Chapter 14: Savings and Investing
Savings and Investing
Consumers can use any money left over from purchasing goods and
services toward savings or investing.
 Saving means putting money aside for future use.
 Investing is using savings to earn extra income.
For most consumers, it is a good idea to combine both savings and
investing in their financial plan.
The Need for a Savings Plan
A savings plan ensures that a certain amount of money is put aside
on a regular basis to reach a financial goal.
Why People Save
People save for many reasons including emergency needs, short- and
long-term goals, and security and future needs.
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Chapter 14: Savings and Investing
Selecting a Savings Plan
Benefits of Savings Plans
Plans offered by financial institutions can offer interest, safety, and insure
against loss.
Protection against inflation and maintain purchasing power
Earnings and Yield
When money is deposited into an account at a financial institution, it is
being lent to the institution so that it can also be lent to other borrowers.
Interest is paid to the account holder for the use of the money.
Interest is also paid by the person borrowing the money.
Rate of return is interest expressed as a percent of the Now worth
$1050
original investment. It is also called yield.
($1000 x .05 = $50)
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Chapter 14: Savings and Investing
Selecting a Savings Plan
Safety
Established in 1967, the Canadian
Deposit Insurance Corporation
(CDIC), an agency of the federal
government, protects depositor’s
funds to a maximum of $100 000.
Liquidity
Liquidity is the ability to convert an
asset or investment into cash quickly
and easily.
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Money’s Changing Purchasing Power
 Money is important to consumers because
they accept that currency or money has a
standard value that allows them to purchase
items or invest.
 Since prices tend to rise, consumers’ money
buys them less every year.
 Purchasing Power is measured by the CPI
(Consumer Price Index.)
 CPI measures 600 common household goods
what it cost to buy them in the past and what it
costs to buy them today.
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Chapter 14: Savings and Investing
Common Savings Plans & Investments
There is a wide range of savings plans available to individuals from
different institutions.
Savings Accounts
Savings accounts are the safest way to save and earn some interest or
return on your money. Interest rates and calculation methods vary from
one institution to the next, and fluctuate with economic conditions.
Tax Free Savings Account
Began in 2009 people over 18 can invest up to $5000 per year tax free
Term Deposits and Guaranteed Investment Certificates
Term deposits and guaranteed investment certificates (GICs) are
savings plans in which a fixed sum of money is deposited over a
specific length to time.
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Chapter 14: Savings and Investing
Common Savings Plans & Investments
Registered Retirement Savings Plans p.442-43
In 1957, the federal government introduced registered retirement
savings plans (RRSPs) to encourage people to save for retirement.
Read p.443 textbook
Registered Education Savings Plans p.444-45
Registered education savings plan (RESP) is a long term savings
plan to help finance a child’s education. See some restrictions below.
• Income earned is tax-free until the child attends an approved
post- secondary school full time.
• The amount is limited to $42 000 (new legislation $50 000).
• There is no tax deduction for the contributor
• The Canadian Education Savings Grant (CESG) is 20% of the
1st $2000 (up to $400 per child per year).
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• http://www.hrsdc.gc.ca/eng/learning/education_savings/public/c
esg.shtml
Chapter 14: Savings and Investing
Common Savings Plans & Investments
Investments, such as government or corporate bonds, stocks or mutual
funds, real estate, and collectibles, have different levels of risk. Lower
yields are associated with “safer” investments. Higher yields are
associated with riskier investments. When someone diversifies their
investment, they spread their investments across several types.
Canada Savings Bonds
A Canada Savings Bond (CSB) is a loan made by an individual to the
government of Canada. On the maturity date, the government will
repay the principal plus interest.
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Chapter 14: Savings and Investing
Common Savings Plans & Investments
Corporate Bonds
Businesses sometimes need money to increase production, expand
operations, or introduce new products. Businesses sell securities—
corporate bonds and shares of stock—to raise the necessary funds.
A bond is a promise to repay borrowed money on a certain future date
along with interest.
Investing in Stocks
When an individual buys stocks, they become part owner or a
shareholder in the company. Shareholders share the risks and
rewards of the company.
A bull market occurs when the demand and price for most stocks is
high. When demand and price for most stocks is low, it is a bear
market.
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Chapter 14: Savings and Investing
Common Savings Plans & Investments
Common Stock
Common stock represents general ownership in a corporation,
carries voting privileges, and includes a right to share in its profits.
However, there are no fixed dividend rates. Common stock is always
liquid—it can be bought or sold at any time on the open market.
Preferred Stock
Preferred stock has advantages over common stock due to the
payment of fixed rate dividends. Shareholders have no voting
privileges, and stock prices tend to be more stable. This type of stock
is also liquid.
Blue chip companies such as Weston and Imperial Oil are
characterized by a long record of regular dividend payments, stable
growth, and active trading.
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Chapter 14: Savings and Investing
Common Savings Plans & Investments
The Stock Exchange
Investors buy and sell stocks often with the help of stockbrokers or by
using online services through the stock exchange. The Toronto Stock
Exchange (TSX) handles about $5 billion worth of shares a day—the
largest trading volume of any stock market in Canada. The TSX and TSX
Venture Exchange have over 110 members made up of mostly investment
bankers and brokerage firms.
Other well-known stock exchanges include
• NYSE New York Stock Exchange (New York City, USA)
• NASDAQ National Association of Securities Dealers Automated
Quotations (New York City, USA)
• London Stock Exchange (London, England)
• Hong Kong Stock Exchange (Hong Kong, China)
• http://tmx.quotemedia.com/marketsca.php?locale=EN
• http://nipissing.stocktrak.com/home.aspx
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Chapter 14: Savings and Investing
Common Savings Plans & Investments
Buying and Selling Stocks
Stockbrokers and investment dealers are licensed financial
experts who advise buyers on which stocks to buy and sell and
when to complete these transactions.
Online investing, the buying and selling of stocks on the Internet,
is growing in popularity due to convenience and low associated
costs.
Stock Quotations
The bid price is the highest price anyone is currently willing to pay
for a stock. The ask price is the lowest selling price that another
investor is willing to accept for the stock. Both make up a stock
quotation.
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Chapter 14: Savings and Investing
Savings and Investing
Mutual Funds
Mutual funds are pools of money from many
investors that are set up and managed by an
investment company to buy and sell securities
from other corporations.
Real Estate
Real estate is land and anything attached to it.
Besides buying a home as a form of investment in
real estate, some people buy income property.
Collectibles
Collectibles are items of personal interest to a
collector. A collectible may increase in value over
time due to the scarcity of the item or the demand in
the market.
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Diversified Portfolio’s
 There are many different investment options
 It is important to have a well balanced investment
portfolio to match your risk tolerance and meet your
expected returns.
 http://eadvisertwe.tdassetmanagement.com/pProfiler/survey.asp
 Owning a combination of investment alternatives (a portfolio) helps spread out
the risk. Some investments do well and if others do not you won’t lose all your
money.
 The riskier the investments the greater the potential returns but the greater the
potential losses as well
 The safer the investment the lesser the return but this is more secure
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Chapter 14: Savings and Investing
Business Investments
Three Main Reasons Why Businesses Invest
1. Businesses can invest excess cash (usually at a low risk but
highly liquid) until it is needed.
2. Excess cash can be invested to generate income.
3. Business can invest strategically by purchasing another
business.
Activity “The Pepsi Puzzle” Handout
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