| Glossary of
Financial Terms | | |
| 7
Habits of wealthy Canadians |
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| Far too often we are lured by
the thought that there may be a shortcut to wealth. We all dream about
winning the lottery, or investing in the next great investment, or
starting a wonder business that becomes a license to print money.
I was up late this week and I had the TV running in the background
only to hear an infomercial about a stock trading system guaranteed
to make your rich. Our society is filled with schemes to go from rags
to riches in less time than you think. If it is really so easy, why
is 80% of the wealth in Canada in the hands of 20% of the people? |
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| Borrowing
to invest - an Overview |
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| Are you an experienced investor?
Do you have a good credit history? Are you looking for alternative
strategies to grow your wealth? If so, leveraging or investing with
borrowed money may be right for you. |
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| Keep
emotion from posing wealth risk |
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| Money gets people emotional. When
we're making it, we want to make more. When we're losing it, we're
anxious and fearful of losing it all. Will emotions and money ever
go their separate ways? Not likely. The best we can hope for is to
introduce some logic to the situation so there is some rational thought
involved with money choices - so when we're making money we don't
get swept up and forget to be discriminating investors, and when we
lose some we can exercise some good judgment about what to do next. |
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| Spousal
loans |
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| Tad Peterson, 39, is a securities
lawyer and partner at a downtown Toronto law firm who pulls in a very
healthy $400,000 a year. His wife, Julie, spends most of her time
looking after their four kids but recently began working part time
and expects to earn about $10,000 this year. |
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| Consider
a Debt Swap during down times |
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| The idea has to do with converting
your bad debt into good debt. There are three characteristics of debt
that you need to look at: The interest rate on the debt (high interest
or low); The purpose of the borrowing (for personal consumption, to
acquire depreciating or appreciating assets); Whether the interest
is deductible for tax purposes. |
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| Seven
easy ways to save money |
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| Contributed by author Ellen Roseman,
this article provides seven techniques that anyone can take advantage
of to shrink expenditures and build savings. |
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| Borrowing
to invest can be advantageous to your wealth |
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| With interest rates close to 40-year
lows, the concept of borrowing to invest is a strategy worth considering
in building your long-term wealth. Prudent borrowing, and wise investment
of the proceeds, can lead to significant wealth creation over time.
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| Potential
benefits of maintaining a minimum monthly balance |
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| Maintaining a minimum monthly
balance can often waive the monthly fee associated with your services
package. However, any cost savings should be compared to the returns
or other opportunities you forego by keeping your money in your bank
account (this concept is known as "opportunity cost").
For example, if you have a loan, it may be more cost effective to
pay it down than to keep the funds in your bank account to save the
monthly service fees. |
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| Why
the smart money remains fully invested |
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| If you had invested a hypothetical
$10,000 in the TSE 300 Total Return Index on June 30, 1991, over 10
years, your $10,000 would have grown to $27,611 - an average annual
total compound return of 10.69 per cent. But suppose that during that
period there were times when you decided to get out of the market
and, as a result, you missed the market's 10 best single-day performances
over this 10-year period (remember, this is just 10 out of a total
of 2,520 business days). In this case, your 10.69 per cent return
would have fallen to 6.47 per cent. |
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| Spreading
Your Wealth Around - Using Asset Allocation and Diversification Strategies
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| Many investors believe that investment
performance depends primarily on picking the "right" investments or
getting in and out of the markets at opportune times. It's easy for
you to be swayed by the opinions of the media not to mention all the
other information that bombards you every day; there are countless
programs on television about "what's hot" and newspaper and magazine
journalists aren't shy about recommending the stock pick of the day.
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| Investing
for the Long Term |
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| On any given day, which way the
market is headed is anybody's guess. Historically, equity markets
have gone up over the long term. Since 1956, the Toronto Stock Exchange
Total Return Index for the top 300 stocks, which includes reinvested
distributions, has increased 81-fold. |
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| Home
ownership works with borrowed money; investing can too |
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| Can a financially secure retirement
be possible without borrowed money? Some say you'll need 75% of your
income earned during peak earnings years. This could be $40,000, $50,000
a year or even more depending on a variety of things, including the
type of lifestyle you want. Unfortunately, even if you've set modest
financial retirement goals, chances are it may not be enough. |
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| Market
benchmarks |
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| Dow Jones, TSE300, and other market
benchmarks, it's helpful to understand how those numbers are derived.
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| The power
of compounding |
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| A Maharaja ruled the Indus Valley,
in northern India, in the sixth century. Bored, he asked his court
gamesman to develop a new game for him. The gamesman created chaturanga,
the army game, the precursor of chess and played on a board of sixty-four
squares. The Maharaja was delighted and asked the gamesman what he
would like as a reward. |
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| Derivatives:
Not so scary |
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| If you limited your reading to
reports about boating and swimming accidents just before going to
the cottage, your holiday would be ruined. Likewise, recent press
attention has focussed on isolated cases of large investment losses
through the mismanagement of leveraged derivatives. This has created
a common perception of derivatives as scary and dangerous, a perception
which contains more fancy than fact. |
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| Finding
the money to invest |
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| Investing is sometimes like exercise;
we know we should, but we never seem to get around to it. At least
exercise only requires energy and time, both of which are free. Investing
requires the money to start, and finding the sources of investment
dollars is often harder than finding good investments. |
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| The nature
of diversity |
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| If you stand on tiptoe, you may
be temporarily balanced, but you are easy to tip over (hence the name,
tip toe). If you get down on all fours, with your hands and knees
on the floor, you are also balanced but hard to tip over. That's because
your weight is now spread among four places-- you have diversified
your balance points. |
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| How
to analyze risk |
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| A tightrope walker ready to traverse
a cable over Niagara Falls takes a risk and a chance. The risk can
be increased or decreased depending on the walker's skills, courage,
amount of practice, safety measures, and equipment. You or I would
be taking more risk than an experienced performer. |
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| Sources
of investment information |
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| People in the movies used to gather
investment information. Now, we may hear from a friend or broker,
see a news item on television, or read an article in the newspaper.
How can we analyze investment information, and how can we make sure
our sources are credible? |
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