Personal Finance Review Questions.pdf

Review Questions Format: (Page #) - “(Text from book)” Chapters 1-4 1. Define the term disposable income. a. Page 9 - “The money actually deposited in one’s bank account. It is the amount left over, after an employer subtracts income taxes, pension contributions, insurance costs, union dues, employm...

Review Questions Format: (Page #) - “(Text from book)” Chapters 1-4 1. Define the term disposable income. a. Page 9 - “The money actually deposited in one’s bank account. It is the amount left over, after an employer subtracts income taxes, pension contributions, insurance costs, union dues, employment insurance contributions, or any other required deductions. It is the amount of money that is actually spendable” 2. List three (3) examples, found in the text, of the smart use of disposable income when you make expenditures to buy things. a. Page 9 - “Each year, when I order eight hanging baskets from my favourite nursery, I search out the owner and routinely receive a significant price reduction” b. Page 9 - “Even when buying appliances that are on sale, or expensive electronic items, I’ll ask for the department manager and try to negotiate a further discount. Often I’m successful” c. Page 10 - “When buying a home, the effort you invest in really looking around, comparing options, and looking for best value, even before negotiating price, can save you many thousands of dollars on each purchase” 3. What is the fundamental objective of wealth creation? a. Page 11 - “The fundamental objective of wealth-creation is to increase net-worth. Your ultimate aim is to keep increasing your assets, while reducing your liabilities towards zero” 4. Define the term net-worth. a. Page 11 - “A measure of wealth. It is the total of all your cash, savings, real estate market value, vehicles, financial or other investments (assets), less any money owed by you (liabilities)” 5. Define the term negative net- worth. a. If the total amount of your assets fall short of the total of your liabilities (ex. Student loans), you have a negative net-worth 6. Explain the author's statement, in the text, that “ it really was much easier for them (his contemporaries, parents and grandparents) to be smart in the use of debt”. a. Page 14 - “Credit was generally harder to come by, and often non-existent. If you had the cash, you bought what you wanted. If you didn’t have the cash, you did without until you had saved sufficient funds” 7. List two(2) examples given in the text how, through time, the use of debt increased. a. Page 14 - “Credit cards were a fledgling novelty in the 60’s and only became mainstream in the 70’s. As profitability of credit card companies grew, their numbers exploded. More and more consumers began to succumb to the ‘ Buy now - Pay later’ philosophy” b. Page 15 - “Credit became as easy as signing your name on a slip of paper in almost any store. Suddenly you could enjoy instant gratification — ownership of almost anything covered by your credit card spending limit. If you stayed reasonably current on your minimum payments, your card limit would be increased, often automatically, providing even more credit” 8. List three (3) methods, given in the text, that are used by companies to lure customers to spend more and return to a particular retailer. a. Page 15 - “Department store credit cards also began to proliferate. Special discounts on a new cardholder’s first purchase lured many to sign up” b. Page 15 - “Furniture and appliance stores joined the parade, with tempting offerings of debt. Irresistible offers of ‘no-money-down, no-interest and no-payments-for-12-months’ and even longer, attracted more buyers” c. Page 15 - “North American automobile manufacturers, desperate to stem their market-share losses to foreign automakers, began offering zero-down, zero-interest, new-car purchase deals” 9. Give an example and the name of a company you know that uses the three (3) methods that you listed (use a different company name for each of the three methods you listed). 10. Define the term subprime mortgage a. Page 16 - “A mortgage issued to a borrower whose income level and credit history make it highly unlikely that he will be able to meet future repayment obligations on a regular basis” 11. Define the term GDP (Gross Domestic Product). a. Page 17 - “The total value of all goods and services produced by an economy” 12. Explain in what way personal spending is related to GDP. a. Page 17 - “The concern is understandable, since some 70% of the Gross Domestic Product (GDP) of both the U.S. and Canada is dependent on the personal spending of their citizens. The increased pressure on more and more personal spending works for the economy and for most consumers, if disposable incomes increase proportionately. Unfortunately in recent years, disposable incomes have stagnated, and saving have dropped to near zero” 13. Define the term foreclosure. a. Page 18 - “The legal process used by a mortgage lender to gain title to a home on which the owners has failed to make payments for a specified period of time” 14. List three (3) events , described in the text, between the late 1990s and 2006 that led to the U.S. (and world-wide) economic crisis of 2008/2009. a. Page 19 - “Many U.S. mortgages were issued to homeowners with a restricted ability to repay their loan, based on what we in Canada would consider to be normal lending criteria. As house prices began to soften in 2006, delinquencies soared and foreclosures followed” b. Page 19 - “Securities which were backed with subprime mortgages, and which were widely held by financial firms in many countries, lost much of their value. This resulted in major write-downs of capital assets by many banks and other financial institutions. Major banks world-wide were threatened with collapse” c. Page 19 - “Credit tightened everywhere. Government bailouts and stimulus packages, funded by huge deficits, were quickly created in a semi-coordinated, world-wide effort to prevent the deterioration of a global recession in a full-blown depression” 15. As described in the text, (1) define a recession and (2) define a depression. a. Page 20 - “In North America, a recession is considered to be present, if the nation’s GDP declines for two consecutive quarters. [It is] an occasional downturn in an economy. It is not reasonable to expect that any economy can continue to grow uninterrupted for decades on end. Various national and international events will periodically combine to cause a pause, or even a downturn in economic activity” b. Page 20 - “A very severe and prolonged economic downturn, lasting for many years. It is characterized by chronic unemployment at extremely high levels, by falling wages, and by a major, extended meltdown in stock market values” 16. What has changed as a result of lessons learned from the economic problems of 2008/2009? a. Page 21 - “As a result, lending rules and regulations have tightened. Credit for many individuals and corporations is not quite as easy to come by today, as it was before 2008” 17. Armed with an understanding of the cause of the economic problems of 2008/2009, what lesson should you personally take away? a. Page 21 - “Credit is a useful and necessary tool for vibrant, growing economies. For individuals, credit is virtually a necessity in our modern way of life…The challenge for all of us is to utilize debt strategically, to our best advantage. We want to ensure that its use does not become an unacceptable drag on our efforts to increase our net-worth and eventually, to achieve financial independence” 18. Define the term credit rating. a. Page 22 - “A broadly-accepted report card of an individual’s credit worthiness, based on his handling of all previously-incurred debt obligations, usually during the previous six years” 19. Why is having a good credit rating important? a. Page 22 - “If your credit rating is good, you’ll be eligible for more credit, and at lower interest rates, than someone who is poor… Good credit leads to lower interest costs on necessary borrowing, such as for a home mortgage. This in turn allows loans to be paid off more quickly, thereby accelerating wealth-creation” 20. How can you find out your credit rating? a. Page 22 - “These days, almost everything can be done online, even checking your credit rating. Just google Canadian Credit Rating, select a provider like Equifax, pay a small fee, and receive your report online” 21. Explain the term debt drag. a. Page 23 - “And it’s not only a drag on net-worth growth. For many of us, debt can become an overwhelming weight on our and our family’s shoulders. If excessive and uncontrolled, the burden can lead to personal bankruptcy, poor health, and even family break-up” 22. List three (3) bad financial results that occur after declaring personal bankruptcy. 23. List, in order from highest to lowest, the type of debt and the interest rate charged on eight (8) sources of debt listed in the text. a. Department Store Credit Card - 29.9% Interest b. Bank Credit Card - 19.9% Interest c. Car Loan ( 48-Months) - 7.9% Interest d. Personal Loan (Unsecured) - 6.5% Interest e. Home Equity Line of Credit (HELOC) - 3.95% Interest f. Mortgage (5-Year Fixed-rate) - 2.99% Interest g. Student Loan Debt - Prime Rate h. Mortgage (5-Year Variable-rate) - 1% Below Prime Rate 24. What is the opinion of the author of the text regarding GOOD DEBT, BAD DEBT and ACCEPTABLE DEBT? a. Good Debt: Page 29 - “No debt at all” b. Bad Debt: Page 28 - “Payday Loans offered by various Money Marks which can be found in most communities c. Acceptable Debt: Page 29 - “Loans for education and home mortgages” 25. Why does the author of the text believe that education loans and mortgages are acceptable debts? a. Page 29 - “An education loan is an investment in your future career and potential earning power. The odd are very high that your higher income over your working life will far exceed the amount of your loan, even with the cost of interest added in” 26. What is the definition of a depreciating asset? a. Page 31 - “[an asset] that steadily decreases in value after you buy it” 27. On average, approximately how much more can each of a trades graduate, college graduate, university graduate or grad-school graduate expect to earn over a lifetime than someone who has only a high school education? a. Trades Graduate: $231k (BC), $453k (Alberta) b. CC Graduate: $394k (National Average) c. Bachelor’s Degree: $746k (National Average) d. Post-Graduate Degree: $1.17mil (National Average) Chapters 5-7 1. List three (3) things that are difficult (if not impossible) to do today without the use of a credit card. a. Page 35 - “....” i. Make travel arrangements ii. Hotel reservations iii. Car reservations 2. Before even beginning to look for a home to purchase or thinking about trying to obtain a mortgage, list four (4) things listed in the text that must be done or accomplished before the dream of early-age home ownership can be achieved. a. Page 59 - “...” i. Achieve a sufficient, steady income stream ii. Carefully limit the level of debt-obligations iii. Maintain a good credit-rating iv. Save a minimum 5% down payment 3. Give one advantage and one disadvantage of retail store credit cards such as the Bay, Sears or the Brick 4. On no down payment, no monthly payments, no interest charged offers, if the full amount is not paid off before the interest-free period ends, from what time does the interest usually get charged? a. Page 41 - “Usually too, the interest charges will be applied retroactively, back to the day you took the items home!” 5. Explain when