Jean-Rémy Deschênes's blog

Ten golden rules for taking charge of your finances

2011-11-21T15:22:00Z

First posted: June 7, 2010

Have you spent years dreaming of financial independence? Are you one of those people who believe that it's only possible with a winning lottery ticket? When asked, here's what the majority of Canadian millionaires had to say about their relationship with money¹. As you'll see, their answers are surprisingly simple:

They've built their fortune over several decades. As former French President François Mitterand liked to say: "You need to give time time. A life's work can only be accomplished through perseverance."
They avoid living above their means at all costs.
They make a distinction between their "wants" and their "needs".
They do not necessarily hold high-paying jobs.
They put a lot into savings.
They manage their finances carefully and never hesitate to seek advice, even if they feel they have good investment knowledge.
They don't necessarily drive a luxury car and they keep it for an average of seven years.
They often live in a modest home, like billionaire Warren Buffet who has lived in the same home since the 1950s.

With this in mind, here are 10 rules that, in the long term, will be worth their weight in gold:

Forget about showing off and stop trying to keep up with the Joneses. Remember that taking charge of your financial future is much more important than putting on wealthy airs.
Make a budget and stick to it. Your budget isn't there to make you feel poor, but rather to give added value to your financial decisions.
Save regularly, every week or every month, according to your financial means. Ideally, put aside 10% of your gross annual income or whatever you can manage according to your personal situation. What's important is taking the first step.
Learn how to make your income tax a source of income. Because it's usually your greatest expense of the year, plan your deductions and tax credits and contribute to a TFSA and your RRSP.
Avoid major debts, both as you approach retirement and upon retirement.
Use credit wisely, whatever your age or financial situation.
Manage your financial assets carefully by consulting your advisor or financial planner².
Protect your income by taking out life, disability, critical illness and loss of independence insurance. The financial security advisor³ at your caisse can help you determine the coverage you need.
Diversify your investments according to your investment profile.
Make time to take care of your health. You'll be able to work longer and/or more fully enjoy everything life has to offer.

So what do you think? See if these rules can improve your financial situation!

1. Source: Taddingstone (in part)
2. The financial planner acts on behalf of Desjardins Financial Services Firm Inc.
3. Employee of Desjardins Financial Security, Financial Services Firm. In Ontario, please contact your region's life and health insurance representative, an employee of Desjardins Financial Security, Life Assurance Company.

Don't improvise when passing on your business!

2011-11-07T13:32:02Z

First posted: September 21, 2010

According to the Canadian Federation of Independent Business, business owners put approximately 80,000 hours into building their companies, but only six to ten hours into planning when it's time to hand it over to another party. If it's clear that a family business will survive its founder and has promising potential for growth, and there is someone interested in taking it over, it's really worthwhile to define a strategy to facilitate the transfer of this valuable heritage. Under such circumstances, personal considerations may also come into play, such as the health of the founder or founders and the desire to be fair to all inheritors.

Before proceeding, here are some things to think about to help you make well-informed decisions:

1. Are the potential new owners already participating in the growth of the business?

2. When is the best time to transfer the future value of the business (also referred to as estate freezing), which can help you take advantage of the $750,000 tax exemption for qualified small business corporation shares?

3. Does the current owner wish to retain a certain amount of control over the business being transferred? If so, how much and in what way?

4. If some members of the family work within the business while others have no interest in keeping it going, what would be the fairest way to divide its future value between them?

5. What form of compensation would best suit the current owner (salary, dividends, etc.)?

6. Would the creation of a trust for the inheritors provide more flexibility in dividing up shares in the future?

7. In terms of estate freezing, to what extent is income splitting a good option in order to transfer the taxation of certain income to the inheritors?

The answers to these questions vary, depending on the type of business, its financial situation, the industry, the business model, the current owner's relationship with the future owner or owners, and the financial objectives of each party.

For more information about the sale, purchase or transfer of a business, visit the Desjardins website, consult with a financial planner¹, or visit the Desjardins Business Centre nearest you.

