SAVING AND INVESTING SAVING Why Save Emergency Funds

SAVING AND INVESTING

SAVING** � Why Save? � Emergency Funds � Liquidity Needs � Short-Term Goals � Long-Term Goals � Compound � Interest (Compounding): is added to principle. Interest is reinvested to earn more interest.

IMPACT OF COMPOUNDING � Dave is planning to invest $10, 000 in a diversified portfolio that is expected to provide a 9% rate of return. He can make the investment today or exactly 10 years from today. How much better off will he be at the end of 40 years if he decides to make the investment today rather than 10 years from today? � Today: $314, 094 � 10 Years From Today: $132, 767

WHEN WE RETIRE HOW CAN WE SUPPORT OURSELVES? * � Canadian Pension Plan � Old Age Security � Defined Benefit Pension � Defined Contribution Pension � Personal Savings � RRSPs (Registered Retirement Savings Plan) � TFSA (Tax Free Savings Account) � Investment Account

Investment Account Contributions and Taxes RRSP (Registered Retirement Savings Plan) Investment Earnings and Taxes Withdrawals and Taxes Limit Tax deductible. Grows each Any contribution year tax free. to your RRSP’s is considered a tax credit. Must pay taxes upon withdrawal. Included as income May contribute 18% of earned income each year. You can use unused room. TFSA (Tax Free Savings Account) Not tax deductible. You invest dollars that have already been taxed. Grows each year tax free. No taxes paid Limit of $5, 500 upon withdrawal each year. You can use unused room. Investment Account Any contributions are not tax deductible. You must pay NA taxes each year on any capital gains, interest, or dividends No limit

INVESTING* � Why � It Invest? is only through investing that you can reach your financial goals. � The risks of not investing is much worse.

DEBT AND EQUITY INVESTMENTS* � There are two basic ways to invest: � By lending money (debt securities) � By acquiring ownership (equity securities) � Lenders become creditors and are said to posses debt securities. The income received is called interest. � You acquire equity when you own investments: house, stocks, etc. In return investors get dividends and/or capital gains.

DEBT INVESTMENTS*** � Debt Securities: The borrower promises to repay the principal with interest at some specified time. � Deposits: Easiest and simplest way to invest (savings accounts) (CDIC) � GIC’s: Guaranteed Investment Certificates � Money Market Securities: A large pool of cash moves for short periods of time (Treasury Bills) � Bonds: Longer-term maturities in which you are loaning money for a term for a return. � Canada Savings Bonds: Similar to saving certificates. They cannot be traded and can only be

EQUITY INVESTMENTS*** � You should not invest in stocks if you cannot afford to lose the invested money. � Stock Exchange: An organized marketplace for buying and selling shares to investors. � Stock Exchange Index: The overall behaviour of the market can be learned by watching the performance of an index. � S&P/TSX : Tracks performance of Canada’s largest companies � Dow Jones Industrial Average: The world’s most watched index.

COMMON SHARES** � Stock Dividends: The income from a stock is known as a dividend. Not promised nor paid automatically. Based on � Profits � Necessity � Capital for funds (Reinvesting in the business) Gains: When an investor sells their stocks for a higher price than they originally paid for it.

MUTUAL FUNDS* � Created due to the management effort required and the impossibility of achieving an appropriate level of diversity with stocks � They gather money from many investors, hire professional managers to invest the pooled funds in a portfolio with many securities. Each investor acquires units in the investment fund.

RISK MANAGEMENT* � Diversification: You should not put all your investment money in the same type of investment but spread the money and the risk around. � Market Risk � Country Specific Risk � Sector Specific Risk � Business Specific Risk