1. 10 - 1 COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd Chapter 10 – Investment Planning

2. 10 - 2 Chapter 10 – Investment Planning Chapter 10 - Learning Goals LG 1-Discuss the role that investing plays in the personal financial planning process and identify several different investment objectives. LG 2-Distinguish between primary and secondary market, as well as listed exchanges and the over-the-counter market. LG 3 -Explain the process of buying and selling securities and recognize the different types of orders. LG 4-Develop an appreciate for how various forms of investment information can lead to better investing skills and returns. LG 5-Gain a basic understanding of the growing impact that the computer and the Internet are having on the field of investments. LG 6-Describe an investment portfolio and how you’d go about developing and managing a portfolio of securities. Learning Goals

3. 10 - 3 Chapter 10 – Investment Planning Internet Links and On-Line Resources Fiscal Agents Financial Services Group Website to help you find the right product.Fiscal Agents Financial Services Group Website Investopedia.com offers a comprehensive investment tutorial and a glossary of financial terms.Investopedia.com Retirement planner at Morningstar’s retirement center.Morningstar’s retirement center Toronto Stock Exchange (TSX)Toronto Stock Exchange Implications of the Efficient Markets Hypothesis (EMH) at Wikipedia.org.Implications of the Efficient Markets Hypothesis IBM’s Investor site – Guide to Understanding Financial Reports.IBM’s Investor site – Guide to Understanding Financial Reports Money Sense.ca – numerous articles, tools and tips for investorsMoney Sense.ca Investopedia.com – a free site that has extensive informaiton on investing (click on “Tutorials” )Investopedia.com The Motley Fool has sections on fundamentals of investing, mutual fund investing, choosing a broker, investment strategies and styles.The Motley Fool Smart Money University offers Investing 101.Smart Money University Canadian Investment Review – how much diversification is enough?how much diversification is enough? Portfolio tracker at Sympatico’s MSN sitePortfolio tracker Web Links

4. 10 - 4 Chapter 10 – Investment Planning Key Chapter Terms and Definitions Investing Speculating Investment plan Derivative securities Securities markets Prospectus Over-the-counter market Organized securities exchanges Listed security Unlisted security Bid price Ask price Bull market Bear market Stockbroker Full-service broker Discount broker Canadian investor protection fund (CIPF) Canadian investor protection fund (CIPF) Arbitration Odd lot Round lot Market order Limit order Good ‘till cancelled (GTC) order Stop-loss order (stop) Margin purchase Short sale Annual report S&P/TSX composite index Dow Jones Industrial Average (DJIA) Dow Jones Industrial Average (DJIA) Standard & Poor’s (S&P) indexes NYSE index NASDAQ index Day trader Portfolio Diversification Asset allocation Terms

5. 10 - 5 Chapter 10 – Investment Planning Definitions Investing The process of placing money in some medium such as stocks or bonds in the expectation of receiving some future benefit. Terms

6. 10 - 6 Chapter 10 – Investment Planning Definitions Speculating A form of investing in which future value and expected returns are highly uncertain. Terms

7. 10 - 7 Chapter 10 – Investment Planning Definitions Investment Plan A statement, preferably written, that specifies how investment capital will be invested for the purpose of achieving a specified goal. Terms

8. 10 - 8 Chapter 10 – Investment Planning Definitions Derivative Securities Securities such as futures and options, whose value is derived from (or linked to) the price behaviour of an underlying asset or financial asset. Terms

9. 10 - 9 Chapter 10 – Investment Planning Definitions Securities markets The marketplace in which stocks, bonds, and other financial instruments are traded. Terms

10. 10 - 10 Chapter 10 – Investment Planning Definitions Prospectus A document made available to prospective security buyers that describes the firm and a new security issue. Terms

11. 10 - 11 Chapter 10 – Investment Planning Definitions Over-the-counter (OTC) market The market in which securities not listed on one of the organized exchanges are traded. Terms

12. 10 - 12 Chapter 10 – Investment Planning Definitions Organized securities exchanges Exchanges where various types of securities are traded by exchange members for their own accounts and the accounts of their customers. Terms

13. 10 - 13 Chapter 10 – Investment Planning Definitions Listed security A security that has met the prerequisites for, and thus is traded on, one of the organized security exchanges. Terms

14. 10 - 14 Chapter 10 – Investment Planning Definitions Unlisted security A security that is traded in the over-the-counter market; such a trade is made directly between the investor and the security dealer. Terms

15. 10 - 15 Chapter 10 – Investment Planning Definitions Bid price The price at which one can sell a security. Terms

16. 10 - 16 Chapter 10 – Investment Planning Definitions Ask price The price at which one can purchase a security. Terms