interest-free, deferred payment options can be wisely used to purchase items. a. Page 41 - “‘Interest-free’, deferred-payment options should be used only if the purchaser has the financial ability and the discipline, to repay the purchase price in full, before the interest-free period ends” 6. Define the term leverage a. Page 42 - “used to describe the use of someone else’s money (a loan), to enable an individual to invest a greater sum than would be possible solely through his personal savings” 7. Define what is the S&P/TSX Index. a. Page 43 - “the Standard & Poor/Toronto Stock Exchange Index is the main Canadian yardstick which tracks the market-value movement of the Toronto Stock Exchange” 8. List three (3) services a credit counselling organization can provide to help people who have too much debt and cannot meet current payments required. a. Page 46 - “these organizations, particularly those that operate on a not-for-profit basis, can be very useful in helping renegotiate interest rates and total debts owing. They can also assist with consolidation of many different debts into one. If successful, these steps can allow the debtor to handle payment obligations in a reasonable and organized manner” b. Page 46-47 - “A distinct advantage of these organizations is that after an agreement with creditors is reached, the debtor may be able to make only one predetermined monthly payment to the counselling organization; it in turn allocates the agreed proportion to each creditor” 9. List five (5) reasons that homeownership is desirable over renting. a. Page 49 - “...” i. Pride of ownership ii. Decision making freedom over your property iii. Certainty of tenure. Nobody can evict you iv. Tax-free equity growth as home value increases v. Ease of future upgrade to a higher-value home - increased equity will often generate the larger down payment required 10. Define the term mortgage. a. Page 52 - “the pledging of a property to a lender as security for a home purchase loan” 11. Define the term second mortgage. a. Page 52 - “where the borrower cannot qualify for the full amount he needs by means of a first mortgage” 12. Explain why the interest rate on a second mortgage will be higher than the interest rate on a first mortgage. a. Page 52 - “Since a second mortgage ranks in priority behind a first, it represents a higher level of risk for the lender. As a result, the interest rate on a second mortgage will be much higher than on a first mortgage” 13. Define the term conventional mortgage. a. Page 53 - “a mortgage that does not exceed 80% of the purchase price of a property 14. Define the term high-ratio mortgage a. Page 53 - “a mortgage which exceeds 80% of the purchase price of a property 15. What additional expense is required when taking out a high-ratio mortgage instead of a conventional mortgage? a. Page 54 - “High-ratio mortgage insurance is required to protect the lender, in the event that the borrower defaults on his payment obligations. Such insurance however, will add several thousand dollars to the total amount of your mortgage loan” 16. Define the term amortization period. a. Page 53 - “the number of years that it would take for specified payments to pay off a mortgage” 17. Define the term mortgage term. a. Page 53 - “the number of years over which an agreed interest rate is applied” 18. Define the term fixed-rate mortgage. a. Page 53 - “a mortgage for which the interest rate is fixed for a specified period of time” 19. Define the term variable-rate mortgage. a. Page 53 - “a mortgage on which the interest rate floats up or down, relative to the prime rate” 20. Define the term GDS (Gross Debt Service) Ratio. a. Page 55 - “the total sum of monthly mortgage payments, plus estimated property taxes, plus one-half of any strata payments, plus utility costs, cannot exceed 32% of the borrower’s gross monthly income” 21. Define the term TDS (Total Debt Service) Ratio. a. Page 55 - “all above costs, plus the monthly total of all the borrower’s other debt payments, such as a vehicle loan and credit card debt, generally cannot exceed 40% of gross income” 22. Even though choosing the shortest amortization period manageable is wise, list two (2) reasons why someone might need to choose a longer period. a. Page 55 - “The longer the amortization period, the lower your monthly payments, and the easier it will be for you to meet these two ratio tests. 23. What is the longest amortization period allowed on Canadian mortgages? a. 25 Years 24. Describe what a mortgage broker does for someone seeking a mortgage. a. Page 61-62 - “Each broker typically deals with some twenty to thirty lenders all over Canada. Brokers are therefore able to shop for the best possible deal among all their lenders” 25. Describe the potential advantage a mortgage broker has over a bank in arranging mortgages for home buyers. a. Page 62 - “If you are one of their preferred customers, they may negotiate the rate down toward the rate that a mortgage broker can get you. Often though, they will not fully match the Broker. A different in your mortgage rate of as little as 1% will have a huge impact on the amount of your monthly payments, and consequently, on the total interest you end up paying on the mortgage loan” 26. Define the term open mortgage. a. Page 63 - “a mortgage which can be paid off, in part or in total, without penalty, at the borrower’s discretion, at any time of his choosing” 27. Explain when an open mortgage may be useful to a home buyer. a. Page 64 - “an open mortgage may be useful if within a few months, the borrower expects to come into an inheritance, or otherwise acquire a large sum of money, and plans to pay off his mortgage at that time. The high short-term premium in interest rates may then be worth the extra flexibility” 28. Define the term prime rate. a. Page 64 - “the lending rate that commercial banks charge their most credit-worthy borrowers, such as large blue-chip corporations. It is a benchmark rate, usually posted at the same level by all major lending institutions” Chapters 8-12 1. Describe why it is important for young people to become knowledgeable about managing spending and controlling debt. a. Page 68 - “The techniques we’ve discussed are particularly important for young people like yourselves. It’s at your age that spending and debt-management habits are established – for better or worse. These early tendencies generally become ingrained, often becoming a lifelong habit. If these initial habits are poor, the wealth-drag that we talked about earlier will probably become a major negative factor for the individual, impairing his efforts at wealth-creation throughout his whole life” 2. List four (4) reasons, found in the text, why it is not necessarily easier to save money once you have a full-time job and move out to live on your own. a. Page 69 - “...” i. You have rent or a mortgage to pay, you own a car and have to pay for it, and other things like that ii. Once you have a full-time job, taxes and other deductions will be taken off each pay cheque iii. Work-related costs such as transportation, parking, clothing, tools for a trade, and so on 3. When spending your money or using credit cards on purchases of items, list three (3) smart saving techniques outlined in the text. a. Page 70 - “...” i. Shop around. Negotiate a price whenever possible. If you want to be even more thrifty, try this. After successfully negotiating the price on a significant purchase, transfer the equivalent of what you saved into your savings account. You’ll be amazing at how fast your savings will grow! ii. Avoid interest charges on any type of credit card. Payoff the full balance every month. Every dollar of interest you pay is one less dollar that you can save. Remind yourself how much better off you are, by always force-fitting your spending to your actual disposable income. iii. As long as you don’t plan to pay interest on your credit card, select the card that offers an incentive of most value to you. If you like to travel, select the card with the best frequent-flyer mileage plan. If you prefer a cash rebate, select the card that offers the best percentage refund on your total charges. 4. Explain the “Pay Yourself First” concept a. Page 72-73 - “The Pay Yourself First concept is exactly what Jenny just agreed she could do, even as a student on a very limited income. She agreed that she could take $20 – that’s 5%, out of her modest pay cheque, and squirrel it away, pretending she had not earned it. To make it even easier, Jenny could arrange to have her Bank every two weeks automatically transfer that $20 to a savings account. By the time she finishes college three years from now, her total savings, with earned interest, would be approaching $2,000” 5. Define the term RRSP. a. Page 77 - “a retirement savings account, available to all Canadians. Tax-deductible contributions may be made, to specified annual limits. Any earnings within the plan remain totally exempt from tax until withdrawn – usually upon retirement” 6. How are contributions to an RRSP treated for tax purposes? a. Page 77 - “Tax-deductible contributions may be made, to specified annual limits. Contributions may not exceed 18% of earned income in any calendar year, with an annually increasing maximum” b. Page 78 - “In the year that they are made, all contributions are fully tax-deductible. However, the resulting deductions may be spread over future years” 7. How are earnings made on funds held within an RRSP treated for tax purposes while the funds remain within the RRSP? a. Page 77 - “Any earnings within the plan remain totally exempt from tax until withdrawn –usually upon retirement” 8. How are withdrawals from an RRSP treated for tax purposes? 9. List four (4) types of investments found in the text that can be made with the funds held within an RRSP while the funds remain within the RRSP. a. Page 78 - “Investments within an RRSP can consist of almost any financial instrument available to Canadians. This includes savings accounts, stocks, bonds, mutual funds, index-based funds, and mortgages” 10. Describe what must happen to your RRSP no later than the end of the year you turn 71. a. Page 78 - “No later than the year in which the holder turns 71, an RRSP must be converted to a Registered Retirement Income Fund (RRIF) 11. Describe what the term RRIF stands for. a. Page 78 - “Registered Retirement Income Fund” 12. When do you have to start to withdraw money from an RRIF and what percent (%) of the RRIF balance, as noted in the text, must be withdrawn in the first year? a. Page 78 - “Withdrawals from the RRIF must commence in the following calendar year, at a minimum of 5.4% of the account’s value. This percentage increases annually, until at age 95, it peaks at 20%. All withdrawals are fully taxable” 13. What happens to the amount remaining in an RRSP or RRIF when the owner dies? a. Page 79 - “On death, any balance remaining in an RRSP or RRIF passes tax-free to a designated spouse. Otherwise, its full value is included in the final tax return of the decreased, and taxes are paid on the full amount remaining at that time” 14. Define the term “marginal tax bracket”. a. Page 80 - “The rate of which one’s next dollar of income will be taxed. The higher the income, the higher the tax percentage on the next dollar earned. Varying somewhat from province to province this rate peaks at around 50%, when taxable income exceeds $200,000” 15. What is the very top marginal tax percentage (%) rate (federal and provincial tax rates combined) in Ontario for 2018? You will need to search the internet for the answer to this question. a. https://www.taxtips.ca/priortaxrates/tax-rates-2018-2019/on.htm i. 47.97% 16. List the two (2) conditions, found in the text, required for the text author to accept borrowing money in order to make an RRSP contribution. a. Page 80 - “...” i. If I had the discipline to immediately apply the refund toward the loan’s repayment. ii. If I knew that I could repay the ba;ance of the loan within a very short time-frame, say twelve months. 