Finance Savings and Investing
Fact
There are two kinds of money problems.
Which one do you want?
1.
2.
Not enough money?
Too much money?
Saving
Saving involves safely putting money aside for future use. For example,
depositing money into a savings account which pays interest of 1.5%.
Advantages
 Money is protected
against loss
 Interest is paid by the
financial institution
Disadvantages
 Money loses purchasing
power over time due to
inflation.
 If the current inflation rate
is 2.5% and the financial
institution is paying you
2%, your money is losing
purchasing power.
Savings Plans
1.
2.
3.
4.
5.
6.
Savings Accounts
Term Deposits
Guaranteed Investment Certificate (GICs)
Registered Retirement Savings Plan (RRSPs)
Registered Education Savings Plan
(RESPs)
Tax Free Savings Account (TFSA)
Investing
Investing is using your savings to earn extra income that
will grow over time.
Advantages
Disadvantages
 Investments often pay  The rate of return is
a higher rate of
not guaranteed
return. (higher
 There is some risk of
interest)
losing part or all of the
 Investments can grow
money.
at or exceed the rate
of inflation
Investing Plans
1.
2.
3.
4.
5.
Investment in stocks/shares
Mutual Funds
Bonds
Index Funds
Collectibles
 Smart
investors have a combination of
savings plans and investments
 An
individual’s short and long-term goals
and plans impact how savings and
investments are distributed.
The Need For a Savings Plan
Savings Plan
 Systematic or regular habit of putting money aside to
reach a financial goal.
Why?
1. Emergency needs
2. Short and long-term goals
3. Security
4. Future needs
Decisions you need to make:
 How much to save
 What you save
 Where you save
Emergency Needs
Loss of family income due to death,
injury, or illness
Life and health insurance does not
always cover all the costs
Unexpected hardships such as getting
fired or laid off from a job
Wanting to quit a job for ethical or
personal reasons
How much savings do I need?
 Ideally, people would be
wise to have 3 - 6
months salary in savings.
 If a job is lost, one’s
savings would provide
until a new job is likely
found.
Short and Long-term Goals
Short Term Goals
 Purchase of relatively
inexpensive items
within a short period
of time
Long-Term Goals
 Purchase of more
expensive items in
more than a year’s
time.
Examples include:
 Concert tickets,
bicycle, television
Examples include:
 Car, house, postsecondary school,
retirement
Security and Future Needs

Many people who plan financially
for their future are happier because
they spend less time worrying about
their financial future.

David Chilton’s best selling book,
The Wealthy Barber, states people
should pay themselves first – take
10% of your earnings as soon as
you get it and put it aside in savings
or an investment plan.

If you get into the habit of doing this,
you never get used to having the
money to spend in the first place.
Selecting a Savings Plan
 When
trying to select which savings
plan(s) to use, consider the following:
1. Rate of return (interest rate) and how
interest is calculated
2. Safety
3. Liquidity
Interest / Rate of Return/ Yield

Interest is money received over time for letting
others borrow money

Consumers borrow money from banks and pay
interest in addition to paying the initial amount
borrowed, which is called the principal.

Banks pay interest to consumers who deposit
money into banks, who then use it to lend to
others at a higher interest rate.
Interest

Interest is expressed as a percentage of the
original investment (i.e. 2% of $)
 This is called a rate of return or yield.
 Interest rates are based on a one-year time
period. (1 year = 12 months = 52 weeks = 365
days)
Example:
 A savings account yields an annual return of 3%.
 The rate of return on the savings account is 3%.
Savings Accounts and Interest

Actual earnings on savings accounts depends on when
the bank calculates and pays the interest:
1. daily
2. weekly
3. monthly
4. annually

And how the bank calculates interest and may vary from
bank to bank from type of savings accounts. Interest
may be calculated in one of two ways:
1. Simple Interest
2. Compound Interest
Calculating Simple Interest

Simple Interest is calculated on the amount deposited by the
consumer – also called the principal amount)
Simple Interest Calculation
Interest = Principal x Rate x Time
I
= PxRxT
a.

Simple Interest calculated annually at 2% = 2/100 = 0.02
Balance of $2000 in my bank account
I = 2000 x .02 x 12/12 = $40
b. Simple interest calculated monthly at 2% = 2/100 = 0.02

Balance of $1400 at the end of the month
I = 1400 x .02 x 1/12 = $2.33
c.