1). Within Desjardins caisses, the financial planner acts on behalf of Desjardins Financial Services Firm Inc.

How does the economy influence stock markets?

2011-10-24T13:20:45Z

First posted: May 17, 2010

It's not always easy to understand what makes stock prices rise and fall. In fact, many factors enter into the equation, each acting individually and continually interacting with others as well. Stocks are generally categorized as either cyclical or defensive. The performance of cyclical stocks is directly affected by current economic conditions. This is the case for the pulp and paper industry, for example. Conversely, the nature of defensive stocks is such that they generally perform well no matter what economic conditions are like. Businesses associated with healthcare, for instance, enter into this category.

Here are some examples of variables that are most likely to influence the fluctuation of business securities, broken down by key economic sector.

Financial Services

A primarily cyclical sector, the profits of the companies that make it up are influenced by interest rates, credit demand, and the state of international financial and economic affairs.

Consumer Products

Not very cyclical, this sector is subject to strong competition where profit margins remain low. Changes in interest rates on durable goods, demographics, and the state of competition in Canada and elsewhere in the world are among the variables to consider.

Pulp and Paper

This cyclical sector is subject to great pressure from foreign competition, which is compounded by the massive investment in specialized equipment required of its businesses. In this case, exchange rate fluctuations, interest rates, and overall economic activity are the predominant factors.

Industrial Products

This sector is cyclical. Companies working in the sector must contend with high fixed costs and investments in capital assets. Variations in interest rates and economic activity are the variables to watch.

High Technology

Even though this sector contributes to the improvement of business productivity, it is primarily considered to be cyclical, as it can be affected by economic slowdowns. As such, interest rates, exchange rates and the rate at which equipment becomes obsolete remain its reference variables.

Petroleum

Fundamentally stable, companies in this sector must nonetheless deal with changes in the global political and economic landscape, changes in interest rates, and competition from other energy sources such as natural gas and nuclear power.

Communications and Media

This sector is highly cyclical, based on the fact that its companies must continually strive to gain consumer loyalty and adapt to regulations that are as numerous as they are complex.

Real Estate

Even if real estate offers solid protection against inflation, this cyclical sector depends on interest rates, demographic changes and the general economic climate.

Transportation

This is a generally stable sector that is nonetheless subject to variables such as energy prices and the intensity of economic activity.

Mining and Metals

This is a cyclical sector reliant upon fluctuations in raw materials prices. Economic activity levels, inflation rates, and the index of investors' perception of precious metals as a safe investment are all elements to consider.

Your Desjardins Securities* investment advisor has the expertise to help you build a portfolio that is adapted to any economic situation.

* Securities are offered by investment advisors with Desjardins Securities, a member of the Canadian Investor Protection Fund (CIPF).

What makes stock prices rise and fall?

2011-10-10T16:50:35Z

First posted: May 25, 2010

As an investor, owning corporate stock can contribute to the growth of your capital. Have you ever wondered what makes its value go up and down over time? Being an expert in securities, your Desjardins investment advisor can help you get a handle on the various factors that influence stock prices.

Internal factors within companies
The following elements can be used to evaluate a company's ability to position itself well with respect to markets and potential investors. They also serve as reference points in evaluating the balance between the investor's risk tolerance level and the potential gain that can be expected.

Nature, frequency and scale of profits reported
Characteristics of share issues
Composition and state of liquid assets
Growth outlook
Management quality and under-riding philosophy
Policy for paying out dividends to shareholders

External factors affecting companies
Other variables can be used to see where a company stands within its own industry sector and with respect to changes in economic conditions, be it at the national or international level.

Economic cycles (duration, frequency, intensity)
Government policies (investment policies, taxation)
Changes in the company's industry sector (cyclical, defensive or speculative nature of the sector)
Changes in interest and inflation rates

The importance of financial ratios
The following required reference points can be used to judge the viability of a company's operations:

Liquidity ratios, which measure a company's ability to maintain working capital and meet its short-term financial obligations

Debt ratios, which measure the scale of short-, medium- and long-term financial obligations

Profitability ratios (return on investment, return on assets and return on capital)

Valuation ratios, which are essential references, especially from the standpoint of selling off a business (profit history, dividends paid out, book value)

Your Desjardins Securities investment advisor* remains your best ally in helping you make informed decisions to grow your investments.