17. As described in the text, what is a Pre-Authorized Contribution Plan as it applies to an RRSP? a. Page 82 - “With this plan, the Bank will automatically transfer a specified portion of pay deposits to the RRSP – and place it in the investment of choice” 18. List six (6) items found in the text that help define what a TFSA (Tax Free Savings Account) is. a. Page 84-85 - “...” i. Like an RRSP, investments within a TFSA can be made in virtually any financial instrument. ii. Unlike an RRSP, contributions are not tax-deductible when made. iii. However, like an RRSP, earnings in the account grow tax-free. iv. Unlike an RRSP from which after age seventy-one, you are forced to withdraw funds, as well as pay tax on them, there is no deadline for forced withdrawal or termination of a TFSA. v. Unlike an RRSP, funds in the TFSA accounts can be withdrawn at any time, in part or in full, with no tax consequences. Although an RRSP can be accessed at any time, doing so would trigger full marginal tax assessment on any amounts withdrawn. vi. Like an RRSP, any unused contribution allowance in a TFSA can be topped up at any time. 19. What year were TFSAs introduced and how much could be contributed in the initial year? a. Page 84 - “The Federal Government’s TFSA plan, introduced in 2009, is a tremendous financial innovation which will complement RRSP plans, and further assist Canadians in their wealth-creation efforts. The original annual contribution limit was set at $5,000” 20. What types of investments can be made with the funds held in a TFSA when the funds remain within the TFSA? a. Page 84 - “Like an RRSP, investments within a TFSA can be made in virtually any financial instrument” 21. How are contributions to an TFSA treated for tax purposes? a. Page 84 - Unlike an RRSP, contributions are not tax-deductible when made. 22. How are earnings made on funds held within a TFSA treated for tax purposes when the funds remain within the TFSA? a. Page 84-85 - “However, like an RRSP, earnings in the account grow tax-free” 23. How are withdrawals from a TFSA treated for tax purposes? a. Page 85 - “Unlike an RRSP, funds in the TFSA accounts can be withdrawn at any time, in part or in full, with no tax consequences. Although an RRSP can be accessed at any time, doing so would trigger full marginal tax assessment on any amounts withdrawn” 24. What happens to a TFSA when the owner dies? a. Page 85 - “Should the holder of a TFSA die, the remaining funds pass to his estate, with no tax-liability arising. A TFSA holder can name a beneficiary, in which case probate can be bypassed” 25. What, if any, restrictions are there on withdrawals from a TFSA? a. Page 85 - “Unlike an RRSP from which after age seventy-one, you are forced to withdraw funds, as well as pay tax on them, there is no deadline for forced withdrawal or termination of a TFSA” 26. What, if any, tax implications are there on withdrawals from a TFSA? a. Page 85 - “Unlike an RRSP, funds in the TFSA accounts can be withdrawn at any time, in part or in full, with no tax consequences. Although an RRSP can be accessed at any time, doing so would trigger full marginal tax assessment on any amounts withdrawn” 27. How is a withdrawal from a TFSA treated with respect to unused contribution allowance? a. Page 85 - “Any amount withdrawn from a TFSA is immediately added to the individual’s unused contribution allowance. This permits him to replace the withdrawn funds in any future year” 28. Define the term RESP. a. Page 88 - “A Registered Education Savings Plan (RESP) has the sole function of helping to finance a child’s post-secondary education. It is registered by the Canada Revenue Agency on behalf of the child enrolled” 29. How much can be contributed to a child’s RESP in any given year? a. Page 89 - “No annual limit on contributions; however, each account’s total contribution is capped at $50,000 for each child” 30. What is the total life-time capped amount that can be contributed to a child’s RESP? a. Page 89 - $50,000 31. Are very wealthy people with large family incomes allowed to open an RESP for each child and receive the federal government grant (the CESG)? a. Page 89 - “Regardless of family income, the federal government adds to the RESP, an annual grant, called the Canada Education Savings Grant” 32. Define and describe what is the Canada Education Savings Grant. a. Page 89 - “Regardless of family income, the federal government adds to the RESP, an annual grant, called the Canada Education Savings Grant. Subject to a $500 annual limit, and a $7,200 lifetime limit for each beneficiary, the government’s grant equals 20% of the subscriber’s annual contribution. If the beneficiary does not pursue a post-secondary education, these grants are subject to recapture by government” 33. What is the caveat (thing to beware of) regarding the CESG if the child never attends a post-secondary institution? a. Page 89 - “If the beneficiary does not pursue a post-secondary education, these grants are subject to recapture by government” 34. How are contributions to an RESP treated for tax purposes? a. Page 89 - “As with a TFSA, annual contributions to an RESP are not tax-deductible. However, while in the plan, increases in the fund’s value are not taxable” 35. How are earnings made on the funds held within an RESP treated for tax purposes when the funds remain within the RESP? a. Page 89 - ““As with a TFSA, annual contributions to an RESP are not tax-deductible. However, while in the plan, increases in the fund’s value are not taxable” 36. When withdrawals are made from an RESP and given to the student to pay for college or university studies, how are withdrawals treated for tax purposes? a. Page 89 - “RESP payments to the student, beyond the amount contributed by the subscriber, are taxed when withdrawn, but only in the student’s hands as a scholarship. Generally, due to the student’s low income, this results in minimal tax” 37. List four (4) reasons, found in the text, why using a TFSA during your early savings years (18-30 years of age) may be preferable to making RRSP contributions. a. Page 92 - “...” i. Earnings, and therefore marginal tax-brackets, tend to be lower at this age. Use the TFSA to accumulate tax-free savings for early family expenses such as furnishings, summer camps, and orthodontists. ii. A TFSA is a great vehicle for accumulating a first down payment for a home, or perhaps the purchase of a vehicle. iii. A TFSA can serve as an emergency fund to cover a major, unexpected expense, such as a job loss or lay-off. iv. Since in addition to each annual contribution entitlement, withdrawn funds may be replaced in any future year, you can rebuild the account as quickly as financial circumstances permit. 38. List three (3) of the author’s recommendations for using the tax refund received as a result of making RRSP contributions. a. Page 95-96 - “...” i. Pay down allowable, penalty-free portions of mortgage principal. ii. Contribute to still-available eligibility in one’s RRSP. iii. Top up accumulated contribution room in one’s TFSA. 39. Define the term “investment”. a. Page 96 - “The strategic allocation of savings to produce the best-possible returns over a selected time frame, consistent with the level of risk-tolerance of the investor” 40. Is saving money the same thing as investing? Explain. a. The difference between saving money and investing is the level of risk factor. Saving money has little to no risk as over time it will just continue to go up. Investing, such as in bitcoin, will cause the value of your money to go up and down, and you need to constantly be watching the charts in order to sell at the right time to get the best-possible returns. Chapters 13-15 1. What is meant by the term “compounding"? a. Page 99 - “A process by which the original value of an investment increases exponentially over time. As periodic dividends or interest are automatically reinvested, they escalate the dividends or interest earned in future.” 2. What two factors will result in the highest impact of compounding? 3. What does “compounded annual rate of return” mean? a. Page 101 - “The percentage by which a given investment would need to increase each year, over a specified period, to reach a desired end value.” 4. What impact does inflation have on your accumulated savings? a. Page 105 - “In terms of inflation’s effect on all of us, it means that our dollar generally will buy less in future than it does today.” 5. Inflation drag is one major concern when considering investment growth and value. What is another major consideration? What tools are available to mitigate this concern? a. Page 107 - ”Protecting investment gains from income taxes is an extremely important element of every individual’s wealth-creation strategy. The TFSA and RRSP savings and investment vehicles we discussed earlier are the primary tax-minimization tools available to every Canadian investor.” 6. Describe one significant characteristic (advantage) and one characteristic (disadvantage) of Fixed-Income investments. a. Page 110 - “As the name implies, these investments will produce a yield or fixed-income which is largely predictable.” 7. What types of savings accounts are there? What type/level of interest do they pay? a. Page 110-112 - “...” i. Bank or Credit Union Savings Accounts => Very low rate of interest, Higher interest rates iii. Treasury Bills (T-Bills) => Short-term investment iv. Money Market Funds => Low returns v. Guaranteed Investment Certificates (GICs) => Longer the term, high the rate paid vi. Government and Corporate Bonds => Specified interest rate vii. Mortgage-Backed Securities (MBS) => Low interest rates 8. What is the “CDIC”? What types of investments are protected? What limitations are there? a. Page 110 - “These accounts are 100% secure in that your principal (the cash deposited) is government-protected, at least to $100,000 per account, by the Canadian Deposit Insurance Corporation” 9. What is a “T-bill”? Discuss the features of a T-bill. a. Page 111 - “Treasury Bills are short-term investments issued by both the federal government and some provinces; as such, they are risk-free. They can be purchased for various terms, generally ranging from 30 days to one year. A minimum investment of at least $1,000 is required. Yields may be better than in a typical savings account, but at best, still barely on pace with inflation” 10. What are “Money Market funds”? Discuss the features of Money Market funds. a. Page 111 - “This is the most conservative type of fund. Most such funds are not CDIC-insured. The fees charged by the mutual fund service-provider are generally low, but so are the returns earned. Most money market funds are invested in government or government-guaranteed securities. Some may include somewhat riskier investments such as mortgages. Investment returns are neither guaranteed, nor are they specified. Over time however, the returns tend to be better than savings accounts or T-Bills” 11. What are “GICs”? Discuss the features of GIC. a. Page 112 - “Also CDIC-insured, these certificates are issued by the lending institution, such as a Bank, for specific terms, usually ranging in length from one year