Simple interest calculated weekly at 2% = 2/100 = 0.02
Balance of $1400 at the end of the week
I = 1400 x .02 x 1/52 = 0.53 cents
Calculating Compound Interest

Interest is calculated on the principal amount plus any
interest already earned.

You earn more interest in each payment period because
you are earning interest on interest as well as your
principal.

The more often the interest payment is made (i.e.
monthly vs. annually, or weekly vs. monthly, or daily vs.
weekly), the more your money will grow because interest
is being paid on top of interest more often
Calculating Compound Interest
If you deposit $1000 in a savings plan and leave it there for 5 years at 5%
interest compounded annually, interest is compounded as follows:
Balance at
the beginning
of the Year
During the Year
Balance at the end
of the year
Year 1
$1000.00
+ 5% of $1000 = ?
+ .05 x $1000 = $50.00
= $1050.00
Year 2
$1050
+ 5% of $1050 = ?
+ .05 x $1050 = $52.50
= $1102.50
Year 3
$1102.50
+ 5% of $1102.50 = ?
+ .05 x $1102.50 = $55.13
= $1157.63
Year 4
$1157.63
+ 5% of $1157.63 = ?
+ .05 x $1157.63 = $57.88
= $1215.51
Year 5
$1215.51
+ 5% of $1215.51 = ?
+ .05 x $1215.51 = $60.78
= $1276.29
Calculating Compound Interest
If you deposit $1000 in a savings plan and leave it there for 5 years at 5%
interest compounded monthly, interest is compounded as follows:
Balance at the
beginning of
the Month
During the Month
Balance at the end
of the month
Month 1
$1000.00
+ 5% of $1000 = ?
+ .05 x $1000 x 1/12 = $4.166
= $1004.1666
Month 2
$1004.1666
+ 5% of $1004.1666 = ?
+ .05 x $1050 x 1/12 = $4.1802
= $1008.3468
Month 3
$1008.3468
+ 5% of $1008.3468 = ?
+ .05 x $1008.3468 x 1/12 = $4.2014
= $1012.5482
Month 4
$1012.5482
+ 5% of $1012.5482 = ?
+ .05 x $1012.5482 x 1/12 = $4.2189
= $1016.7671
Month 5
$1016.7671
+ 5% of $1016.7671 = ?
+ .05 x $1016.7671 x 1/12 = $4.2365
= $1021.0036
Compound Interest Formula

If the interest is compounded once a year:
A = P(1 + r)n
Where:
P is the principal (the money you start with, your first deposit);
r is the annual rate of interest as a decimal (5% means r = 0.05);
n is the number of years you leave it on deposit – exponent n;
A is how much money you've accumulated after n years, including
interest.


If the interest is compounded q times a year:
A = P(1 + r/q)nq
Electronic Compound Interest/Future Value Calculator:

http://www.moneychimp.com/calculator/compound_interest_calculator.htm
Note: Compound Interest is also referred to as Future Value.
Selecting the Savings Plan
Note:
 Compare different financial institutions savings plans in
order to find the one with the best rates for you.

Some savings accounts require you to have a minimum
balance in order to receive a higher rate of interest on
your account. (i.e. $4000 vs. $1000)

Some savings plans require you to leave your money
with the financial institution for a minimum number of
years. The greater the principal and the longer you leave
it with the institution, the higher interest they will pay you.
Safety
 Most
savings plan deposits in banks, trust
companies, and loan companies are
protected by the Canada Deposit
Insurance Corporation (CDIC) – an
agency of the federal government.
 The
financial institution pays for the
insurance - not you.
Safety