* Securities are offered by investment advisors with Desjardins Securities, a member of the Canadian Investor Protection Fund (CIPF).

Planning to study in another city: If it were only a question of tuition fees

2011-09-26T11:00:00Z

First posted: October 12, 2009

More and more people are leaving their towns and cities to study elsewhere. It is important to think through the financial aspects of this decision very carefully. For example, for 2009-2010, Université de Montréal estimates the cost for a graduate student in Québec to attend school for one year to be $12,000. This can be broken down into moving costs of $1,500; living expenses at $1,045 per month; and tuition fees of approximately $984 per semester. To that can be added the cost of textbooks and school supplies.

This week, our financial planner, Denis Bellemare, looks at this question, focussing on a young couple from Québec City, both 27 years old. Nicolas has decided to head to Montréal to pursue graduate studies, and Catherine is going with him and will look for a new job, even if she may be returning to Québec City later. On top of that, while they're gone, she's looking to rent out the condo she owns and is leaving behind.

As he analyses the situation, Mr. Bellemare addresses the couple's general financial situation and, more specifically, their desire to know more about:

The financial consequences of moving.
The tax impact of Catherine's condo rental.
The importance for Nicolas to take advantage of the LLP (Lifelong Learning Plan) to finance his studies.

What plans have you made to deal with this type of situation?

Making the most of your retirement capital

2011-09-12T14:00:00Z

Whew! You've just retired and life is not like it used to be! Now you also have to carefully manage the money you've worked so hard to save all these years. Here are some tips that will help give you some breathing room and keep your future looking bright.

Once you've retired, re-do your investor profile to verify your level of tolerance for risk as well as your comfort level with certain investments.
Realistically evaluate the lifestyle you wish to maintain, also taking into account your desire to leave an inheritance to loved ones.
Think about splitting your income with your spouse to reduce the amount you pay in taxes.
Analyze the value of dividing your Québec Pension Plan (QPP) or Canada Pension Plan (CPP) pension between you and your spouse. Certain conditions apply.
Be mindful of the taxation level of your investment income.
Conserve your capital as much as possible so that it will be there as long as you need it.
Avoid unnecessary debt by making a budget and sticking to it.
Withdraw non-registered savings first and put off paying taxes on your RRSP funds for as long as possible.
Maximize the use of your tax-free savings account (TFSA).
Make sure you claim all tax credits (personal, age, pension income, etc.) and deductions (RRSP, medical expenses, etc.) to which you are entitled.

In what order is it generally recommended to withdraw your savings?

Non-registered savings
TFSA
Life Income Fund (LIF) - Québec, Ontario, New Brunswick, Federal
Locked-In Retirement Account (LIRA) - Québec, Ontario, New Brunswick, Federal (automatically converted to a LIF if withdrawal is necessary)
Registered Retirement Income Fund (RRIF)
Registered Retirement Savings Plan (RRSP)
Fixed-term annuities

To ensure that you have sufficient income during retirement, ask your financial planner1 to do a computer simulation for you, which will give you a better idea of how your earnings and withdrawals will evolve. That way, you'll be able to evaluate the relative importance of your income sources over time.

1) Within Desjardins caisses, the financial planner acts on behalf of Desjardins Financial Services Firm Inc.

Taking a blogging break for the summer holidays

2011-06-13T12:56:26Z

This blog will be on a break until September 12. During this time, I will continue to answers your questions and comments. This will give us all a chance to recharge our batteries and gear up for the fall season with plenty of new topics that I'm sure will be of interest to you.

Until then, I'd like to wish you a wonderful summer with family and friends and remember to take good care of your financial health!

Protect your family's assets!