through five years. Generally, the longer the term, the higher the rate paid. Yields will be better than savings accounts, T-Bills, or most money-market funds. Your investment however, is usually locked-in for the duration of the term selected” 12. What are “Government and Corporate Bonds”? Discuss the features of Government and Corporate bonds. a. Page 112 - “These are debt instruments issued by governments or corporations. In buying them, you are lending the government or corporation a sum of money. In return, they offer a specified interest rate, and a return of your capital at a set maturity rate, and a return of your capital at a set maturity date. Since North America’s government bonds are considered to be risk-free, they pay a much lower rate of interest than do corporate bonds” 13. What are “MBSs”? Discuss the features of MBSs. a. Page 112 - “These are fixed-income securities that are invested in a pool of residential first mortgages. These mortgages are insured under the National Housing Act. As such, they are unconditionally guaranteed by Canada Mortgage and Housing Corporation (CMHC). Though these investments are very safe, their returns will not be very attractive when interest rates are low” 14. What is the author’s advice regarding investing in fixed-income securities? When is this particularly important? a. Page 113 - “The prudent investor will always consider, and almost always include in his portfolio, some very conservative, cash-preserving investments. To prudently balance risk, the closer an investor is to retirement, the greater should be his proportion of fixed-income investments” 15. Define “financial independence”. a. Page 114 - “Financial independence exists when, without having to be employed, one earns sufficient income from investments, pensions, or other sources, to maintain a desire lifestyle” 16. What is a “bond”? Who can issue a bond? What two (2) promises are intrinsic in a bond? a. Page 115 - “A bond is a debt instrument. It is used by governments, municipalities, and corporations to raise capital. It represents both a promise to pay periodic interest at a set rate (coupon), as well as a promise to repay the principal on a specified date (maturity)” 17. Is a bondholder a creditor or a shareholder? What is the difference? a. Page 115 - “An investor who buys a bond becomes a creditor of the issuer; he is not a shareholder. A bondholder has a priority claim over that of a shareholder, on an issuer’s income. This means that a bondholder must receive his interest payments in full, before any dividends can be paid to a shareholder” 18. What is meant by a bond’s “par value”? Why does the price of a bond (its “value”) change over time? a. Page 115 - “Every bond has a par value, set by the issuer. Par value of a bond is the predetermined amount to be paid out on its maturity date. When an investor buys a bond, the price he pays may be above or below par value. This is because the prevailing interest rates in the market may have changed up or down since the bond was first issued. If comparable-term interest rates have decreased since the bond was issued, then the bond will be more valuable and priced higher than when first issued. This is because the interest rate paid on the bond is now more attractive than that of the general market. In this situation, a bondholder who bought at issue date, could sell his bonds for a capital gain” 19. What is a “capital gain”? With respect to buying and selling bonds, how can you prevent a capital loss? a. Page 116 - “A capital gain is the increase in value of an asset, from its purchase price to its selling price – not taking into account either interest or dividend payments… Exactly, Jenny. But keep in mind that you can avoid the loss by holding on to the bond until its maturity date.” 20. What is a “junk bond”? How can an investor mitigate his risk yet still get some of the higher yields associated with junk bonds? a. Page 117 - “Below-investment-grade bonds, sometimes called junk bonds, pay a much higher interest rate to compensate for their increased risk.” b. Page 118 - “But what some investors do is buy a fund holding a large number of such bonds. This reduces the risk of individual bonds failing. Because of their high risk individually, such bonds pay very high interest rates. The much higher average yield of the corresponding bond funds makes them attractive to some investors” 21. What is a “RRB”? Why are these bonds potentially a useful investment? What are the caveats (things to beware of) if investing in this type of bond? a. Page 118 - “There is a category of bonds that can protect the long-term investor against the risk of inflation. In Canada, these are called Real Return Bonds (RRBs). RRBs are similar to regular bonds in all respects but one. The interest rate they pay floats at a fixed percentage above the official rate of inflation. Hence the protection from inflation. RRBs are not great investments when inflation is low. But because their interest rate is pegged at a constant percentage above the rate of inflation, they will outperform regular bonds when inflation is high.” b. Page 188 - “RRBs are long-term investments, maturing some 15 to 20 years in the future. Your capital investment is protected if held to maturity. Like all bonds however, they are subject to market fluctuations if sold before maturity. Unless held in a TFSA or RRSP account, all interest earned by RRBs is, as with all bond products, fully-taxable at the same rate as other earned income.” 22. What is a “Strip” or “Zero Coupon” bond? What is the best investment vehicle for these bonds? Why? a. 119 - “Also known as zero-coupon bonds, they differ from regular bonds in that they pay no periodic interest. The interest coupons have been stripped from the purchase price of the bond. These bonds can be a useful investment component of a tax-sheltered account such as an RRSP, TFSA, or RESP” 23. How can you diversify bond investments? a. Page 120 - “Buy a selection of individual high-quality corporate and government bonds [or] buy bond funds, each of which will hold a wide variety of individual bonds” 24. Discuss the advantages and disadvantages of owning a bond fund. a. Page 120-121 - “...” i. The upside of owning bond funds is that you achieve broad diversification and reduce risk. The downside however cannot be ignored, and must be carefully evaluated: 1. As you will come to understand when we talk about any kind of mutual fund, investment in any fund comes with a management fee – sometimes a very significant one. A fee can seriously erode your interest yield. 2. With a bond fund you lose an important protective feature of individual bonds. With a single bond, the issuer guarantees a specific interest rate, as well as the payment of par-value at maturity. A bond fund can guarantee neither. Bond funds never mature. They are invested in a large number of bonds, each with a different interest payment and maturity date. Chapters 16-18 1. What is a share in a corporation? 2. Define the term Market Capitalization. What three broad categories are common shares typically divided into? 3. What is meant by Large-Cap Shares? Give an example of a Canadian Large-Cap corporation? 4. What is meant by Mid-Cap Shares? Give an example of a Canadian Mid-Cap corporation 5. What is meant by Small - Cap Share ? Give an example of a Canadian Small-Cap corporation. 6. Discuss the relationship between market capitalization, volatility, and risk, for Large-Cap, Mid-Cap and Small Cap shares. 7. What is a Penny stock? Where are penny stocks on the volatility/risk spectrum? On what stock exchange in Canada are Penny stocks traded on? 8. What are dividends? Why are they of value to a shareholder? 9. What factors influence a company's dividend policy (when, how much to pay)." 10. What is a DRIP? What are the advantages of owning stocks with a DRIP option? 11. What is a preferred share? Discuss the similarities and differences between preferred shares and common shares. 12. Explain why it is important to designate a personal home or a secondary property as one' s primary residence. If you make a $10,000 capital gain on selling shares in a Canadian corporation, how much of this capital gain will be subject to income tax in Canada? 13. Make a list of the advantages and disadvantages to owning rental-income property in Canada? 14. In what ways can one use a mortgage as an investment? List the considerations that should be made before investing in a mortgage fund? 15. What is a REIT? List the advantages of investing in a REIT over other types of real estate investments. 16. Name some additional types of (more complex) investment options. Choose one from the list on p. 142 and explain its features, benefits and risks (by looking it up on the internet). What is the author's advice with respect to more complex investment products? 17. Why is it necessary to understand, and in fact accept, some degree of risk, when making investment decisions? 18. Explain Expense Risk and how it impacts investment performance. 19. What is Advisor Risk? How can it be reduced, or eliminated completely? 20. What is Tax-Erosion Risk? How can it be reduced, or eliminated completely? 21. How can the government afford to offer the tax deductions it does on RRSP contributions? 22. What is Investment-Term Risk? How can it be reduced, or eliminated completely? (Be sure to include a definition of laddering). 23. What is the Lack of Diversification Risk? How can it be reduced, or eliminated completely? 24. Explain Political and Currency Risk? How can it be reduced, or eliminated completely? (Be sure to include a definition of a hedge). 25. Explain High-Frequency Trading Risk? What is a day trader? What is the author's advice regarding day-trading and/or frequent trading? 26. What is The Sure-Thing Investment Risk? 27. What is Market-Timing Investment Risk? How can it be reduced, or eliminated completely? 28. What is Inflation Risk? How can it be reduced, or eliminated completely? 29. What is Age-Related Risk? How can it be reduced, or eliminated completely? 30. What is The Lack-of-a-Plan Risk? How can it be reduced, or eliminated completely? 31. What elements combine to achieve Prudent Investing? Chapters 19-21 1. Define and describe what is a “Mutual Fund”. a. Page 169 - “Offered by a company that attracts many individual investors who wish to own stocks, bonds, or other securities, on a pooled basis. Each investor buys into the fund, purchasing shares or units, which represent his proportional investment” 2. List five (5) benefits of mutual funds. a. Page 170 - “...” i. Mutual funds are an investment vehicle. An investor can buy units (shares) of the fund on a one-time, or regular-contribution basis. The latter allows over time, for automatic averaging of unit-costs, thereby smoothing out the bumpy effect of major market changes. ii. They are instruments of easy diversification, allowing individuals to own a share in a basket of investments in any category of their choice. This averages the investor’s risk across many products. iii. They are easy to invest in, providing opportunity for achieving easy balance between equities, bonds, and other fixed-income investments. iv. They are easily convertible on short notice, into cash. v. Over the long-term, consistent investment in solid mutual funds should produce a significant, cumulative return. This helps the investor achieve his wealth-creation objectives. 