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31 Cards in this Set
- Front
- Back
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Debt Investments |
-Lending funds to others in order for the borrower to make an investment -Investments have a fixed interest rate |
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Debt Instruments |
A paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract -e.g. bonds, mortgages, leases, etc. |
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Default Risk |
If the company that issues the bond becomes insolvent, then the company can default (fail to pay) on interest payments or repayment of the principal |
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Guaranteed Investment Certificate (GIC) |
-A Canadian investment issued by banks or trust companies that offers a guaranteed rate of return over a fixed period of time -When GIC expires, investor receives full principle + accumulated interest -Risk is affected by Inflation and Interest Rate -No maturity options |
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Guaranteed Deposit Accounts (GDA) |
The same as GIC but issued by insurance companies |
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Common Shares |
-A security that represents ownership in a corporation -Holders of common stock exercise control by electing a board of directors and voting on corporate policy -For investors seeking growth (capital gains) -Higher Risk |
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Preferred Shares |
-A security that represents ownership in a corporation but holders of preferred stock do not have voting power -Pays out dividends before common share owners -For investors seeking income -Tax Preferred -Moderate Risk |
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Normal Rate of Inflation |
3-5% |
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3 Reasons why people invest their money |
1) Safety (preservation) (typically lower risk individuals) 2) Income 3) Growth (typically higher risk individuals |
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Non-insurance Investments (registered and non-registered) |
Debt -DIA, GIC, ILA, T-Bills, Mortgages, Bonds, Mutual Funds Equity -Stocks, Dividends, Mutual Funds |
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Insurance Investments (registered and non-registered) |
Debt -DIA, GDA, ILA, Segregated Funds Equity -Segregated Funds |
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What are the benefits of a registered account? |
1) Tax-deferral/Tax-sheltered growth (pay taxes only upon withdrawal of funds) 2) Income-tax deduction (pay less taxes)
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Deferred Annuities |
-Investment contracts that hold IVICs and GDAs that defer payout until a later time -Has set maturity, amount and interest rates |
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What are the maturity options for deferred annuities? |
1) Turn deferred into immediate annuity 2) Choose new deferral period 3) Free Pass -Withdrawal charges only apply to a certain amount withdrawn -Average of 10% withdrawn of a total annuity will probably not be taxed |
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Early Withdraw Penalties |
1) Early Withdraw Charge -Deferred Sales Charge (DSC) / Back-end load 2) Term-Rate Adjustment -Insurance company offers interest rate during the time of withdrawal 3) Current Market -If interest rates are higher 4) Extra Penalty for withdrawing =>#1,2 penalties always exist =>only money withdrawn is penalized |
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Mutual Funds |
-Pooled investment that can hold stocks, bonds, T-bills, cash, etc -A number of different investors can deposit their money -Managed by a portfolio manager that receives an MER -Has at least 10 different securities (instant diversification) -No guarantees and only FMV are received upon withdrawal |
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Segregated Funds (IVICs) |
-Same as mutual funds except issued with an insurance based contract -Offers a guarantee -Higher MER than mutual funds |
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IVIC Guarantees and Statutory Minimum |
1) Death Guarantee 2) Maturity Guarantee -Statutory minimum is 75% => Guarantee is 75% on deposits or FMV, whichever is higher |
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Death Guarantee |
-Beneficiary receives the death benefit if investor dies -75% of all deposits guaranteed at death |
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Maturity Guarantee |
-Investor makes a redemption to withdraw money in the IVIC -Typically a 10-year term -If you invest into an IVIC in 2014, there is no guarantee until 2024 -If you cash out an IVIC before maturity, only FMV is received -If you cash out an IVIC at maturity, you can receive guarantee or FMV, whichever is higher |
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What happens to your guarantee if you make deposits to your IVIC? |
1) Death Guarantee -Guarantee includes 75% of ACB+Deposits or FMV, whichever is higher 2) Maturity Guarantee -Guarantee does not include the entire 75% of ACB+Deposits or FMV, whichever is higher because every deposit carries forward a 10-year clock |
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Types of Investments |
MMBBDEIS (My Mother Buys Bad Dogs Even In Spring) (from low to high risk) -Money Market -Mortgage -Bond -Balanced Fund -Dividend -Equity -International -Specialty |
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Index Mutual Fund |
Pooled investment that tracks stock market performance |
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When do you recommend IVICs? |
For individuals that are business owners and people retiring that are looking forward for estate planning |
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Balanced Fund |
-Balance fixed income and equity -Fixed interest |
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Refresh/Reset Option |
-Allowed only once per year -Sets a new guarantee based on new FMV -Maturity clock restarts |
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Withdrawals in an IVIC |
1) Linear Method 2) Proportional Method => Proportional guarantee is higher than linear guarantee only if the FMV is higher and vice versa |
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Back-end load (DSC) |
A fee that investors pay when selling mutual funds -The longer you hold the investment, the lower the DSC -Most DSC end at year 7 -No fee is charged if you withdraw after year 7 |
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Front-end load |
A fee that investors pay when buying mutual funds -Fee is applied at time of initial purchase -Fee can be used as capital loss at time of withdrawal -Taxable gains can be reduced by front-end load fees |
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Information Folder |
-Contains all information for the client to make an informed buying decision -Given to client before he/she signs the application |
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Current Yield |
The current yield on an investment in dollars CY = (Return / Market Price)*100% |