2011-06-07T13:31:38Z

While saving and growing your capital is good, knowing how to protect it is even better. Here are a few tips to help you ensure financial security for you and your loved ones.

How do I establish and build my family's assets?

Are you planning on leaving your loved ones with a comfortable inheritance? There are many investment solutions available to help you. If you have maximized your contributions to traditional tax shelters (RRSP, TFSA, etc.) and you have shares or other taxable investments, there are other ways to meet your goals.

For example, you could choose universal life insurance to increase the value of your inheritance and reach your retirement goals with peace of mind. Not only will your savings be protected, but they can continue to grow in a tax-sheltered account. After your death, your beneficiaries will receive both the life insurance benefit and your accumulated savings tax-free.

What is the best strategy for protecting my retirement savings?

Are you feeding your investment portfolio so you can enjoy a worry-free retirement? As prepared as you might be, no one can escape the risk of disability. And the older we get, the higher the chances we will experience health problems.

If you fall seriously ill or experience a loss of independence, dipping into your investments to cover the costs of specialized health care could wipe out your savings in no time. Before a health problem spirals into a financial problem, it would be wise to review whether your insurance coverage still meets your needs.

To keep focused on your goals, you might opt for a type of insurance that covers serious illness or loss of independence. If these problems do arise, the insurance benefits will allow you to remain afloat financially, allowing yourself the time to focus on your return to health.

How can I reduce the tax my heirs will have to pay?

According to the Income Tax Act, a person is deemed to have disposed of all his or her property at the fair market value in effect at the time of his or her death. This means that certain property included in your assets, such as shares, bonds, mutual funds, rental properties and the cottage, will be subject to capital gains tax. What needs to be paid on your estate could really add up!

How can you make sure your loved ones quickly receive the funds they need? By taking out life insurance, you are providing them with the liquidities needed to pay the taxes on your estate after your death. With this type of coverage, your estate won't become a financial burden and you'll be able to leave your family the full value of the inheritance, as you intended.

For additional advice, meet with a Desjardins life and health insurance expert.1 You'll learn how you can protect your financial assets and get the most from your retirement savings.

(1) Financial security advisor from Desjardins Financial Security, Financial Services Firm.

Your income taxes: Where strategy meets savings

2011-05-30T19:14:52Z

Each year, your greatest expense is income tax. Even though your contribution is required, using the strategies available to you will help you keep it to a minimum. Good tax planning is based on three proven strategies:

Maximizing tax credits, deductions and grants

Governments offer means by which you can you lighten your tax burden. Here are a few examples:

Contributing to an RRSP is profitable in many ways. First, it reduces your taxable income, in other words, the tax you pay. Reducing your taxable income also allows you to take greater advantage of tax credits for GST/HST, child care and medical expenses, as well as social programs like the child assistance payment and child tax benefit. Lastly, your RRSP investments grow tax-free until they are withdrawn.
Registered Education Savings Plans (RESPs) also allow your savings to grow tax-free. Plus, they entitle you to generous government grants.
Certain investments also provide tax benefits. For example, T-Class funds enable you to defer tax payment, which will help you generate more income than traditional non-registered savings products. Another example is buying shares of Capital régional et coopératif Desjardins. You can invest a maximum of $5,000 per year and you receive a 50% tax credit from the Québec government on your invested funds.

To minimize your tax contribution, the secret is to take advantage of all the strategies available to you.

Spreading income over time

An RRSP and its continuation, the RRIF, make for a great way to spread out your earnings over time. Your capital can grow tax-free for a very long time under these plans. When you retire, your money can be withdrawn gradually and therefore taxed at a lesser rate, based on the amount you withdraw.

Splitting income with your spouse and children

Ideally, the higher income earner should pay for household expenses, leaving the other spouse's income available to be invested in non-registered plans, which will help minimize the income tax to be paid on investment income.

You can also split your income with your spouse by contributing to his or her RRSP or by dividing your Québec Pension Plan (QPP) payments between you. Moreover, a tax-free savings account means that each spouse can earn tax-free investment income.