3. Define and describe what is an “Actively Managed Mutual Fund”. a. Page 171 - “One in which its managers make many individual decisions to buy or sell specific investment products, in an effort to outperform a particular benchmark index” b. Page 171 - “These funds are operated by an investment firm or bank. It raises money from individuals and invest the proceeds in a particular group of assets, in accordance with a stated set of objectives, which it shares with its investors” 4. Define and describe what is a “MER”? a. Page 171 - “Many actively-managed mutual funds require a minimum initial investment. Because of its active portfolio management, each fund charges an annual fee, called the Management Expense Ratio (MER).” 5. Define and describe what is a “Passively Managed Mutual Fund”. a. Page 171 - “Strive to track, rather than exceed, the performance of a particular index or sub-index” 6. Define and describe the two (2) types of passively- managed mutual funds. a. Page 172 - “...” i. Index funds ii. Exchange-traded funds (ETFs) 7. In addition to the MER, what other two (2) additional fees might an investor be subject to when investing in an actively- managed mutual fund? a. Page 171 - “...” i. An entry fee (Front-End Load Funds) ii. An early-exit fee (Back-End Load Funds) 8. Describe and define what is a Front -End Load charge. a. Page 182 - “The front-end option – effectively an entry fee, can lead to a one-time charge of 2%, or even more, of the initial investment” 9. Define and describe what is a Back-End Load charge. a. Page 182 - “The back-end option – the early-exit fee, replaces an up-front fee. The fund may charge up to 5% of total value, if an investor terminates his fund ownership during the first seven years after purchase. After seven years, this fee obligation generally disappears” 10. Define and describe what is a “brokerage fee”. a. Page 188 - “The cost you pay whenever you buy a stock or an ETF that’s listed on any stock exchange. The brokerage firm, and its broker who is licensed to buy or sell securities, earn the commission” 11. Who earns the brokerage fees that are paid when stocks or ETFs are bought or sold? a. Page 188 - “The brokerage firm, and its broker who is licensed to buy or sell securities, earn the commission” 12. How would you answer Jenny’s question on why so many actively-managed mutual funds can’t beat a comparable Index average given that they are not all run by incompetents? 13. List the names of six (6) major Canadian exchange-traded fund (ETF) providers as shown in the text. a. Page 189 - “...” i. Blackrock (i-Shares) ii. BMO Financial iii. Horizons iv. First Asset v. Vanguard vi. RBC Global Asset Management 14. Define and describe what is the “NASDAQ Composite Index”. a. Page 190 - “a U.S. Index of primarily technology stocks. It is value-weighted for all the stocks listed on this exchange – it thus takes into account not only share prices, but also the market capitalization of the companies it tracks” 15. List four (4) decisions that are required of the “Couch Potato Strategy Investor”. a. Page 191 - “...” i. What proportion of his total investment should be in equity vs. fixed-income products? ii. Should the equity component represent an entire Index, or a more focused sub-index, such as the financial index? iii. Should the bond index be in shorter-term bonds, longer-term, or a combination of both? iv. Should the investments be wholly Canadian, or a mix of Canadian, U.S., and/or other international products? 16. List three (3) things that are done during an annual review and rebalancing of your investment portfolio. a. Page 193 - “...” i. Sell a portion of the category that has increased beyond your target allocation ii. Use the proceeds of the sale to buy more of the categories that have declined iii. Confirm that you have re-established your targeted percentages between asset classes Chapters 22-24 1. Define and describe a financial plan. Once you have prepared an initial financial plan, are you set for life regarding not having to do any future financial planning? Explain your answer to part 2. a. Page 198 - “A financial plan is a personal road map toward one’s financial objectives… To be worthwhile, a financial plan must be a dynamic document. Your initial plan, hopefully established in your early 20’s when you are just starting a career and perhaps your family, will need to be refined and adjusted often, as you move through the various stages of growth and family-creation.” 2. When constructing a financial plan and when periodically refining it, who can be hired to assist? Describe the two different ways that independent financial planners use to charge for their services a. Page 200 - “To construct an initial financial plan, and for assistance with its periodic refinement, retaining the services of a professional financial planner is a wise investment.” b. Page 200 - “...” i. Independent financial planners generally, will offer services in one of two ways: 1. Fee-Only Charge a. Charges usually range between $150 to $250 per hour. Once you provide sufficient insight into your situation and your needs, the advisor should be willing to provide a maximum-cost quotation. 2. Asset-Based Charge a. This fee is usually set as a percentage of your portfolio value. A fixed annual fee might also be negotiated. For significant portfolios approaching or screeding one million dollars, it’s reasonable to cap this fee at no more than 1%. 3. List at least eight (8) elements that form the basis of a comprehensive financial plan. a. Page 201 - “...” i. A compressive financial plan will include a review and analysis of at least: 1. Your net worth 2. Your cash flow 3. Your fixed and discretionary spending 4. Your savings plan 5. Your budget, aligning spending with disposable income 6. Your debt profile 7. Your risk profile 8. Your insurance requirements 9. Your current investments and their appropriateness 10. Your updated investment plan 11. Your tax situation and strategies 12. Your shorter-term goals, retirement goals, and estate planning 13. Your will 4. Explain why even though you may hire a financial advisor to guide you through the financial planning process, you still need to understand all of the components of the financial plan. a. Page 202 - “A financial plan is YOUR plan – not your financial advisor’s. His task is solely to help you develop the best possible plan, and if necessary, to advise you on its specific implementation. You are the final decision-maker for each element that requires a decision.” b. Page 203 - “So even if we hire a financial advisor, we still need to understand all of this financial stuff,” observed Jenny. “We have to know enough to ask questions, make suggestions, and then make the right decisions.” 5. In your retirement years, list two (2) changes in focus or emphasis that should take place regarding a financial plan. a. Page 203 - “In your retirement years, the focus shifts from wealth-accumulation to wealth-preservation, as well as the most tax-effective means of drawing income from investments” 6. List the six (6) easy-to-grasp steps shown in the text that are required in the creation of a financial plan. a. Page 205 - “...” i. The Guiding Principles ii. Our Assumptions iii. Short-Term Investments iv. Long-Haul Investments v. Your Risk Tolerance vi. Utilizing TFSAs and RRSPs 7. List the text author’s nine (9) Guiding Principles in financial planning. a. Page 205-206 - “..” i. Spend wisely – Shop around – Negotiate where possible ii. Minimize debt drag on net-worth growth: 1. Pay zero interest on credit or department store cards; 2. Pay off mortgages as quickly as possible; 3. Except for emergencies, borrow only for mortgage or education loans iii. Save automatically from each pay cheque, using the Pay Yourself First strategy. Strive to save 10% of earnings iv. Minimize income taxes through maximum use of TFSA and RRSP accounts v. Invest outside TFSA or RRSP accounts only if these are fully-utilized vi. Minimize investment costs – use primarily ETFs and Index Funds vii. Minimize risk. Diversify your investments – by asset class, within the class, and internationally viii. Moderate investment risk as you approach and enter your retirement years ix. Be a prudent investor, not a trader 8. What should be the end-date of anyone’s investment time-horizon? Describe how Jenny responded to the following question posed by the text’s author: What’s the most important key that unlocks the door to your golden retirement? a. Page 215 - “Always keep in mind that your investment time-horizon is not the day you retire – it’s the day you die” b. Page 216 - “Is this another trick question? Manage your spending and debt, and start saving and investing early,” promptly responded Jenny. That answer, I know by heart now.” 9. Is there an age when it is too late for someone to evaluate their finances and create a financial plan? Explain your answer. When doing the regular review and revision of a financial plan, what other statement should also be reviewed and updated? a. Page 217 - “Regardless of age, it’s never too late to evaluate your finances, prepare a financial plan, and apply the best-possible strategies to enhance your retirement lifestyle. Remember, when doing your regular review and revision of your financial plan, to also include an update of your Net-Worth Statement – calculate the difference between your assets and your liabilities, to track the growth of your net-worth” 10. What do you think of Grandma’s diligence in keeping track of every expenditure the family made? Do you think you could exercise this discipline in your life? Briefly explain why you could or why you could not exercise this discipline in your life. a. Personally, I’m not sure if I could exercise this discipline in my life. I’d probably get a good start for the first few weeks, but at some point, I may start either forgetting to write down the numbers, or estimating the amount at the end of every month using whatever debit account I’m using. 11. In the early years (25 to 30) of creating an investment plan and before you successfully buy your first home, list four (4) names of investments that are shorter term and low in risk and are appropriate investments for accumulating funds for the down payment on a home. (Note that a RRSP, a TFSA and a RESP are not investments.) What should your risk tolerance be in the period before you buy your first home? a. Page 221 - “...” i. Clearly, your risk-tolerance during these five years will be low, because you absolutely need the funds by age 30. ii. This dictates that, until you successfully buy your home, all investments must be in either high-interest savings accounts, money-market ETFs, Treasury Bills, GICs, or short-term, high-quality government or corporate bonds. 12. List three (3) cautions the text’s author feels are important when you are at the stage of investing in equity markets (stocks and bonds) in your investment plan. a. Page 228 - “...” i. Do not be tempted to try and outguess the market ii. Do not try to sell or buy at what you guess to be the highs and lows iii. Do your buying methodically, only through your monthly installment, or when you need to rebalance your portfolio, perhaps once a year 13. In chapter 24 on page 225 the text lists four (4) different TD Index Funds. After age 30 by regularly and automatically investing in these four (4) Index Funds , in the proportions recommended, list four (4) things that will be achieved. (Do not list the four (4) TD Index Funds on page 225 as your answer.) a. Page 226 - “...” i. Diversification between asset classes; ii. Broad diversification within each class; iii. International diversification, with full currency protection; iv. Averaging, over time, of your purchase prices Chapters 25-27 1. What is the CPP ? How does one qualify to receive his CPP? Who pays for the contributions to CPP? a. Page 231 - “...” i. Canada Pension Plan (CPP) 1. All employed Canadians must earn their CPP retirement benefit by contributing to it throughout their working lives. Those such as a stay-at-home parent, who never work for an income, do not contribute to CPP, and hence do not, in their retirement years, receive CPP benefits. 