Investments

There are many different reasons to invest: •University/college •House•Kids’ future•Life Insurance (Cash Surrender)•Retirement•Travel & saving for other expensive plans•Etc.

The “Time Value of Money”

The longer/younger you invest, the more the money has a chance to grow as it earns more and more INTEREST over time.

Definitions:

• “Return” or “yield”: How much you make from your investment.

• “Liquidity”: How easily your investment can be turned back into cash. Money that is locked away is not ‘liquid’. Money that you can access quickly is ‘liquid’. Sometimes you want a liquid investment, sometimes you don’t.

• “Risk”: The greater the risk, the MORE $ you can make (potentially). It’s like a gamble, because it is also easier to lose. BE CAREFUL!

• All of your investment decisions are based on your own personal reasons, such as WHY you need the $, WHEN you need the $ and how much you can afford to lose.

• Ex: If you need your $ for your education or retirement, don’t put it all into anything too risky, in case you lose it all

“Inflation Risk”

• Money loses its value over time!• For ex: A house in this neighbourhood is worth

on average $200,000, but in the 1940’s these same houses were built for only $10,000.

• So be careful because your money may not be worth as much, or be able to buy as much, in the future as you predicted.

“Diversify your Investments”

Never put all your $ into only 1 company or type of investment. Ex: If that company goes out of business unexpectedly you would lose everything. Spread your $ into many different places and types of investments so if one happens to lose, hopefully another one of your investments gains!

Types of Investments

In general, investments can be classified into 2 types:EQUITY investments or DEBT investments.

EQUITY investments = Owning a part of a company or an item of value.

Ex:-buying shares in a company -owning antiques-buying real estate

DEBT investments = leaving your $ with a bank and they promise to pay you interest. Your investment is actually the bank’s DEBT as they owe you your $ back. It is not your debt!

Ex:-“Term Deposits” or Guaranteed Investment Certificates “GIC’s”-Registered Retirement Savings Plan “RRSP”-“Canada Savings Bonds”-Bank accounts

The differences between equity and debt investments:

• Equity investments are way more risky as you are depending on a company to make money for you. They may also lose all of your money!! And, not owe you back!!

• Equity investments can also be more rewarding because a company can make way more than a bank gives you in interest.

• Debt investments are way safer but the amount you can make is much more limited.

• The longer you lock you term deposits away, the more interest they will guarantee you.

What type of investment to chose?

• The younger you are and the more you can afford to risk the more equity investments are recommended. Ex: Buy stocks in a company.

• If you are planning to retire with the money, need it for your education, or need it for something important, such as providing for your family, then the more debt investments are recommended. Ex: Lock your money away in a term deposit.