capital gains. They consist of a combination of treasury bills, debentures, bonds, and mortgages. These funds carry a certain level of risk which is normally higher than for money-market funds and guaranteed funds but lower than other types of funds such as the Balanced/Diversified, the Equity or the Specialty funds.
Balanced/Diversified funds
These are hybrid funds that combine stocks, bonds and sometimes a money market component, in a single portfolio. They’re designed for investors who are looking for a combination of relative safety, income and modest growth objectives.
Equity funds
Equity funds invest in common and preferred shares of companies, and are designed for long-term growth objectives through capital gains.
Specialty funds
Specialty funds invest in specialized areas such as real estate, resources, and precious metals.
We’ve looked at saving your money and growing your money. But now how do you convert savings into income?