17. 10 - 17 Chapter 10 – Investment Planning Definitions Bull market A condition of the market normally associated with investor optimism, economic recovery and expansion; characterized by generally rising securities prices. Terms

18. 10 - 18 Chapter 10 – Investment Planning Definitions Bear market A condition of the market typically associated with investor pessimism and economic slowdown; characterized by generally falling securities prices. Terms

19. 10 - 19 Chapter 10 – Investment Planning Definitions Stock broker (account executive, investment advisor) A person who buys and sells securities on behalf of clients and provides them with investment advice and information. Terms

20. 10 - 20 Chapter 10 – Investment Planning Definitions Full-service broker A broker who, in addition to executing clients’ transactions, provides them with a full array of brokerage services. Terms

21. 10 - 21 Chapter 10 – Investment Planning Definitions Discount broker A broker with low overhead who charges low commissions and offers little or no services to investors. Terms

22. 10 - 22 Chapter 10 – Investment Planning Definitions Canadian investor protection fund (CIPF) A trust fund established to protect customer accounts against the financial failure of a brokerage firm. Terms

23. 10 - 23 Chapter 10 – Investment Planning Definitions Arbitration A procedure used to settle disputes between a brokerage firm and its clients; both sides of the “story” are presented to the board of arbitration, which makes a final and often binding decision on the matter. Terms

24. 10 - 24 Chapter 10 – Investment Planning Definitions Odd lot A quantity of fewer than 100 shares of a stock. Terms

25. 10 - 25 Chapter 10 – Investment Planning Definitions Board/round lot A quantity of 100 shares of stock, or multiples thereof. Terms

26. 10 - 26 Chapter 10 – Investment Planning Definitions Market order An order to buy or sell a security at the best price available at the time it is placed. Terms

27. 10 - 27 Chapter 10 – Investment Planning Definitions Limit order An order to either buy a security at a specified or lower price, or to sell a security at or above a specified price. Terms

28. 10 - 28 Chapter 10 – Investment Planning Definitions Good ‘till cancelled (GTC) order A limit order placed with instructions that it remain in effect indefinitely or until canceled. Terms

29. 10 - 29 Chapter 10 – Investment Planning Definitions Stop-loss (stop) order An order to sell a stock when the market price reaches or drops below a specified level. Terms

30. 10 - 30 Chapter 10 – Investment Planning Definitions Margin purchase The purchase of securities with borrowed funds, the allowable amount of which is limited by the stock exchange. Terms

31. 10 - 31 Chapter 10 – Investment Planning Definitions Short sale A transaction that involves selling borrowed securities with the expectation that they can be replaced at a lower price at some future date; generally made in anticipation of a decline in the security’s price. Terms

32. 10 - 32 Chapter 10 – Investment Planning Definitions Annual report A report made available to shareholders and other interested parties that includes a variety of financial and descriptive information about a firm’s operations over the recent past (usually the last fiscal year). Terms

33. 10 - 33 Chapter 10 – Investment Planning Definitions S&P/TSX composite index The most widely followed measure of stock market performance in Canada. Terms

34. 10 - 34 Chapter 10 – Investment Planning Definitions Dow Jones Industrial Average (DJIA) The most widely followed measure of stock market performance in the United States; consists of 30 blue-chip stocks listed mostly on the NYSE. Terms

35. 10 - 35 Chapter 10 – Investment Planning Definitions Standard & Poor’s (S&P) index An index of the performance of all stocks listed on the New York Stock Exchange. Terms

36. 10 - 36 Chapter 10 – Investment Planning Definitions NYSE index An index of the performance of all stocks listed on the New York Stock Exchange. Terms

37. 10 - 37 Chapter 10 – Investment Planning Definitions NASDAQ index An index, supplied by the National Association of Securities Dealers, that tracks the performance of stocks traded on the OTC market. Terms

38. 10 - 38 Chapter 10 – Investment Planning Definitions Day trader An investor who buys and sells stocks (and other securities) rapidly throughout the day in the hopes of making quick profits. Terms

39. 10 - 39 Chapter 10 – Investment Planning Definitions Portfolio A collection of securities assembled for the purpose of meeting common investment goals. Terms

40. 10 - 40 Chapter 10 – Investment Planning Definitions Diversification The process of choosing securities having dissimilar risk-return characteristics in order to create a portfolio that will provide an acceptable level of return and an acceptable exposure to risk. Terms

41. 10 - 41 Chapter 10 – Investment Planning Definitions Asset allocation A plan for dividing a portfolio among different classes of securities in order to preserve capital by protecting the portfolio against negative market developments. Terms

42. 10 - 42 THE END!