It is also possible to split income with eligible children by setting up an RESP in their name, or by placing the tax benefits for the children in a savings account.

For more sound advice, talk to an expert from Desjardins.

Managing your stock portfolio : On your own or not... you decide

2011-05-26T19:06:40Z

Stock investments are an excellent way to diversify your overall portfolio. There's so much to choose from: Small or large cap companies, cyclical or defensive business sectors, Canadian or international economies, industrialized or developing countries. And then there's the variety of products: Stocks, options, exchange-traded funds. Where do you start?

First off, what are you looking for as an investor?

Guidance and support...

Do you already have too much on your plate? Do you have neither the time nor the desire to follow fluctuations in the stock market? Do you find it difficult to make heads or tails of the numerous investment solutions that are out there?

You would be well served to turn to an expert you can trust, and one who can offer you guidance and support: an investment advisor.

Such an advisor must be accredited, and is thereby bound by a strict legal and ethical code.

First, he or she will perform a detailed analysis of your situation. Next, you'll receive help in defining your objectives and expectations. Then your risk tolerance level will be determined, and a personalized strategy will be proposed.

Backed by research teams, investment advisors have access to sophisticated tools that enable them to target investment opportunities and make clear recommendations that are adapted to your investor profile.

As disciplined professionals, they aren't emotionally swayed by market ups and downs. A good investment advisor will help you stay on track, and even take advantage of jolts in the market when they occur.

... or independence?

Are you a real market hound? Do you thrive on financial news, stock listings and market indexes? Do you feed on insider reports, making yourself your own expert?

If that's you, you're probably looking to handle your own transactions and would like an online brokerage firm with reliable trading platforms that meet your expectations.

With the freedom to sculpt your own portfolio and define your own buying and selling prices, you are fully capable of trading and placing orders on your own.

You do, however, need access to informational documents and in-depth analyses to feed your understanding of market complexities, and you'd love it if they were available free of charge.

You also enjoy attending seminars and other training sessions to help you optimize your asset management strategies.

Whether you seek sound professional guidance or insist on managing your own portfolio, Desjardins Securities and its online division, Disnat, have everything you need!

Let your values drive your investments!

2011-05-16T14:04:15Z

Over the past few decades, we've been hearing more and more about socially responsible investing (SRI). This relates to investments made that take environmental, social and corporate governance (ESG) issues into consideration, as well as return potential.

What is SRI all about?

Socially responsible investing exists in several forms:

Exclusion screening, which means not investing in stocks of companies involved in certain industries, like nuclear, tobacco or arms
Inclusion screening, meaning securities are selected based on a rigorous analysis of companies' ESG performance
Shareholder engagement, which means that shareholders enforce their voting rights to instigate or accelerate desired changes from within
Thematic investing, which is investing in activities believed to have a positive social and environmental impact, such as clean energy and the solidarity economy

Who is interested in this type of investing?

SRI is not just for an elite group of investors. It can be an interesting choice for any investor concerned about the social and environmental impact of his or her investments. It is particularly suited to anyone who wants to encourage businesses that are socially responsible or that are open to improving their business practices in this area.

Financial institutions have created SRI products that are accessible and affordable, such as mutual funds and all-in-one portfolios, which ensure a sound diversification of assets.

What about the return?

Of course, past performance is not indicative of future results. However, SRI is based on the premise that a company that monitors not only its financial risks, but also its ESG performance, is better prepared to face the challenges of today's world and the global economy.

In the long term, a company that is a good corporate citizen will attract many investors.

Desjardins, a pioneer in socially responsible investing in Canada, offers a full range of investment funds and portfolios to match your values. They can even be used for RRSPs and other registered plans.

For sound advice, talk to an expert from Desjardins.

Love and money: A user's guide

2011-05-09T13:39:05Z

Did you know that money is the main source of potential conflict within a family? Not only do parents have to constantly contend with the desires of their children, but adults must also learn to distinguish between their own wants and needs. Here are a few reflexes you can work on to help yourself survive amidst the jungle of demands tugging at you from all directions.

