Saving and Investing April 2009

How to Select a Savings Plan 1. Decide whether to save or invest. 2. Can you withdraw money from this savings plan? 3. What type of interest? (determines yield of account) 4. How secure is the bank? (Insured by CDIC for $100,000) 5. How easily can I liquidate my savings/investments?

Common Savings Plans Savings Accounts – may require a minimum balance, rates vary, may charge a fee for withdrawls. Savings Accounts – may require a minimum balance, rates vary, may charge a fee for withdrawls. Term Deposits – guaranteed a fixed amount of return for a specific term (period of time) (fixed rate). May require a min balance. Can’t be touched without penalty during the term. Term Deposits – guaranteed a fixed amount of return for a specific term (period of time) (fixed rate). May require a min balance. Can’t be touched without penalty during the term.

Common Savings Plans GIC – Guaranteed Investment Certificate – requires a min balance. Money is locked in (no withdrawls), but high interest. GIC – Guaranteed Investment Certificate – requires a min balance. Money is locked in (no withdrawls), but high interest. RRSP – Registered Retirement Savings Plans – gov limits yearly contributions. Deductable from tax return. Tax is paid when money withdrawn. RRSP – Registered Retirement Savings Plans – gov limits yearly contributions. Deductable from tax return. Tax is paid when money withdrawn.

Common Forms of Investment Investing can be seen as better than saving because Investing can be seen as better than saving because –Higher rate of return (yield) –Investments can grow or exceed the rate of inflation.

Common Forms of Investment Canada Savings Bonds Canada Savings Bonds Corporate Bonds Corporate Bonds Stock Stock –Common –Preferred Mutual Funds Mutual Funds Real Estate Real Estate Collectables Collectables

Canada Savings Bonds $ paid at maturity date of the bond. $ paid at maturity date of the bond. $ is loaned federal government $ is loaned federal government Very liquid source of money Very liquid source of money Worth face value Worth face value Minimum amount is $100 Minimum amount is $100

Corporate Bonds Sold by businesses Sold by businesses Bonds and stocks (securities) Bonds and stocks (securities) Yield is given yearly (interest on amount) Yield is given yearly (interest on amount) Bonds can be sold at “market value” Bonds can be sold at “market value”

Stock Also called shares Also called shares Gives you partial ownership of the company. Gives you partial ownership of the company. Proof of ownership is stock certificate. Proof of ownership is stock certificate. Value changes with economy. Value changes with economy. Can be considered Can be considered –Common Stock –Preferred Stock

Common Stock Gives the shareholder a say in the business. Gives the shareholder a say in the business. Pays out dividends Pays out dividends

Preferred Stock Fixed dividend per share. Fixed dividend per share. Get money back first. Get money back first. –Esp if company goes out of business. Prices tend to be more stable Prices tend to be more stable –Fewer gains, fewer losses Blue chips, and growth companies have these. Blue chips, and growth companies have these.

Mutual Funds Pool of money from many investors. Pool of money from many investors. Managed by an investment company. Managed by an investment company. No load = no fees. No load = no fees. Risk is spread out over a large # of securities. Risk is spread out over a large # of securities. No guarantee against loss. No guarantee against loss. –(No CDIC protection)

Mutual Fund - Advantages Professional in charge of funds Professional in charge of funds Risk is spread out (diversification) Risk is spread out (diversification)

Types of Mutual Funds Balanced Fund – broad range of stocks and bonds. Balanced Fund – broad range of stocks and bonds. Global Bond Fund – corporate bonds form all over the world. Global Bond Fund – corporate bonds form all over the world. Global Stock Fund – stocks from companies from all over the world. Global Stock Fund – stocks from companies from all over the world.

Types of Mutual Funds Growth Fund – focuses on companies that are expected to increase in value; also higher risk. Portfolios vary widely in stock selection. Growth Fund – focuses on companies that are expected to increase in value; also higher risk. Portfolios vary widely in stock selection. Dividend Fund – features stocks and bonds with common and preferred shares to generate dividends. Dividend Fund – features stocks and bonds with common and preferred shares to generate dividends.

Types of Mutual Funds Specialized Fund – invests in stocks of companies in a specific industry. Specialized Fund – invests in stocks of companies in a specific industry. Money Market Fund – features short term (less then 1 year) investments. Money Market Fund – features short term (less then 1 year) investments. Bond Fund – features government and corporate bonds. Bond Fund – features government and corporate bonds.

Real Estate Investment in property Investment in property –House, condo, land…

Collectables Cards, antiques, etc. Cards, antiques, etc. –Must be in good condition Only have a value if rare and popular. Only have a value if rare and popular. No dividend and no return until sold. No dividend and no return until sold.

Stock Exchange Where brokers buy and sell stock. Where brokers buy and sell stock. Brokers receive a fee (commission) for services (usually 1.5% of order value) Brokers receive a fee (commission) for services (usually 1.5% of order value) TSX in operation since 1861, not for profit. TSX in operation since 1861, not for profit. –Only member brokers can trade at exchange.