Depending on the province, the CDIC will insure your
deposits at individual institutions up to a maximum
amount.
Examples:
 The Nova Scotia Credit Union Deposit Insurance
Corporation insures deposits up to $250,000.
 The Deposit Insurance Corporation of Ontario insures
deposits to $100 000 and an additional $100 000 for
each registered savings plan.
 Depending on how much you have in savings, you may
want to make deposits in several institutions.
Liquidity
 Liquidity
refers to how easily you can
convert an item into cold hard cash quickly
and without notice
 A house
for example is not very liquid as it
would take time to sell, whereas a
chequing account is liquid because you
can withdraw the money immediately.
Liquidity
 Should
there be an emergency, it is
important for investors to try to keep some
of their savings as liquid as possible.
 Some
savings plans are locked in for a
certain amount of years and/or charge a
penalty fee for early withdrawal of money.
Savings Plans
1.
2.
3.
4.
5.
Savings Accounts
Term Deposits
Guaranteed Investment Certificate
(GICs)
Registered Retirement Savings Plan
(RRSPs)
Registered Education Savings Plan
(RESPs)
Common Savings Plans
Savings Account
 Interest may be calculated daily and paid at the end of
each month, or
 Paid on the average account balance during a specific
time period; or
 Paid on the minimum balance, and deposited in your
account semi-annually on April 30th and October 31st.
 Interest rates vary from institution to institution
 Accounts may require a minimum balance in your
account at the end of each month (i.e. $5000)
 Online banks often have better interest rates
Term Deposits and Guaranteed Investment Certificates
(GICs)

Both are savings plans where you
deposit a fixed sum of money for a
specific length of time (term), at a
fixed rate of interest.

Terms may range from 30 days to
5years.

Usually, the shorter the term, the
greater the deposit required and
the lower the interest rate.

The greater the deposit and the
longer the term, the higher the
interest rate may be.


Some GICs are locked which
means you can not access the
money early.
GICs that are not locked will pay a
lower interest rate and may have
conditions upon when you may
cash in your deposit.
$3 000 for 3 years at
3% interest
GIC
$4 000 for 5 years at
5% interest
GIC
Registered Retirement Savings Plan
(RRSPs)

Introduced by the federal
government in 1957 to
encourage people to save for
their retirement

Think of an RRSP as a money
box. You can chose to invest
your money in a number of
things that will fit into your
RRSP box.

Your RRSP may be made up
of mutual funds, GICs, stocks,
bonds, and index funds.
Stocks
Bonds GICs Other
RRSP
RRSP’s

Helps you save money by allowing you to invest a
portion of your annual income without having to pay
income tax on it.
Example:
 Let’s say you pay 35% income tax on your income

If you decide to contribute $5000 to an RRSP over the
course of a year, you will receive from the government
35% of that $5000 on your income tax return for that
year. (5000 x 0.35 = $1750)

The government has refunded you for the tax you paid
on the $5000.00
RRSP

The sooner you begin investing money into an RRSP, the
longer time it has to grow until your retirement.

Interest or rate of return is earned on your deposits over
time.

Actual earnings depend on what type of investments make
up your RRSP.

The government limits how much money you can contribute
to your RRSP each year.

If you already contribute to a company pension plan, you will
not be able to put away as much into your RRSP.

Currently, you can invest 18% of your income up to a
maximum of $22 000 a year.
Withdrawing Money from Your
RRSP

When you withdraw money on your RRSP, you must pay
tax on it.

You may withdraw money before retirement, but if you
are working, your annual income will likely be large
enough that you may have to pay taxes in a higher
income tax bracket resulting in paying more taxes.

Since your income after retirement is usually lower than
your income before your retirement, you may fall into a
lower income tax bracket.
2009 Federal Income Tax Brackets
29%
$126 264
26%
$81 452
22%
$40 726
15%
$10,320
Nil
$0
2009 Federal Income Tax Brackets
Taxable Income
Tax on this income
$0 - $10,320
Nil
$10 321 - $40 726
15%
$40 727 - $81 452
22%
$81 453 - $126 264
26%
Over $126 264
29%
Canadian Revenue Agency. “What Are Income Tax Rates For Canada 2009.” 24 August
2009. 16 February 2010 <http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html#provincial>
Registered Education Savings Plan
RESP

GICs Other
StocksBonds
Anyone who wants to
contribute to a child’s RESP
can.
Stocks Bonds

The contributor does not get a
tax benefit like with an RRSP.

Child is the beneficiary
because s/he will benefit from
using the money for his/her
future education costs.