Balance is impossible without planning

In a family, some members seek to build savings, while others are more inclined to spend using credit. The important thing is to strike a balance so that everyone feels like their choices are being respected and the family maintains its financial stability, as well.

Together, come up with a list of non-negotiable financial objectives, like paying off the mortgage, saving for education, planning for retirement or making significant purchases. Then find a way to save money systematically. That way, you can be sure it will be there when you need it.

The key is for both spouses to contribute financially to achieving the family's goals, in proportion to their income. Obviously, staying disciplined to respect the commitments you make together is essential for all of this to work.

Priorities for blended families

Making a family with your new spouse, your spouse's children, and your own can lead to certain issues on the financial front. To make the transition as smooth as possible, it's a good idea to:

Have clear legal parameters regarding past spouses
Draw up a cohabitation contract/agreement, if applicable, that defines the sharing of financial responsibility for family and child-related expenses
Get life and health insurance¹ that adequately covers all of the new family's needs
Protect your children and your new spouse by making a notarial will and a mandate in case of incapacity

Leaving your assets to loved ones? Beware of the consequences!

If you wish to do this, you should know that this decision could reduce your standard of living, for example, if you encounter unexpected expenses during retirement, such as specialized health care.

Try and maintain a balance between your current financial obligations and your desire to give to your loved ones, both while you're living and after you pass away. Think about getting life insurance that will go to your beneficiaries without being taxed.

For further advice, don't hesitate to consult with one of the experts at Desjardins. They can help you better manage the emotions that come with making financial decisions for you and your family.

1. Available through a financial security advisor employed by Desjardins Financial Security, Financial Services Firm.

Test your investment IQ? (part 3 of 3)

2011-05-02T15:44:46Z

You find it hard enough just to save, and now you have to grow your assets, too? Where do you start? Here is the last of my three short quizzes to help you better understand the investment world and the value of your advisor's recommendations.

1. Preferred shares differ from common shares in that

a. They are a source of regular interest income
b. They are a source of regular dividends
c. They aren't purchased on the stock exchange
d. They have a maturity date

2. What type of management allows securities in a mutual fund portfolio to be bought and sold to take advantage of changes in the market?

a. Dynamic
b. Passive
c. Value
d. Active

3. Complete information about a mutual fund can be found in a document called a

a. Circular
b. Mutual fund bible
c. Preliminary prospectus
d. Simplified information document
e. Simplified prospectus

4. In Québec, can you use your RRSP as security for a loan?

a. Yes
b. No
c. Yes, on the condition that required tax withholdings are paid in advance

5. The expression "capital growth" applies mostly to

a. Common shares
b. Common and preferred shares
c. Bonds
d. Guaranteed-capital deposits

6. Your tax-free savings account (TFSA) must be closed

a. When you pass away
b. When your spouse passes away
c. On December 31 the year of your 71st birthday

7. What does it mean when people talk about "leveraging"?

a. Paying your debts before investing
b. Borrowing to invest
c. Reducing the level of risk in your investment portfolio
d. Cautiously withdrawing your capital during retirement

8. What do you call the balance after deducting your total debt from your total assets?

a. Your declining balance
b. Your present value
c. Your net worth
d. Your capitalized value

9. So called "hedge funds" are made up of investments primarily intended for

a. Investors with moderate risk profiles
b. Experienced investors
c. Investors primarily looking to protect their capital
d. Beginners in investment

10. A debenture is a debt security guaranteed by

a. The issuer's real estate assets
b. The issuer's general creditworthiness and reputation
c. The issuer's general assets
d. The issuer's annual sales figures

Answers

1. b
2. d
3. e
4. b
5. a
6. a
7. b
8. c
9. b
10. b

Test your investment IQ (part 2 of 3)

2011-04-26T13:56:18Z

Why do you want to invest, and in what? It's not easy to answer this simple question. Here is the second of three short quizzes that will make it a little easier for you to find your way in the investment world and make the most of your advisor's recommendations.

