Week 12 Flashcards
What is the formula to estimate the number of years to double an investment using the magic of compound interest?
72 / Interest Rate
This rule provides a quick estimation for how long it will take for an investment to double at a given interest rate.
What is a guaranteed investment certificate (GIC)?
An investment that works like a special kind of deposit, lending money to a bank for a set term with guaranteed return of principal.
GICs are considered one of the safest ways to invest.
What is a Registered Retirement Savings Plan (RRSP)?
An account registered with the federal government to save for retirement with special tax advantages.
RRSPs allow for tax-deductible contributions, tax-sheltered earnings, and tax deferral.
List three advantages of an RRSP.
- Tax-deductible contributions
- Tax-sheltered earnings
- Tax deferral
These advantages help in maximizing savings for retirement.
What is the contribution limit for an RRSP?
18% of earned income in the previous year or the maximum contribution amount for that tax year.
This limit helps ensure that contributions remain within reasonable bounds for tax benefits.
What does TFSA stand for?
Tax-Free Savings Account
This account allows Canadians to save money tax-free throughout their lifetime.
True or False: Contributions to a TFSA are tax-deductible for income tax purposes.
False
Although contributions are not deductible, earnings in a TFSA are tax-free.
What is a Registered Education Savings Plan (RESP)?
A savings account to help save for a child’s education after high school.
The Canadian government matches contributions to encourage saving.
What is the maximum amount a parent can contribute to an RESP per beneficiary?
$50,000
The government matches 20% of annual contributions up to a lifetime maximum.
What is the purpose of the First Home Savings Account (FHSA)?
To help save for your first home, tax-free.
Contributions are tax-deductible and qualifying withdrawals are non-taxable.
Define a mutual fund.
A collection of investments owned by a group of investors and managed by a professional money manager.
Mutual funds can focus on specific types of investments or a variety of them.
What are the two main types of stocks?
- Common stock
- Preferred stock
Each type has different characteristics regarding dividends and price volatility.
What is Bitcoin?
A digital currency that operates free of central control, relying on peer-to-peer software and cryptography.
Bitcoin transactions are recorded on a public ledger known as blockchain.
What is an NFT?
A digital asset that represents real-world objects, unique cryptographic tokens on a blockchain.
NFTs can include art, music, in-game items, and videos.
What does CFP stand for?
Certified Financial Planner
CFPs have formal recognition of expertise in financial planning, taxes, and estate planning.
What are the pillars of retirement planning?
- Real Estate
- CPP (Canada Pension Plan)
- OAS (Old Age Security)
- Investments
- Company Pension
- Inheritance
These components contribute to overall retirement income.
What is the purpose of a will?
To name an executor and set out how your estate is to be distributed after your death.
A will includes instructions for asset management and distribution.
What does estate planning involve?
Identifying who to give your assets to and when, along with minimizing taxes and meeting financial needs.
It may also include plans for business ownership transfer.