The beneficiary must be a
resident of Canada.
GICs Other
Family
Plan
RESP
Individual
Plan RESP
Stocks Bonds
GICs Other
Group
Plan
RESP
RESP
 Income
earned from these investments is
tax-free until the beneficiary begins to use
it to pay for his/her future education.
 Students
do pay taxes on the income
withdrawn from the RESP, but because
students usually make minimal income
while in school, the tax actually paid is
minimal to none.
RESP
Main steps in opening an RESP:
1.
Get a Social Insurance Number (SIN) for yourself and for anyone you
name in your RESP.
2.
Apply to the Canada Revenue Agency for the Canada Child Tax Benefit if
your family net income is $74,357 or less. This form is generally provided
at the hospital where your child was born.
3.
Choose the RESP provider that best meets your needs. RESP providers
include most financial institutions, such as banks or credit unions, as well
as group plan dealers or financial services providers.
4.
Decide on the type of RESP you want to open. (Individual, Group, or
Family Plan)
5.
Decide on the type of investment that will make your money grow.
6.
Put some money into your RESP.
Sources: http://www.tax-services.ca/resp-canada.html

http://www.canlearn.ca/eng/saving/cesg/faq.shtml
RESP Rules
Current Rules on Contributions to RESP
1. There is no annual limit on what one may contribute
except that:
2.
The lifetime contribution limit is $50 000.
3.
The government will also contribute up to $500 a year to a
lifetime maximum of $7 200. The annual limit may go up
to $1000 if there is unused grant from previous years.
Note: The government’s contribution to an RESP is called the
Canada Education Savings Grant, (CESG).The actual
grant will depend on a number of factors. See the
following site for more detail:
http://www.canlearn.ca/eng/saving/cesg/faq.shtml
RESP Rules
Current Rules on Accessing RESP funds:
1.
The students can access up to $2,500 of their income and grants for
each 13-week semester of study. Payments are referred to as
Educational Assistance Payments (EAPs).
2.
Usually, a qualifying educational program is a course of study that
lasts at least three weeks in a row, with at least 10 hours of
instruction or work each week. A program at a foreign educational
institution must last at least 13 weeks.
3.
Qualifying educational programs include apprenticeships, and
programs offered by a trade school, CEGEP, college or university.
4.
RESP funds can be used for full or part-time study in a qualifying
program.
5. To find out more about qualifying educational programs contact the
Canada Revenue Agency toll-free at 1-800-959-8281.
RESP Rules

What if the child beneficiary chooses not to attend postsecondary education?
1. Since an RESP can stay open for up to 36 years, the
money can be used if your child decides to attend school
later.
2. Use the money for a brother or sister who does continue
education after high school
3. Transfer the money into a Registered Retirement
Savings Plan (RRSP) to help you save for your
retirement.
4. Withdraw your personal savings, tax-free. The unused
government portion returns to the government.
Costs of Post-Secondary Education
Student Living at Home
Years until Child Attends
a Post-secondary Fouryear College or Institution
Estimated Cost of
University Program
Monthly Savings Needed
2
$36 000
$1350
4
$40 000
$681
6
$44 000
$449
8
$49 000
$337
10
$54 000
$266
12
$60 000
$221
14
$66 000
$186
16
$73 000
$161
18
$80 000
$144
Calculations assume a 5% annual increase in education costs including inflation
and four years of education. It also assumes an 8% rate of return on investment
savings, and the maximum amount invested to receive the total government grant
under the CESG program
Student Living AWAY from Home
Years until Child Attends
a Post-secondary Fouryear College or Institution
Estimated Cost of
University Program
Monthly Savings Needed
2
$66 000
$2519
4
$73 000
$1270
6
$80000
$844
8
$88 000
$632
10
$97 000
$505
12
$107 000
$420
14
$118 000
$359
16
$130 000
$311
18
$143 000
$274
Calculations assume a 5% annual increase in education costs including inflation
and four years of education. It also assumes an 8% rate of return on investment
savings, and the maximum amount invested to receive the total government grant
under the CESG program. Estimate includes tuition and books.
Tax Free Savings Account
(TFSA)