2. Employees, through their employee deductions, must contribute 4.95% of their income, on all annual earnings between a minimum of $3,500 and a maximum level of $55,300 (2017). These are referred to as ‘pensionable’ earnings. The first $3,500 of annual earnings is exempt from contribution, and no contributions are made on earnings over $55,300 (2017). 2. What is OAS ? Who is eligible to receive OAS? Approximately how much can you receive in OAS payments? a. Page 231-232 - “...” i. Old Age Security (OAS) 1. Shortly before a Canadian who has lived all, or most of his life in Canada, reaches age 65, he becomes eligible to apply for OAS payments of $6,948 annually (2017). Payments commence the month after his 65th birthday. 3. How are CPP and OAS payments protected by the government against the effects of inflation? What is the income tax effect regarding receiving CPP and OAS payments? a. Page 231 - “CPP benefit payments are adjusted each January for inflation. Once the monthly payments commence, they continue for life. They are fully taxable” b. Page 232 - “OAS payments are adjusted quarterly for inflation, and are fully taxable. Monthly payments continue in full for life, unless the taxpayer’s annual net income exceeds $74,769 (2017). A clawback, or decrease in annual entitlement, begins at this level. OAS payments fully disappear at a total net income of $119,615 (2017).” 4. What is the GIS ? Who is eligible to receive the GIS? How is the GIS protected by the government against the effects of inflation? What is the income tax effect of receiving the GIS payment? a. Page 232 - “...” i. Guaranteed Income Supplement (GIS) 1. This extra, government-provided safety-net is for Canadian seniors receiving OAS, whose gross annual income, excluding OAS payments, falls below specified levels of income. 2. The maximum combined OAS and GIS payment received by an individual cannot exceed $1,443 per month (2017). This maximum can only be reached only if there is no income other than the OAS and GIS. All payments are adjusted quarterly for inflation. 3. GIS payments are not taxable. 5. Give the definition of a Defined Benefit Pension Plan and of a Defined Contribution Pension Plan as given in the text book. Which type of pension plan do most, if not all, public service employees belong to? Which type of plan would you prefer to belong to if you had a choice when you commence full time employment? a. Page 234 - “...” i. A Defined Benefit Plan provides to a retired employee, a predetermined monthly benefit based on earnings history, years of service, and age. 1. Almost 80% of public-sector employees are members of this type of plan ii. A Defined Contribution Plan has specified regular contribution levels by both the employer and the employee. The eventual pension benefit depends entirely on the amounts contributed and on investment earnings. b. Personally, I’d probably stick with the Defined Benefit Plan 6. What is vesting ? What happens if an employee's employment is terminated prior to his achieving vested status in the pension plan? a. Page 235 - “...” i. Good question, Jenny. Many employee-sponsored plans require that an employee remain employed for a minimum number of years, before the employer’s contribution to the pension plan is vested. Let’s say for example, the vesting requirement for a particular plan is 5 years. An employee terminates employment with that employer after only four years. Except for reimbursement of his own contributions, he loses all rights to the retirement benefits provided by the plan. 7. How does contributing to an employer-sponsored pension plan impact contribution eligibility to your individual RRSP? a. Page 238 - “An individual with an employer-sponsored pension plan will see his annual RRSP contribution entitlement reduced – often severely. Future pension benefits from the employer-sponsored pension plan should however, more than compensate for this impact.” 8. List the three major categories of pension income? What types of non-employment income might you earn and receive once you are retired? a. Page 241 - “Although additional investment products can add to your income, only payments from your CPP, OAS, RRIF, and employer pension plans are considered to be pension income. Any other income is considered investment income. For various tax reasons, the distinction is important.” 9. What is the maximum age and by what latest date must a RRSP be collapsed and converted into a RRIF (which is the most desirable thing to do at some point)? Explain the rules regarding required withdrawals from a RRIF. Are withdrawals from a RRIF taxed? a. Page 240 - “...” i. Government rules require that every RRSP holder must convert his RRSP to a Registered Retirement Income Fund (RRIF), the end of the year in which he turns 71. ii. From then on, beginning the following year, a total of 5.4% of the RRIF’s total value must be withdrawn from the plan. The minimum withdrawal increases annually, until at age 95, it reaches 20%. Taxes are payable on all withdrawals. 10. List the six items that must be considered when making individual retirement plans? a. Page 243-244 - “...” i. Upon retirement, will the individual be, and plan to remain, totally debt-free? ii. Will the retiree live in a mortgage-free home, or in rental accommodation? iii. Will the retiree have health or disability issues? iv. Will the retiree be responsible for an aging or disabled dependent? v. Will the retiree live alone, or with a partner, who may also be drawing CPP and OAS benefits? vi. How extensive are the pre-retirement, work-related expenses and various payroll deductions, which will cease upon retirement? 11. List four major changes that occur on retirement that can result in a retiree being able to maintain his current lifestyle on lower pension income than his current employment income? a. Page 244 - “...” i. Personal CPP, E.I., and workplace-pension contributions cease on retirement. So do union dues and other miscellaneous, work-related deductions. ii. If pension or RRIF income is received, seniors qualify for a tax credit up to $2,000 annually. iii. Personal tax-deduction allowances increase substantially at age 65. iv. Since 2008, retired couples can split eligible pension income between themselves, to further minimize their total tax bill. RRIF draws may be split only after age 65. However, an individual belonging to a defined-benefit pension plan has the option, at any age, to split that pension income (up to 50%) with a spouse. 12. List five expenses and/or deductions from income that disappear when you retire from employment a. Page 245 - “...” i. Transportation ii. Parking iii. Clothing iv. Food v. Coffee 13. List two reasons that a high-income earner can easily live on a much lower income than before retirement. a. Page 246 - “...” i. This is possible primarily due to the huge drop in his tax bill and other payroll deductions, as soon as he retires. The higher-income retiree is also more likely, before retirement, to have liquidated all major debts. 14. List three factors that enabled Ann to retire earlier than she believed possible. a. Page 249-250 - “...” i. She was one of the 20% of fortunate Canadians who worked for a public sector employer; that meant she had a great defined-benefit pension plan. ii. Pension contributions, which had amounted to almost 7% of her gross income, ceased on retirement; so did employment insurance, and other deductions. iii. CPP rules allowed Ann to commence drawing reduced benefits as early as age 60. iv. Ann worked in a profession where significant casual-employment opportunities exist. 15. List three reasons why 65 is considered "retirement age" for most Canadians. a. 16. Although on retirement our focus shifts from saving and investing for growth to smart strategies for withdrawal and use of our accumulated funds, why must this be done with caution? 17. Give two circumstances where it may be advisable to convert your RRSP to a RRIF before the required age and due date. a. Page 254 - “However, since you are not required to convert until age 71, you would be wise to do so only if you need the extra income, or if there were a tax advantage to drawing the funds earlier.” 18. In what ways might the OAS claw-back impact your RRIF withdrawal decisions? a. Page 256 - “If your withdrawals after age 71 put you in the claw-back zone on your OAS, you may be better off to start drawing down on your RRIF earlier, if that helps you avoid the problem of too high an annual net income. It would be a shame to end up losing some or all of the annual indexed OAS benefit, simply because your diligence in saving and investing all your life resulted in too high an income after retirement.” 19. Explain why the government forces us to withdraw a minimum amount each year from a RRIF and pay income tax on the amount withdrawn instead of allowing the RRIF to increase in value tax free until we die. a. Page 255 - “The reason for a specified minimum withdrawal is simple. The government has allowed us to benefit from tax refunds each time we contributed to our RRSP. Furthermore, it has allowed our investments in the RRSP (or RRIF) to grow totally tax-free for many years. The government now wants some of that foregone income tax back. The way they choose to do that, is to force us after age 71, to withdraw at least a minimum amount each year.” 20. "What is pension income-splitting, and why is it important to retirees? Describe one other income tax advantage that pension income has. a. Page 257 - “If you’re part of a couple, take full advantage of pension income-splitting provisions, to reduce each partner’s taxable income to below the OAS claw-back threshold.” b. Page 258 - “By apportioning the income differently, for tax purposes only, the couple’s combined tax bill will be less, because each will be taxed at a lower marginal tax rate.” 21. What change to one's investment portfolio allocations should be done as one approaches retirement age. Why? a. Page 259 - “Well before retirement, it’s usually prudent to have shafted our investment mix toward a split of 50% (or less) in equities and 50% (or more) in fixed-income investments.” b. Page 260 - “This reduces the risk to our portfolio of value fluctuations, particularly in the critical years immediately before, and just after, retirement commences.” 22. Give one advantage and one disadvantage of Segregated Funds ? a. Page 260 - “These managed funds generally charge an even higher fee than the previously-discussed actively-managed funds. They do guarantee however, that at the end of a specific time period, usually ten years, the value of the investor’s capital will not have declined, regardless of market performance.” 23. Describe one advantage of Guaranteed Minimum-Withdrawal Benefit Products? What is the major disadvantage? a. Page 261 - “Basically, these funds guarantee a regular income stream. For example, plans exist which will make monthly payments for life. Income is guaranteed annually at 5% of the invested sum, as long as withdrawals commence after age 65. The 5% minimum income remains protected, even if the underlying investment value decreases. But if the original investment increases in value, the 5% payment will rise. All of these benefits of course, come with a price which is reflected in the fees charged.” 