Investment Goals & Financial Checkup

Establishing Investment Goals

• Financial goals need to be specific, measurable, and aligned with financial needs
• Key questions to ask when establishing investment goals:
  • How much money is needed to satisfy investment goals?
  • How will the money be obtained?
  • How much risk is acceptable?
  • What sacrifices are necessary to meet the goals?
  • What economic or personal conditions could alter investment goals?
  • What are the consequences of not reaching the goals?

Performing a Financial Checkup

• Steps for sound financial health:
  • Live within your means
  • Obtain adequate insurance protection
  • Establish an easily accessible emergency fund
  • Secure access to other sources of cash for emergencies

Funding Investments

• First prioritize all investment goals
• Pay yourself first
• Actively participate in an elective savings program
• Make an extra effort to save for one or two months each year
• Take advantage of employer-sponsored retirement programs
• Utilize gifts, inheritances, and windfalls

Importance of Time Value of Money

• Do not be discouraged by starting with small investments
• Regularly investing small amounts accumulates to large sums over time
• Both rate of return and time invested are important factors

Investment Safety and Risk

• Acceptable and potential return is directly tied to the risk
• Investment safety equals minimal risk of loss
• Every investment carries a probable outcome, which ranges from increased value to total loss
• Risk tolerance is the amount of psychological pain you are willing to accept from investments
• Possible risks include losing principal, decreased purchasing power, and not receiving expected returns

Safest Investments

• The safest investments include:
  • Savings accounts
  • Government Savings Bonds
  • Canadian Treasury Bills
  • Guaranteed Investment Certificates (GICs)
  • Term deposits
  • Certain negotiable government and corporate bonds

Speculative Risk Investments

• Speculative risk refers to high-risk investments made with the aim of earning relatively large profits in a short amount of time
• Higher potential income investments include:
  • Speculative Stocks
  • Certain bonds
  • Commodities
  • Options
  • Precious metals or stones
  • Mutual funds and ETFs
  • Real estate
  • Collectibles

Components of the Risk Factor

• Components include:
  • Business Failure Risk
  • Inflation Risk
  • Interest Rate Risk
  • Market Risk
  • Global Investment Risk

Investment Income

• Predictable income sources include GIS's, Savings Bonds, and Treasury Bills
• Less predictable income sources include mutual funds, ETFs, and real estate rental property
• Speculative investments rarely offer potential for regular income

Investment Growth

• Growth means that investments will increase in value
  • Common stock
  • Growth stocks reinvest retained earnings
  • Bonds, mutual funds, and real estate

Investment Liquidity

• Liquidity: The ability to quickly buy or sell an investment, without substantially affecting the investment's value

Stock or Equity Financing

• Stockholders provide equity capital to companies, who buy shares of a company’s stock
• Stockholders are owners and share in the success of the company
• A stock is a certificate that shows how much of the company you own
• Shareholders share in the success of the corporation, making it an attractive investment opportunity

Equity Capital

• Equity capital is the money that a business obtains from its owners
• A corporation is not required to repay the money obtained from the sale of stock
• They are under no legal obligation to pay dividends to stockholders and may instead retain all or part of earnings

Dividends

• Dividends are a distribution of money, stocks, or other property that a corporation pays to shareholders

Corporate and Government Bonds

• A bond is a loan to a corporation, the federal government, or a municipality
• Bondholders receive periodic interest payments, and the principal they lent is repaid at maturity (1-30 years)
• Bondholders can keep the bond until maturity or sell it to another investor

Mutual Funds

• Pooled investments managed by experienced fund managers
• Purchase shares in the fund
• Provides diversification to reduce risk
• Funds range from conservative to extremely speculative
• Match your needs with a fund's objective

Segregated Funds

• This is an investment alternative in the form of an annuity
• Similar to a mutual fund but provides investors with an insurace degree
• These are sold by life insurance companies
• Can be bought and sold at anytime

Real Estate Investing

• Buy property and sell it when it increases in value
• Location is key when investing
• Before you buy property, consider multiple factors including Is the property priced competitvely? What type of financing is avaliable? What are the taxes? The condition of surronding buildings and houses

Real Estate Investment Trust (REIT)

• To invest in real estate with high liquidity, invest in REITs
• REITs are stock market-issued and designed to disburse money
• The money is generated from a business or investments through cash disbursements to unitholders
• REITs are popular because of their ability to produce constant funds for investors

Securitized Debt Instruments

• Securitization involves debt being passed to entities that break it into bonds and sell them
• Location is still important when purchasing property or investing in REITs
• Some examples include credit card receivables, wholesale receivables, retail receivables, and installment receivables

Speculative Investments

• These are high-risk investments made with the hope of earning a large profit in a short time, and include:
  • Call & Put Options
  • Derivatives
  • Commodities
  • Hedge Funds
  • Coins and stamps
  • Precious metals and gemstones
  • Antiques and collectibles

Summary of Factors That Affect Investment Choices

• Diversification: Spreading assets among several types of investments to lessen risk
• Personal Investment Plan:
  • Establish goals and determine the amount of money needed to obtain them
  • Evaluate risk and potential return on different investments
  • Continuously evaluate your program after choosing your investments

The Role of a Financial Planner

• Seek professional help from stockbrokers, lawyers, accountants, insurance agents, or Chartered Financial Planners
• Be aware of how planners are paid and how this influences their advice

Your Role in the Investment Process

• Steps include:
  • Evaluating potential investments
  • Monitoring the value of investments
  • Keeping accurate, up-to-date records
  • Being aware of tax considerations, including tax-deferred and tax-exempt products
  • Keeping track of capital gains and losses, interest, and rental income
  • Seeing if you qualify for a capital gains exemption

Sources of Investment Information

• The Internet and online services:
  • Use an Internet search engine to find information
  • View sites such as Canoe Money, The Balance, Globe Investor, Investopedia
• Online Newspapers and news programs
• Business periodicals and government publications
• Corporate Reports
• Statistical Averages
• Investor Services and newsletters
• Desktop and Mobile Information Services