Our Financial Advisors at RC Financial Group understand that Investments can be perplexing to new or prospecting investors attempting to diversify their portfolio. Generally Investing includes the purchase of financial instruments with the intentions to generate income or to appreciate in the future to create a capital gain. The ideology is desirable and seems straightforward although there are a variety of financial instruments for an investor to choose from. Financial instruments are divided into sub categories such as Debt instruments, Equity instruments, Investment funds and Derivatives.
Debt Instruments
Debt instruments in comparison to other securities are often less riskier resulting in lesser as well as steadier gains. Upon purchasing this financial instrument the borrower/issuer is obliged to make payments of a fixed amount on a fixed schedule to you the investor. Hence, the reason they are also given the name Fixed-Income securities. When looking at the risk-reward ratio it is more suitable for investors who are less aggressive, have a lower risk tolerance and have long term oriented goals. Therefore they are most effective when integrated to diversify ones investment portfolio. Some Fixed-Income securities include:
- Bonds
- Debentures
- Mortgages
- Treasury Bills
- Commercial Paper
Equity Instruments
Equity Instruments are usually referred to as stocks or shares. They entitle their owner to a portion in the equity share capital of the corporation being invested into. Equity instruments are, generally, issued to company shareholders and are used to fund their operations.They are further broken down into common shares and preferred shares, each consisting of their own specific characteristics and rights. Common shares entitle the investor to voting rights and claims on any profits. While, preferred shares are generally entitled to a fixed dividend pay out, that is given priority over common shareholders. Preferred’s as their also called are hybrid investments possessing both debt and equity investment characteristics.The daily exchange of these types of securities is made possible through the financial markets, more specifically through the stock exchange. This type of auction market can be very intimidating to many investors whom are interested in potentially venturing into these equity instruments. Equity securities are an integral element of ones investment portfolio as it can ultimately achieve your desired rate of return. Allow our Advisors to simplify this process and guide you towards making the best investment decisions at the right time. Some Equity Instruments include:
- Common stocks
- Preferred stocks
- Convertible Debentures
- Depository receipt
- Transferable Subscription Rights
Investment Funds
Investment funds are pooled funds which are collected from retail investors that purchase shares or units of the fund and receive a return in proportion to their investment. There are two types of investment funds, open-end (mutual funds) and closed-end (investment trusts). They offer investors an opportunity to access a wider range of securities which themselves would be unable to due to the lack of capital and/or other resources. Individual investors do not make critical decisions about how the funds assets are allocated or which investments should be taken. Potential investors choose which fund they would want to invest in based on the funds specific goals, risk, fees, and other factors. The duties of overseeing the fund falls onto the fund manager who makes the decisions of which securities it should invest into, the quantities of these securities and how long they should be held. An investment fund can be broad-based, such as an index fund that tracks the S&P 500, or it can be specifically focused, such as an Exchange Traded Fund (ETF) that invests only in small technology stocks. RC Financial Group assures any of our investors will be well informed and equipped with the essential tools to choose from any of the 10,000 mutual funds in the market today. Some Investment Funds include:
- Equity Funds
- Bond/Income Funds
- Balanced Funds
- Index Funds
- Hedge Funds
- Exchange Traded Funds (ETFs)
- Global/International Funds
Derivatives Market
Derivatives are a formal contract between two parties that specify conditions in regards to specified dates, values, underlying assets, and other contractual obligations of payment that are required to be satisfied. Each contract is valued based from the underlying asset under which the contract was drawn from such as stocks, bonds, physical commodities, currencies and interest rates. There are mainly two groups of derivatives contracts in the market today; the privately traded over-the-counter (OTC) derivatives that do not go through any exchange or other intermediaries, and exchange-traded derivatives (ETD) where standardized contracts are traded through specialized exchanges only for derivatives. Some Derivatives purposes are as follows:
- Hedge or mitigate risk in the underlying asset to negate all or some potential drop offs in the value of the underlying asset
- Provide leverage, such that a small movement in the underlying value can cause a large difference in the value of the derivative
- Speculate and make a profit if the value of the underlying asset moves the way as expected
- Switch asset allocations between different asset classes without actually disturbing the underlining assets.
more common derivatives types include:
- Forwards
- Futures
- Options
- Warrants
- Currency or Interest rate swaps
In the financial market of today RC Financial Group recognizes that it is essential to utilize the different techniques that have been engineered for investors to either hedge themselves from potential loses or speculate for potential gains. The derivatives market is generally for more experienced and knowledgable investors due to their complexity. We will take it upon ourselves in educating our clients of todays market in order to be on top of tomorrows market with the tools we will provide.