24. What is an Annuity? Describe why the payments from an Annuity are not all taxed as income. a. Page 261 - “...” i. An annuity is a contract which one purchases in exchange for a lump sum of money. It provides regular payments, usually on a monthly basis, for either a fixed number of years, or life. ii. Because annuity payments are a blend of earned income and return of capital, they are very tax-efficient. Because they are a combination of these two elements, they tend to generate much larger sums than the income earned on most fixed-income investments. 25. What is the major disadvantage of an Annuity? a. Page 261 - “As with any seemingly good deal however, annuities also have their downside. Most significantly, once purchased, these products provide zero access to the capital, and no residual value to the estate.” 26. What is an Insured Annuity? What disadvantage would a 71 year old face in desiring to buy an Insured Annuity? a. Page 262 - “...” i. The combination of an annuity and a parallel life-insurance policy is known as an Insured Annuity. ii. Obviously, at age 70 or 75, the high purchase cost of such a life-insurance policy would significantly erode the annual net benefit of the annuity. 27. What is Last-to-die term insurance ? To whom would it most likely be of value? a. Page 263 - “‘Last-to-die’ term insurance products for very-high-net-worth retirees, whose estates may be subject to major tax obligations after their death. Such a policy will pay out the sum required for taxes, upon the death of the last insured member.” 28. What is a Will ? Who should have a will? What happens if a person dies and she/he does not have a valid will? a. Page 264 - “...” i. Ideally, every Canadian adult should have a Will in which his wishes regarding an executor, a trustee, and the disposition of assets are clearly detailed. As one travels through life, from the various stages of wealth accumulation and family formation, to retirement, a Will’s importance increases. ii. On death, failure to leave a Will means that a legal distribution rule will be followed by the public trustee – regardless of any contrary wishes of the deceased. 29. Do you have a will?----Do not send me the answer to this part of the question. Just think about your own situation regarding having a will. a. I highly doubt it 30. "What is a Reverse Mortgage? Despite sounding so great on TV commercials, list at least three characteristics of Reverse Mortgages that make them a potentially disastrous choice?" a. Page 265 - “...” i. A Reverse Mortgage is a type of mortgage loan whereby a Canadian homeowner over age 55 borrows against the equity value in his home. Neither principal nor interest payments are required until the homeowner sells his home or dies, whichever occurs first. At that time, the entire loan, along with accrued and compounded interest, becomes payable in full. ii. It’s an arrangement which can quickly erode, or even destroy, the wealth you have accumulated through your home ownership. iii. The accumulating, and worse, compounding interest rate is set significantly higher than for a normal mortgage. Substantial set-up costs are also charged to the homeowner. Chapters 28-31 1. List five (5) facts that support the statement that small business is a very important and growing sector of Canada's overall economy. a. Page 270 - “...” i. Small and medium-size businesses account for over 70.5% of private sector employment. ii. Of Canada’s 1.17 million businesses with employees, approximately 54% employ less than 5 people. About 95% employ less than 50. iii. One in six working Canadians, approximately 2.5 million, count themselves as ‘self-employed’. iv. More than half of Canada’s self-employed operate their business from home. v. ‘Self-employment’ created 75% of all new jobs in Canada. vi. Approximately 78,000 new small and medium-size businesses are created each year. 2. List and describe three (3) benefits of being your own boss. a. Page 271-272 - “Being your own boss – You can set your own hours; work as hard as you wish; answer only to your customers, and perhaps your bankers. You are in control of your own destiny – your success or failure.” 3. List and describe three (3) risks of owning your own business. a. Page 272-273 - “...” i. High business-mortality rate – As mentioned earlier, a majority of new businesses do not survive long enough to see their fifth year completed. Franchise structures, with their training and support systems, have proven effective in reducing failure rates. They are worth considering. ii. Capital investment requirements – The risk of failure increases proportionately with both the degree of debt with which your business starts, and which it carries into the future. For many new entrepreneurs, the only option in starting their own business is to borrow heavily for its start-up or acquisition. Franchises, while more likely to succeed, also usually require a substantial entry cost. iii. High Stress – While many entrepreneurs will thrive on the challenges, others will find the role of business owner extremely stressful. As an owner, you are in large part, the business. The buck stops with you. Countless hours of personal effort may be necessary, while putting strains on family life and often, particularly in early years, family finances. 4. List three (3) reasons why an early retiree from a senior salaried corporate position is in a good position to start up a small business. a. Page 274 - “Early retirement from salaried employment has proven to be an important entry point for the aspiring entrepreneur. By this time he is likely to have a pension or substantial investment safety-net as back-up. He should have easier access to required capital. And, perhaps too young and energetic for only golf and travel, he welcomes the challenge of a new career. Often too, the early retiree has acquired over many years, a comprehensive set of business skills upon which he can rely. These skills can serve to dramatically improve the chances of success of his new business.” 5. Define and describe what is Life Insurance. List three (3) important considerations when purchasing life insurance. a. Page 279 - “...” 1. Life insurance is purchased for the primary purpose of paying out a specified sum of money to a beneficiary, upon the death of the insured individual. 2. Our most important considerations when purchasing life insurance are: a. Why, and when, do we need it? b. How much coverage do we need? c. What type should we buy? 6. Define and describe what Term Life Insurance is. What is the key advantage of term life insurance with regards to its cost? What is the major concern after the term life insurance policy expires and you want to continue the term life insurance policy? a. Page 281 - “Term life insurance provides a specified dollar amount payable upon the death of the holder. It is purchased for specific renewable time periods, or terms.” b. Page 282 - “...” i. A term life policy is the cheapest form of life insurance for any age bracket. ii. A term policy expires, usually after a ten or twenty-year period. To renew a policy near the end of its term, the insured individual is generally required to re-qualify health-wise. 7. Define and describe what is Permanent Life Insurance. What is the key advantage of permanent life insurance as compared with term life insurance? What is the key disadvantage of permanent life insurance as compared with term life insurance? a. Page 282 - “...” i. Permanent life insurance combines a specified monetary death benefit with a tax-sheltered saving arrangement. The policy is designed to be purchased on an installment basis, throughout the holder’s life. Often, the policy can be borrowed against, or even cashed in, but with specified penalties in early years. ii. Due to the high commission paid for this type of product, the initial set-up fee and maintenance costs which are included in the premiums are very high. b. Page 284 - “...” i. To be fair, permanent life insurance policies do have one key advantage. Regardless of future health issues of the insures, the insurance carrier cannot deny continuing coverage once the policy is purchased. ii. However, since term policies can be bought for ten or twenty-year terms, they should provide an adequate protection period for most of us. 8. Define and describe what is Mortgage Insurance ( Google the term if you feel the text does not adequately answer this part of the question). List three (3) reasons from the text that mortgage insurance is almost always a poor deal for the borrower. a. Investopedia - “Mortgage insurance is an insurance policy that protects a mortgage lender or titleholder if the borrower defaults on payments, passes away, or is otherwise unable to meet the contractual obligations of the mortgage.” b. Page 285 - “...” i. As you make regular mortgage payments, the insured benefit decreases. However, your insurance premiums remain unchanged. ii. The actual cost of the insurance is amortized over the life of your mortgage. Compounding over the mortgage greatly inflates the cost. iii. Upon death of the insured, the insurance proceeds are paid directly to the Bank to liquidate the mortgage, rather than to the policy-holder. iv. Should you wish to change mortgage providers at the end of the current mortgage term, your ability to make that change may be restricted. If your health has deteriorated, you may no longer be insurable. 9. Define and describe what is privately purchased, not a government program, Disability Insurance (Google the term if you feel the text does not adequately answer this part of the question). Why is disability insurance more costly for someone to purchase, especially during the working years from age 35-55 years, than life insurance? a. Investopedia - “As its name suggests, disability insurance is a type of insurance product that provides income in the event that a policyholder is prevented from working and earning an income due to a disability.” b. Page 287 - “Because the risk of disability is greater than the risk of death, the cost of disability insurance is significant. However, for those without coverage through their employer, it should be seriously considered.” 10. Define and describe what is Accidental Death Insurance (Google the term if you feel the text does not adequately answer this part of the question). Why is accidental-death insurance relatively not expensive? a. Investopedia - “Accidental death benefit is a payment due to the beneficiary of an accidental death insurance policy, which is often a clause or rider connected to a life insurance policy.” b. Page 287 - “Because of the relatively low risk of accidental death, insurance coverage for this eventuality is relatively inexpensive. Despite the low cost, accidental-death insurance generally represents poor value.” 