1. What is a stock market index?

a. An indicator of the return potential of an investment
b. The average of returns obtained by comparable investments
c. A measure of the value of a market or market sector

2. When people say an investment is volatile, that means it is

a. Safe
b. Considered safe as long as it's guaranteed by deposits
c. Risky

3. The vast majority of socially responsible investments are held by

a. Investors who are concerned about protecting the environment
b. Institutional investors, such as pension funds
c. Women
d. Don't know

4. Let's say you purchase stocks from a U.S. company, but in Canadian dollars. If, along the way, the Canadian dollar rises in value compared to the U.S. dollar, the value of your stocks in Canadian dollars will

a. Decrease
b. Increase
c. Not be affected since the transaction was made in the past at a specific rate

5. When the liquidity component of an investment fund is relatively large, that could mean

a. The fund manager is very active on the market
b. The manager is waiting for good investment opportunities
c. The manager is looking for higher returns

6. What percentage of a portfolio's volatility is based on the distribution of assets within the portfolio?

a. 40%
b. 66 ⅔%
c. Over 90%

7. Borrowing to invest is a strategy that

a. Is a good way to quickly grow your capital
b. Can lead to sizeable losses or gains
c. Is mostly recommended shortly before retirement

8. In a defined benefit pension plan, the financial risk falls upon

a. Future pensioners
b. The company offering the plan
c. The company and the pensioners, 50/50

9. You must be at least 18 years old

a. To contribute to an RRSP
b. To contribute to a TFSA
c. There is no minimum age for contributing to RRSPs or TFSAs

10. You're ready to get your personal finances in order. To do it, you should start by

a. Contributing to your RRSP
b. Paying down your mortgage more quickly
c. Paying off your credit cards
d. Paying yourself first by regularly setting aside an amount that fits your budget

Answers

1. c
2. c
3. b
4. a
5. b
6. c
7. b
8. b
9. b
10. c

Test your investment IQ (part 1 of 3)

2011-04-18T14:34:21Z

Saving money is a good idea, and so is making it grow. Not everyone can be an investment expert, though. Here is the first of three short quizzes that will make it a little easier for you to find your way in the investment world and make the most of your advisor's recommendations.

1. When people say it's generally better to invest over the long term, that means

a. 10 years or more
b. 7 years or more
c. 5 years or more

2. Which of the following is not an advantage of completing your investment profile?

a. It helps in managing emotions related to investing your money
b. It confirms your level of comfort with certain types of investments
c. It helps determine the timeline for reaching your financial goals
d. It provides an estimation of your ability to borrow for investment purposes

3. Interest income is

a. Taxed less than dividends
b. Taxed more than capital gains representing profit earned
c. Taxed at the same rate as a mutual fund
d. None of the above

4. Having a diversified portfolio means

a. Dividing your assets among several financial institutions
b. Holding different types of accounts for your investments
c. Choosing many different investment products
d. Holding varied investments based on criteria such as risk level and activity sector

5. A bond's value changes

a. In line with changes in interest rates
b. Inversely with respect to interest rates
c. Independent of changes in interest rates

6. How much does it cost to invest in a mutual fund?

a. It's free
b. 10% of the return
c. $25.00 per transaction
d. On average, between 2% and 2.5% of the total investment value

7. The true owners of a company listed on the stock exchange are

a. Its common shareholders
b. Its preferred shareholders
c. The founders of the company and their successors
d. Any financial institution that the company owes money to

8. Tax-free savings accounts (TFSAs) have been around since

a. 2006
b. 2009
c. 2010

9. What is the term for the return on an investment after inflation?

a. Compound return
b. Annualized return
c. Real return
d. Nominal return
e. Don't know

10. Each year, you should ideally be saving

a. 5% of your net monthly income
b. 10% of your gross annual income
c. 15% of your net annual income

Answers

1. c
2. d
3. b
4. d
5. b
6. d
7. a
8. b
9. c
10. b