Savings
Account
Stocks BondsGICs
Introduced by the federal
Mutual funds
government in 2008
Allows individuals to
invest and save money
and not have to pay tax
on any returns (i.e.
interest) made.
TFSA
Money can be withdrawn
at any time
Deposit limit of $5000
each year.
TFSA may include a
savings account, GICs,
stocks, bonds, and
mutual funds. http://cibc.com/ca/investing/tfsa/video/index.html?chapterID=0&WT.mc_id=tfsavideo-005
Common Forms of Investments
1.
2.
3.
4.
5.
6.
Canada Savings Bonds and Canada Premium Bonds
Corporate Bonds
Mutual funds
Real estate
Collectibles
Stocks
Note:




Each type of investment has a different level of risk and expected
rate of return.
Level of risk varies from guaranteed to get it all your money back
plus interest to losing everything
The safer the investment, the lower the return
The more riskier the investment, the possibility for a larger rate of
return exists.
Investing
 Good


investors diversify their investments
Investing in many different types of
investments to spread out the risk.
If one investment is performing poorly, it may
be balanced out by one that is doing well
Don’t put all your eggs in one basket !
Canada Savings Bonds (CSB)
CSB
 A loan you give to the
government

The government will
repay you the value of
the bond plus interest.

The maturity date
printed on the bond is
the date when the bond
becomes due and is
paid back to you.
Canada Savings Bond (CSB)

Provincial and
municipal bonds are
also available, but
less popular

CSB’s can be
purchased at all
major financial
institutions, including
banks and credit
unions.
CSB
Advantages
 Guaranteed payment by the government
 Can be cashed at any time (very liquid)
 No interest will be paid if it is cashed out within the
first three months of purchase
 Face value of the bond is the initial amount you
loaned to the government.
 Can be purchased through automatic payroll
deductions arranged with your employer
 Can be purchased for as little as $100
Canadian Premium Bond
Advantages
 Offers the same security
as a CSB
 Offers a higher interest
rate but can only be
cashed on the
anniversary of the issue
date (when it was
purchased) or during the
30 days after that date)
Corporate Bonds
Securities
 Corporate bonds and shares of stock sold by
business to help raise money to expand the
business or introduce new products.
Corporate Bonds
 Promise to repay borrowed money from
investors on a certain future date, along with
interest.

Assets of the company are used as collateral to
guarantee payment to the investor.
Corporate Bonds
What if the bondholder /investor wants their money
back before the bond’s maturity date?



Investor can sell his/her bond
through an investment dealer
(like a real estate agent), to
another interested investor at
the current market value.
Market value is what other
investors would be willing to
pay and may be impacted by
current company
performance and the
economy.
A fee would have to be paid
to the investment dealer
assisting in making the sale
possible.
Real Estate
Real Estate
 Includes land and
anything attached to it
like homes, cottages or
apartment buildings, etc.

Generally, the value of
real estate increases over
time.

Supply and demand, in
addition to the general
state of an economy can
impact the market values
of real estate.
Real Estate Investments
Investment Income
 Investors will rent out property.
 The rent should cover the
mortgage costs.
 One day it can be sold for a higher
price than it was purchased for.
 Investors may continue to rent it
out after it has been fully paid for
through rent.
 Investors may purchase a piece of
property for minimal funds, fix it up
and resell it at a profit.
Collectibles

Items of interest people collect
that may increase in value over
time if it is popular, rare, difficult
to find and the demand of it
exceeds the supply.

Examples may be hockey or
baseball cards, comic books,
art, antiques, stamps, coins,
etc.

Collectors form clubs where
people can meet to buy, trade,
sell, and display their prized
possessions.
Investing in Stocks
Initial Public Offering
 The first time a corporations sells stocks (shares) of its
company to the public to raise money for the company.
Shareholders
 Investors who have purchased shares of a company
and have become part owners of the company.
 Shareholders can sell their share(s) to anyone else who
is interested in purchasing them.
How Investors make money on the stock market
1. Shareholders share in the profits of the company when
the company pays out dividends – an amount of money
per share you own in the company.
2. Shareholders sell their shares to someone else at a
higher price than what they purchased it for.
Parties Involved in the Stock Market
Public Corporations

Sell shares of the company to the public to raise money for the business
Shareholders

Investors who have purchased shares/stocks of a public corporation.
Stock Exchanges

Business where corporations sell their shares to the public and where the public goes to buy and sell their
shares to each other.