11. Define and describe what is Travel Medical Insurance (Google the term if you feel the text does not adequately answer this part of the question). Why is travel medical insurance necessary when you leave Canada? a. Investopedia - “Travel insurance is a type of insurance covering financial losses associated with traveling, and it can be useful protection for domestic or international travel.” b. Page 288 - “For foreigners visiting the U.S., costs skyrocket for those who need sudden medical care while visiting. Bills for hundreds of thousands of dollars for a several-week hospital stay are not uncommon. Never take the chance – always insure yourself and everyone in your family against this risk every time you leave Canada, even for a day-trip.” 12. Define and describe what is Home Insurance (Google the term if you feel the text does not adequately answer this part of the question). Why is it important to purchase home insurance? a. Canada.Ca - “Home insurance helps protect your home and your belongings in case of theft, loss or damage. It may also help cover additional living expenses if you’re temporarily unable to live in your home. These may include living in a hotel or renting a home.” b. Page 289 - “Your home is probably the most valuable asset you will ever own. Given that fact, it makes sense for you, a prudent homeowner, to accept home insurance as a mandatory, budgeted expense. Insuring a $500,000 asset against most risks, usually for around $1,500 annually, provides very important protection – and peace-of-mind.” 13. Define and describe what is the RDSP. What is the purpose of the RDSP? When was the RDSP established by the government? a. Page 292 - “Since disability is such a significant risk factor for Canadians, the Canadian government established in late 2008, a Registered Disability Savings Plan (DRSP), designed specifically to assist those with serious disabilities. Like both the RRSP and RESP, the RDSP is another tax-deferred savings vehicle. It is however, designed specifically to assist families planning for the long-term financial security of a seriously-disabled person.” 14. Describe the characteristics of the RDSP with respect to the following: annual and lifetime contribution limits, government contributions, and income tax treatment of income earned while funds remain within the RDSP. a. Page 292 - “...” i. Relatives or friends can contribute to an RDSP on behalf of a disabled individual, defined as anyone who is eligible for the federal Disability Tax Credit. There are no annual limits on contributions. However, a $200,000 lifetime contribution limit does exist. ii. Depending on the beneficiary’s net family income, the government will add from $1 to $3, for every dollar contributed. iii. Like an RRSP or an RESP, funds may be placed in most investment products. Also like an RRSP and an RESP, the RDSP permits funds to be invested tax-free until withdrawn. 15. List five (5) options that are available to a person for using the money received from an inheritance. a. Page 294-296 - “...” i. Pay Off Miscellaneous Debts ii. Indulge Yourself – A Little iii. Assist Family iv. Pay-Off or Pay-Down Your Mortgage v. Invest The Balance 16. List the names of the six (6) important categories of insurance discussed in the text. a. Page 278 - “...” i. Life Insurance ii. Mortgage Insurance iii. Disability Insurance iv. Accidental Death Insurance v. Travel Medical Insurance vi. Home Insurance Chapters 32-36 1. Regardless of age, what is the critical first step in starting an investment portfolio? List three (3) things that are probably required to be done by an investor for investing success when an investment portfolio is only started later in life, say age 40. a. Page 298 - “...” i. Starting an investment portfolio later in life, will probably entail a lifestyle change. Success will be dependent on: 1. Less spending and more saving; 2. Less self-indulgence; 3. Strong willpower. ii. Regardless of age however, the critical first step, is to develop a personal finance plan. 2. Given the relative simplicity and painlessness of the investment strategies discussed in the text, list four (4) reasons found in the text why many people never attempt to build an investment portfolio like the Banks family were successful in doing. a. Page 302 - “...” i. The ever-present lure of spending on instant gratification, rather than planning for the future; ii. Lack of discipline in adopting and sticking to a Pay Yourself First savings plan; iii. Taking foolish investment risks, or entrusting investment portfolios to those who charge high fees, often despite achieving inferior results; iv. Not comprehending the tremendous boost to portfolio growth that flows from the combined effect of time and compounding. 3. Describe what happened to the world’s stock markets, including Canada’s, between mid -2008 and Spring 2009. During the same time, describe what happened to world-wide real estate markets including the effects on Canada and the U.S. a. Page 303 - “Because of the extensive downward slide which took place in the world’s equity markets between mid-2008 and Spring, 2009, some investors and even some advisors have begun to question the previously proven Buy and Hold investing strategy, which we discussed a great deal during our sessions.” b. Page 304 - “...” i. As we discussed in our very first session, stock markets world-wide dropped precipitously during the nine-month period from mid-2008 to Spring, 22009 – many by well over 50%. Canada’s stock market did not escape. It too nose-dived approximately 40% in value over this short period. ii. At the same time, real-estate markets plummeted around the world. In the U.S., the results were catastrophic – on average, well over 25%. In Canada luckily, our lending practices were much more stringent. Declines in house prices also occurred, but for the most part, were much more modest, averaging less than 10% nationally. Furthermore, by the end of 2009, Canadian residential real estate had on average, recovered to previous levels. iii. The combined short-term effect of these two simultaneous events caused the net-worth of Canadians to decline drastically. In interviews and in publications, some financial analysts and advisors began to question whether the traditional buy and hold strategies were still valid. 4. What two stock exchanges are owned and operated by the TMX group? What types of companies are listed on each of the two stock exchanges? a. Page 311 - “...” i. The TMX group is an umbrella company that owns and operates both the Toronto Stock Exchange (TSX) and the TSX Venture Exchange. If you are purchasing or selling Canadian stocks, the transaction will occur on one of these two exchanges. ii. The Toronto Stock Exchange (TSX) is a world-class capital market which provides mature CCanadian companies access to new capital, as well as providing an efficient mechanism for investors to buy and sell equities. iii. The TSX Venture Exchange provides access to capital for early-stage Canadian companies, as well as a well-regulated mechanism for the purchase or sale of shares in such companies. 5. Can individuals directly buy or sell shares of stock on the TSX (Toronto Stock Exchange)? Compare full-service and discount brokerages with respect to services offered and amounts of commissions charged. a. Page 311-312 - “...” i. When an individual wishes to buy or sell equities, he himself cannot access one of these exchanges to execute the transaction. Securities legislation requires that such trades be handled only by legally-licensed brokerage firms and their licensed brokers. ii. If you choose to use a full-service broker at a major, bank-owned brokerage house for example, your commission can amount to several hundred dollars on a $10,000 transaction. iii. On the other hand, you may opt to set up an online trading account with a discount broker, also often owned by the bank. The same trade executed on your behalf, could cost you as little as $4.95. iv. The difference, aside from the dramatic commission cost, is that with the discount brokerage service you will receive no personal advice or input. You are the researcher and the decision-maker. 6. Describe how Bond purchases and sales transactions are executed. Explain how the fees are charged by the broker on bond purchases and sales. a. Page 313 - “...” i. There is no such thing as a bond exchange, accessible by the retail market. Bonds are traded at the wholesale level through brokerage houses acting as buyers and sellers. They will obtain a quote for you and handle the transaction, with no visible cost to the retail customer. ii. As a buyer or seller of individual bonds you are charged a fee; you just don’t see it. The broker retains a portion of the transaction value as his fee. In absolute terms the charge may be relatively small, but it is not insignificant. 7. Describe how actively managed mutual funds purchases and sales transactions are executed. Describe how the two types of passively managed funds, Index Funds and Exchange Traded Funds (ETFS), purchases and sales transactions are executed. a. Page 314 - “...” i. Actively-managed funds are easily identifiable through online inquiry for any investment sector you wish to specify. Many fund managers will sell their product to you directly through their own sales force, or through the same full-service broker we talked about earlier. ii. Index funds will generally be available through, and managed by, banks. ETFs, as we discussed, can be bought and sold like a stock, on the stock exchange. 8. Describe how you buy or sell GICs and Treasury Bills. a. Page 314 - “Along with setting up basic or high-interest savings accounts, GICs and T-Bills can be bought directly at most major financial institutions in a very straightforward manner.” 9. Define the following three (3) terms: 1) a Bull Market, 2) a Bear Market, 3) a Market Correction. a. Page 315 - “...” i. A Bull Market is generally considered to be a prolonged period of at least three months, in which investment values on a major stock exchange rise by more than 20%. ii. A Bear Market is generally considered to be a prolonged period of at least three months, in which investment values fall by more than 20%. iii. If the period of falling stock prices is short and follows closely after a longer period of rising stock values, it is instead called a Market Correction. 10. List three (3) criteria described in the text that must be met in order for a financial advisor to be considered truly independent. a. Page 316 - “...” i. A truly independent financial advisor receives compensation only from the fee that you pay for his advice. ii. He does not sell investment products; iii. Nor does he receive commissions as a result of your purchase of any investment product that he has recommended. 11. Define each of the following: 1) the TORONTO STOCK EXCHANGE (TSX), 2)the TSX VENTURE EXCHANGE. a. Page 311 - “...” i. The Toronto Stock Exchange (TSX) is a world-class capital market which provides mature CCanadian companies access to new capital, as well as providing an efficient mechanism for investors to buy and sell equities. ii. The TSX Venture Exchange provides access to capital for early-stage Canadian companies, as well as a well-regulated mechanism for the purchase or sale of shares in such companies. 12. In summary on pages 322-324 of the text, the text’s author condenses the 120 TIPS given throughout the text down to fifteen (15) overall strategies. Using the text wording exactly, choose and write out five (5) of the fifteen (15) strategies that you consider to be the best and most useful strategies for you at your present stage in life and over the next five years. a. Page 322-324 - “...” i. Reduce debt-drag on wealth-creation by paying off all debt as quickly as possible ii. Automate the process of saving through the Pay Yourself First approach – preferably at 10% of salary. Once you have a partner, encourage a similar habit. iii. Develop a financial plan early; update it as often as your circumstances change. iv. Minimize tax on investments by investing through TFSAs and RRSPs, RESPs for children’s education, and RDSPs for disabled family members. v. As early in life as possible, create a lifelong habit of saving.