Debts, Investing & Investment Accounts Flashcards
what is a loan?`
property, money or other material goods given to another party in exchange for future repayment
What are some types of loans?
equipment
property
vehicle
chattel
What is APR?
annual percentage rate of interest
What are types of interest?
simple - solely calculated on the principle amount
e.g. GIC
compound - the rate or frequency that the interest is applied to the loan (monthly, annually)
e.g. term loan
P((1+r/n)^nt - 1) P - principle R - interest N - number of compounding periods T - time
What is an interest term?
period in which the interest rate is applied
at the end of each term the rate must be renewed
longer the term the higher the rate will be
what is amortization?
- length of the loan
- longer the loan the lower your principle payments will be but the higher your cost of borrowing
What are the 3 typical structures with a loan?
- fixed rate (fixed for full term)
- variable rate (prime + interest premium)
- open/closed (open can make more payments than structured, closed can’t pay off sooner)
What are some special types of loans?
mortgages bridge loans credit lines leases student loans (no interest until youre done school) RSP loan (hike up RSP injections
How does interest rate and the down payment affect your mortgage rates?
more money down = less interest rates and smaller mortgage payments
What are some important things to know about credit cards?
interest accrues daily payments monthly 19.9% interest 21 business day grace period cash advances (avoid them though) credit history compiled on credit bureau
How does interest work on a CC?
accrues from date of purchase
compounds monthly
interest is charged on the statement date`
What is TVM?
present value of money is worth more than its future value.
Why is money worth more in the present time vs future time?
inflation
interest
potential earning capacity
opportunity cost
What are examples of high risk investments?
futures
stocks
high yield bonds
precious metal/gems
What are examples of medium risk investments?
blue-chip
balanced mutual funds
income producing properties
What are examples of low risk investments?
bonds
bank notes
What is an example of a secure investment?
GIC (guaranteed investment certificate)
- money in is guaranteed but interest is not
How do you determine your risk preference?
time horizon (longer time will smooth out volatility)
objectives
tolerance of fluctuations
What is a stock? how are you paid from them?
share of a company
piece of ownership
paid in dividends from capital gain (how much your stock goes up)
voting rights in the company
What is a bond?
debt instrument with a promise to pay back the money with interest
- paid with interest
- guaranteed return
What is the benefit of capital gain on taxation?
only 50% of capital gain is taxable
What is a mutual fund?
composition of stocks and bonds owned by you, alongside a multitude of other investors
- run by a fun manager (takes portion of return as a fee - Management expense ratio MER)
What is the benefit of mutual funds?
a way to invest in multiple stocks without managing them
What are ETFs (exchange traded funds)?
“really large mutual fund”
special time of stock/security that tracks the index
- mirrors the market
- you can get ETF on entire markets going up
- lower medium risk
- heavily diversified
What are the key take aways from investing?
invest early invest often invest enough understand comfort level be rational not emotional
where are investments stored?
Investment accounts
“portfolio”
some have contribution limits
what type of investment accounts are there?
registered and non-registered
what are registered investment accounts?
given tax deferred status from government
registered with SIN
limitations to withdrawals and contributions
What are non-registered investment accounts?
tax rules specific to investment types
no penalties to taking money out or putting in
What are types of non-registered investment accounts
savings deposit
GIC
Investment accounts (stocks, bonds, mutual funds, GIC)
What are savings deposits?
a type on non-registered IA
- interest bearing
- principle is guaranteed
- low interest rate
- more interest the larger the balance
- interest is calculated per average daily deposit
What is a GIC? what are the different types?
guaranteed investment certificate
- held for a term
- interest is paid out upon maturity
Types: locked in redeemable 5 in 1 ( 5 year locked but releases 20% every year) building block
What are three ways in which you can be paid from your investment accounts?
capital gains
interest income
dividends
What is capital gain vs interest income and how are they taxed?
investment increases in value. - taxed at 50% of gain inte interest gained from interest rate - 100% taxable
What are dividends? how are they taxed?
paid out from corporations
Tax:
- grossed up 38%
- dividend tax credit of 15%
What are types of registered investment accounts?
TFSA
RRSP
RESP
how are registered investment accounts taxed?
taxed as employment income upon withdrawal (except: TFSA and special cases)
100% taxable upon redemption
What are TFSAs?
tax free savings account
- eligible at 18
- can hold mutual funds, stocks, bonds, savings deposit, GICs
- all gains are not taxable
- have annual contribution limits
What are RRSPs?
registered retirement savings plan
- can hold mutual funds, stocks, bonds, savings deposit, GICs
- tax deferred (don’t pay tax until you withdrawal)
- contribution limit
- company pension plans will reduce your RRSP contribution limit
- unused contribution are carried forward
- over contribution penalty
What types of withdrawal plans are there for RRSPs?
- first time home buyers
- lifelong learning plan (LLP)
you or spouse going back to school
(need to be paid back into RRSP, “like a loan to yourself”)
What are RESPs?
Registered education savings plan
- can hold mutual funds, stocks, bonds, savings deposit, GICs
- special mutual funds
- lifetime contribution limit of 50,000 until child reaches 31
- Canada education savings grant
What are some other types of registered accounts?
spousal RRSP (lower tax bracket) RPP (registered pension plan) LIRA (locked in retirement accounts Registered income fund - will automatically pay you out when you reach 71 "like RRSP" registered disability savings plan - if you have a physical or mental disability - cannot work - government will top up