Corporations pay fees to have their company shares available to be sold at any the stock exchanges of their
choice

Examples include the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSX)
Stock Brokerages

Like the Real Estate companies for selling and buying shares

Businesses that are hired by corporations and individual investors to facilitate the buying and selling of shares
between two parties.

Revenue is earned by charging fees to the corporations, shareholders for facilitating the trades and providing
trading advice

One expense is the fees paid to the stock exchanges allowing their stock brokers to work at the exchange to
facilitate the trading.
Stock Broker

Like the real estate agent for those buying and selling shares

Work for the Stock Brokerage to facilitate the buying and selling of shares between individuals and providing
trading advice.
The Initial Public Offering (IPO)

A Stock brokerage is usually hired to handle the sale of shares to the
public through the Stock Exchange(s) the corporation is registered
with.

An initial price offering is made the day the market opens

For example, when Google went public in 2004, its shares were initially
offered at $85.

Supply and demand for the shares will determine by how much the
initial price of the share increases or decreases.

The money collected from the initial shares being offered goes back to
the corporation to be used by the business.

Once a share is purchased, it is now out in the stock market where the
shareholder can hold or sell his/her shares to another interested buyer
for an agreed price. A stock broker may be paid a fee to make the sale
and purchase between two people happen.
The Stock Exchange
The Stock Exchange

The business that provides
corporations a place where their
shares can be bought and sold
(traded).

There are thousands of stock
exchanges around the world.

Corporations may sell their shares
on more than one stock exchange.

Canada’s main stock exchanges
include the Toronto Stock
Exchange (TSX) and NASDAQ
Canada.

http://www.world-stockexchanges.net/canada.html
Toronto Stock Exchange
Stock Exchange
Stock exchanges make money three ways:
It collect fees from stock brokers for the use of its
facilities (brokerage fees)
Collects listing fees from the corporations who
choose to sell their shares using the particular stock
exchange. ($15 000 - $150 000)
Sells stock information to individuals.
Other Stock Exchanges
NASDAQ
 National Association of
Securities Dealers Automated
Quotations
 Stock exchange for high-tech
stocks and emerging
technologies
 Largest electronic stock
market in North America
 Europe has its equivalent
called the EASDAQ
 Japan created its equivalent
in 2000.
How The Stock Exchange Works
 Many
stocks and bonds are sold through
stockbrokers and investment dealers.
 These are licensed financial expertise who
advise buyers on which stocks to buy and
sell, and when.
 They charge a fee, or commission, which
pays for the broker’s salary and for the
services their brokerage firm provides.
How The Stock Exchange Works



Person A wants to sell his/her shares of Google.
Person B wants to purchase shares of Google.
The stockbrokers hook Person A and B together
to make the deal.
 The price of the shares will depend on supply
and demand. If more people want to buy then
sell, the price may higher than it was the
previous day.
 The stockbroker receives a fee or/and
commission from the individuals wanting to do
the trade.
Online Investing
It is possible for individual investors to buy and
sell their shares directly online using online
investing websites.
Fees are less expensive than a brokers fees.
If an investment dealer or stockbroker is not
used, it is important to conduct some research
before engaging in online trades to educate
yourself about what you are doing.
Stock Price Information
Newspapers and Stock Exchange websites publish the following stock price
information:
1. 52 week high and 52 week low
 The highest and lowest price paid for the stock during the current year.
2. (High, Low)
 The highest and lowest price paid for the stock the previous day.
3. Last or Close
 The last, or closing price of the stock that day
4. Chg.
 The change in price from the previous day’s closing price
5. Volume
 The number of shares traded during the most recent trading session (i.e.
business day)
The Stock Market
How do people make money in the stock market?
1.
Purchase shares of a company and sell them at a higher price to
another interested buyer later on.

Example: In 2004, Google shares issued at $85 a share. In
November of 2006, they were selling at $500+ a share
If you purchased 100 shares at $85 per share and sold them for $500
per share, how much money have you made?

Purchase price = $85 x 100 = $8 500
Selling price = $500 x 100 = $50 000
Personal Profit (Return on Your Investment )
= $50 000 - $ 8500 = $41 500
ROI = (50 000 – 8 500) / 8 500 X 100 = 488% increase
The Stock Market
2.
Shareholders receive dividends on the shares they
own.


