Saving and Investing

Where Should You Put Your Money?

Savings Accounts

Term Deposits Financial Institution pays a fixed amount of interest for a fixed amount of money for a fixed amount of time (usually less than a year)

Benefits: Low risk, higher interest rate than savings account

Trade Offs: Money “locked in” (not liquid)

Guaranteed Investment Certificates (GICs)

With a GIC, the person who invests makes an agreement to keep the funds untouched until the prescribed time has expired or, in financial terms, has “matured.”

ONLY issued by the Canadian Gov’t. Benefits: No risk, slightly higher interest rate than savings account, Term Deposits

Trade Offs: Money “locked in” (not liquid), very slow growth

Bonds An “IOU”, certifying that you loaned money to a government or corporation

A buyer purchases a bond and receives a fixed interest rate for a period of time. When the time is up, the bond “matures” and the buyer redeems the bond for the full face value

Benefits: Usually low risk, regular interest income

Trade Offs: Extremely slow growth

StocksRepresent ownership of a corporation. Stockholders own a share of the company and are entitled to share profits as well as a vote in how the company is run.

Money can be made by earning “dividends” (profit payouts to shareholders) or by selling the stock on the open marker for more than you bought it for.

Benefits: opportunity to make a lot of money, liquid

Trade Offs: High Risk, selecting and managing stocks requires research and help from a good brokerage firm

Common shares/stock Common shares are usually purchased for potential capital appreciation (earnings)

If the company makes money you will share in the profits either by seeing the value of your shares rise, by being paid dividends, or both; if the company suffers a poor year or the markets decline, your share values may fall and dividends are unlikely (resulting in a potential capital loss)

Blue chip stock

Typically stocks of large, stable and actively traded companies with a record of regular dividend payments

Tend to be conservative

Penny stock Low-cost common shares (typically under $1), usually purchased for speculative purposes

Issued by start-up or unproven corporations seeking capital for expansion

Small-, mid- and large-cap stock Corporations of all sizes issue common shares to raise money; generally, the smaller the corporation, the higher the risk

Stock Lookup Online Stock Watch –

http://www.marketwatch.com/tools/quotes/lookup.asp

History of the Dow Jones

Mutual FundsProfessionally managed portfolios made up of stocks, bonds, and other investments

Funds pool the money of several individuals to purchase a variety of investments

Profits are returned to shareholders in the form of dividends

Benefits: diversification, professional management, flexible, moderate risk

Trade Offs: Management fees and expenses, loss of control over investment decisions