Investing Review PDF

​ Asset Classes: ○​ Equities ​ Considered to have variable risk ​ American and Canadian equities are classified as medium to high-risk ​ International equities have higher levels of risk ​ Involve purchasi...

​ Asset Classes: ○​ Equities ​ Considered to have variable risk ​ American and Canadian equities are classified as medium to high-risk ​ International equities have higher levels of risk ​ Involve purchasing shares of publicly traded firms ​ Shares are listed on public exchanges ​ Matching buyers of the company with sellers ○​ Buyers hope to achieve a fair price when they purchase ○​ Sellers hope to maximize the price ​ Different types of shares have different rights ​ Preferred shares ○​ Blend aspects of equity and fixed-income ○​ Give people ownership of the company, but not voting rights ○​ Dividend payments are prioritized ​ First in line to receive them ​ More of a fixed dividend rate ​ Unpaid dividends accumulate ​ Common shares ○​ Often trades at a lower price than preferred shares with more volatility ​ Last in line to receive dividends ​ Voting rights are available ​ Laws of supply and demand apply to the stock market ○​ Fixed Income ​ Bonds ​ Are a form of debt-equity ​ Those who purchase bonds are offering a loan to either a corporation or a government ​ In exchange for loaning the money a bond yield is provided ○​ Acts as interest on the loan ○​ Bonds have a maturity date, or when they expire; dividends are paid until this date ​ Corporate bonds ​ Pay a higher yield, due to them involving more risk ​ Loaning money to a company ​ Government bonds  ​ Pay a lower yield due to them being less risky ​ Some governments will guarantee the bond to 100% ​ GIC ​ Is a secured account with 100% principal protection ​ Offer a guaranteed rate of return over a fixed period ○​ Many require a date of redemption ​ Earliest time funds can be removed from the account ​ Until the redemption date, funds are locked into the account ​ Can be removed with a penalty ​ Considered a very low-risk investment due to their guaranteed nature ○​ Cash equivalents and money market instruments ​ T-Bills ​ Considered a risk-free investment as they are backed by the government ​ Sold with short maturity dates ○​ Less than 1 year ​ Are sold at a discount, and the full amount is paid at the end of the term ○​ Face value-discount vale = profit or interest ​ Highly liquid as they are easy to sell ​ Short Term GIC ​ Similar to a regular GIC ​ Have a much lower redemption date ​ Money can be removed from the account within a month ​ Aspects of Stocks ○​ Dividend ​ The sum of money that a company pays to its shareholders, as a way of sharing profits ​ Is usually paid every quarter ​ Yield is set by the company, as a % of the current stock price ​ The amount of dividend that a company pays can change depending on the fiscal situation ​ Many consider dividends a source of income ○​ Capital gain ​ Is defined as the profit made from the sale of property or investment ​ Profit made from selling stocks is included ​ Occurs when you sell an asset for more than you purchased it at ​ Are taxed at various rates depending on the length of time that the asset was held for ​ Short vs. Long Term capital gains ○​ Bid & Ask ​ Terms related to the purchase of equity ​ Connect to the concept of supply and demand ​ A seller needs to offer shares at a fair market value to a buyer ○​ A bid is the highest price a buyer is willing to pay ○​ An ask is the lowest price is seller is willing to sell for ​ The bid/Ask spread is the difference between what a seller is willing to sell @, and the price a buyer is offering ○​ Return ​ Gain or loss that an investment generates over some time ​ Is valued by comparing the purchase price of the equity to the current market price ○​ EPS ​ A metric used to value a firm’s profitability ​ Valued as: (Net income - preferred dividends)/Average shares outstanding ​ Higher EPS indicates more profit, relative to the share price ○​ Types of Stocks ​ Stalwarts ​ Large well-established firms that still have growth potential ○​ Coca-cola, P&G ​ Fast growers ​ Companies that grow at a quick rate ​ May be involved in growing market sectors or be a part of a trend ○​ AI firms ​ Cyclicals ​ Stocks which have their performance tied to the broader economic picture ○​ Ford Motor Company ​ Slow growers  ​ Stocks that are less volatile and grow at a slower rate ○​ Verizon, Telus, AT&T ​ Penny stocks ​ Stocks valued at less than a dollar, and considered speculative ○​ Low volume and high volatility ○​ Firm news can dramatically change price ○​ Individual owners can influence stock price ○​ PE Ratio ​ The ratio of earnings to the share price ​ Indicates under or overvalued companies ​ High means investors are prepared to invest at a premium level ​ Share price/Annual EPS ○​ Market Capitalization ​ Overall value of a company traded on the stock market ​ Share price x number of shares outstanding ○​ Primary Market ​ Where firms sell new stocks and bonds for first time ○​ Secondary market ​ Market where they are sold later; NYSE/TSX ○​ Market conditions ​ Bull Market ​ Where share prices are rising ​ Encourages investors to continue purchasing shares ​ Positive economic times are associated with this ​ Bear market ​ Share prices are actively falling ​ Encourages selling from investors ​ Associated with poor economic conditions ○​ Volume ​ The number of shares traded within a certain period ○​ Open ​ The price that the stock opened at since the market opened ○​ Change ​ The amount the stock price changed since the last close ○​ Range ​ Highest and lowest trading price during a period ​ Bonds ○​ What are they ​ A form of debt equity, which is issued by corporations or governments ​ Individuals have the opportunity to purchase bonds ​ Offer a loan ○​ Yield ​ Paid a form of interest as a payment for the loan ​ Yield is paid annually until maturity ○​ Yield vs coupon ​ A coupon is the fixed rate that a bond pays ​ Based on the par value ​ Return based on what the bond was bought for ○​ Relationship between interest rate and bond price ​ Bonds pay a fixed coupon rate ​ When interest rates increase, the interest rate on new bonds increases ​ Therefore the value of old bonds is less ​ Mutual Funds ○​ Mutual funds are investments made by multiple investors ○​ Money is pooled together to buy various stocks and bonds ​ Helps investors diversify at a low cost ​ Is managed by an external party ○​ Value is based on the NAV of the fund ​ Assets-Liabilities/Units available for purchase ​ Management expenses are deducted from the NAV value daily ​ ETF ○​ Is a collection of securities that is often pegged to an exchange or index ​ Is passively managed by an investment firm ○​ Offers a way for investors to mirror the market’s performance ​ Mutual funds often have less flexibility but more automatic management ​ ETF have lower costs and more flexibility, but more risk