Warren Buffett once said that, "There seems to be some perverse human characteristic that likes to make easy things difficult." This very statement holds true for the world of investments today. We have built a very complex industry with so many choices, options and packages that it has become nearly impossible for the average investor to truly discern a real investment from a marketed product or an educated gamble. That is not to say that an investor cannot make money with these options; however, a simple and vetted approach is most appropriate for the average investor.
There are simply two fundamental ways to invest your money; you can own or you can loan.
You can loan your money to an individual, company or government and receive compensation (typically in the form of interest) for that loan. Examples of this type of investment option includes these types of investment options include, bank accounts, Canada Savings Bonds, term deposits, GIC's, corporate bonds and mortgages.
The other option available to investors is to own. This would include stocks in a company, real estate property, mutual funds, segregated funds, ETF's and REIT's. Compensation for these types of investments typically involves capital gains or dividends.
When it comes to the world of investing, these are your two basic choices. Everything else is packaging, marketing or educated gambles. Keep in mind that this does not mean one can't make money through other avenues such as commodities, derivatives, options or other complex investment structures. However, these types of investment options are very complicated and are usually not suitable for the average investor.
The next time you review your investment portfolio, you should be able to determine whether your investments fall under own, loan or a mix of both. If they appear too complex or convoluted, they probably are.