How to INVEST
Investing: giving money to someone else (e.g. a financial institution) with the expectation you will get a return; what the return is will depend on what you invest in. Get information and advice before you invest your money.
Worksheet 4
1. What does investing mean to you? 2. How can you learn more about investing money? 3. Why is it important to start investing money when you are young? 4. What does a Financial Advisor do? 5. Would you rather receive $10,000 now – or – a penny a day, doubled everyday for a month (31 days)?
There are 3 characteristics that apply to all investments:
Expected return: interest, dividends, or capital gains you expect to receive from your investment
Risk: the possibility of losing some, all, or more than the amount you invested, or the possibility of earning a lower rate of return than expected
Liquidity: how easy – and/or quick – it is to sell or redeem the investment
Types of Investments
Advantages
• Safe; insured by government (to a limit) • Pays interest • Running Record • Safe • Higher interest than Savings Account
Disadvantages
Savings Account
• Returns are usually low
GICs (Guaranteed Investment Certificate)
• Keep money in deposit until it matures • Returns are relatively low
Bonds
• Usually fixed interest rate to the buyer at set intervals • Generally safer than corporate stocks • Allows diversification • Allows investing smaller amounts
• The market value can drop due to interest rate increases or an issuer’s bad credit rating • Depending on type of Mutual Fund, market value may decline sharply • Stock value may decline sharply • Risk is greater than for Mutual Funds
Mutual Funds
Stocks
• Unlimited potential on the return on investment