Board of Directors declare a .50 cent dividend at year end
Each shareholder will receive .50 cents for every share s/he owns in the
company.

Dividends are like interest. A bank pays you a certain % of interest (i.e.
2% per year) on the money you have in your savings account.
Dividends, however, are not guaranteed to be paid out every year, as it
depends on how profitable the company has been and what its cash flow
is, and the type of share you own.

Example: You own 100 shares of Google. At the end of a business year,
Google has made a significant profit and the BOD declares a .50 cent
dividend.
How much money did you make: $.50 x 100 = $50.00
The Stock Market
Bear Market
 General decline in the
overall prices of all or
most stocks on the stock
market of around 20%

Investors confidence in
business performance
and the economy is
weak, so demand for
stocks is weak
Bull Market
 Demand for and prices of
stocks is high
 Confidence in business
performance and the
economy is high
 There is an anticipation of
future price increases
Investor Confidence

An investor’s desire to purchase or
sell shares on the stock market is
influenced by their overall
confidence level in the future
performance of the companies and
the state of the economy.

Consumer confidence is impacted
by a number of any of the following
factors:




Company earnings and growth prospects
News of new products or planned
services or sales
News of company incidents, (i.e. lawsuits
due to faulty products that have been
recalled.)
The general state of the economy
Types of Stock/Shares
Common Stock
Preferred Stock
 Most common and available
 More expensive than common
stock
 Provides the right to attend the
company’s annual meeting and  Paid first, before common
vote on company matters
shareholders if dividends are
declared
 One common share/stock = 1
vote
 Paid at a fixed rate which is
often more than what common
 Dividends are paid out if the
shareholders would receive
company is profitable, but only
after bondholders and
 No voting rights
preferred shareholders have
 Less risk than with common
been paid first. If there is
shares, but less of a chance
anything left over, common
for bigger gains in years of
shareholders will share in the
high profit when price of
rest.
shares is less than the market
value of common shares.
Blue Chip Companies
Companies with long records of regular
dividend payments, stable growth
patterns, and active trading on the
stock market.
Considered to be much less risky than
growth companies, which reinvest
company profits into their operations
rather than paying shareholder
dividends.
Mutual Fund
Global Fund





It’s a pool of money from many
investors that is set up and
managed by an investment
company which monitors daily
the stock market and business
and economic news to buy and
sell shares which will yield the
greatest possible return for its
investors.
There are 100s of different
funds each with a different
focus
For example, there are real
estate mutual funds, global
funds, growth funds, etc.
Some mutual funds are more
riskier than others
Mutual funds are regulated by
law so as to guarantee a
certain measure of security to
investors.
Money Market
Fund
Real Estate Fund
Mutual Funds
Who would be interested in investing in mutual funds?
Individuals who:
don’t want to follow the stock market
on a daily basis and ongoing making
changes to their investments;
are uncomfortable with large amounts
of risk
are comfortable entrusting their investment
money with individuals whose job it is to
make day-to-day trading decisions
Mutual Funds
Important facts to consider:
 Due to the low risk, low return nature of mutual
funds, these funds are meant to for long-term
investors.
 For this service and their expertise, investors will
pay management fees to the investment
company.
 Additional fees may be charged for buying and
selling securities
 The CDIC does not guarantee against any loss.
Mutual Funds
No-Load Funds
 Mutual funds which do not have additional
fees attached to buying and selling funds
or to move investments around to other
funds.
 Management fees are paid.
Why do businesses invest their
money?
To use excess money wisely so it can
help the company earn additional
income.
Business Investment Options
1.
2.
3.
4.
5.
6.
7.
8.
9.
Reinvest into the company
Buy new businesses
Expand the current business
Put it in higher-rate savings account
Purchase treasury bills – which are short-term
government bonds issued in large denominations up to
$1 million.
Purchase back their own company shares if the shares
are perceived as undervalued.
Insurance companies invest some of its customers
pools of money for insurance claims into stocks and
bonds.
Purchase the company’s competition, expanding its
customer base and eliminating one of its competitors.
Purchase a major supplier of raw materials it uses to
reduce costs.
Source
 Wilson,
Jack et al. The World of Business,
5th Ed., Nelson Education Ltd., Canada,
2007