Unit 2 Pt. 2 Flashcards
(28 cards)
Good Debt
- A reasonable mortgage loan
- Student loans
- Business loans
Bad Debt
- Credit card debt
- Furniture loans
- Computer loans
- Payday loans
High Credit Scores
- Low interest rate on loans
- Ability to receive loans/credit
- Reflects borrower as a low risk to lender
- Ability to acquire conveniences such as cell phones + credit cards
Low Credit Scores
- High interest rate on loans
- Inability to receive loans/credit
- Reflects borrower is high risk to lenders
- Inability to acquire conveniences
Credit Card DOS
- Pay off balance monthly to avoid interest
- Shop around for low interest rates
- Always pay on time (builds strong credit)
- Know grace period - # of days w/ no interest
- Pay more than the minimum payment
- Limit # of cards you have
- Use a card that has no annual fee and lower interest rates
Credit Card DON’TS
- Don’t use them for cash advances
- Don’t let banks increase your credit limit
- Don’t use them to pay for basics: rent, groceries, etc.
- Don’t charge more than you can pay off in a month
Credit Score
A 3-digit # that shows how risky it is to lend you money; the higher score, the better.
Good score: 750-799
Problematic score: <650
Mutual Funds: Attractions
- Diversification
- Full-time professional management
- Modest capital investment
- Liquidity
- Services offered:
- Automatic reinvestment of dividends
- Withdrawal plans
- Convenience
- Easy to acquire
- Prices (Net asset value - NAV) widely quoted
Mutual Funds: Drawback
Consistently average to below average performance.
Open Ended Fund
Shares are issued and redeemed daily by the fund’s sponsor (the issuer of the fund). By design they are always traded at their actual cash value. (NAV)
Types of Funds
Growth: capital appreciation
Maximum Growth: Highly speculative, seeking large profits from capital gains
Income: Current income is the main objective
Balanced Funds: Objective is to earn both capital gain + current income
Small Company: small companies that have sales of $100 m or less
International: can invent in one region, specific country
Bonds: Income = objective
Money Market Funds
Offers the individual investor access to high-yielding money market investment w/out having to pay $100k denominations
Specialty Funds-Single Industry
- Commodity funds
- Health
- Oil drilling
- Tech
- Gold
- Chemicals
ETFs
A security that tracks an index, a commodity, or a basket if assets like an index fund, but trades like a stock on an exchange.
By owning an ETF, you get the diversification of an index fund and the ability to sell short, buy on margin, + purchase as little as one share.
ETF Advantages
- Can be traded intraday
- Expensive ratios for most ETFs lower than those of the average mutual fund
- Opportunity for speculative investors to bet on the direction of a short-term market movements through the trading of a simple security
RRSP
Registered Retirement Savings Plan
An account, registered w/ the fed gov. used for saving for retirement
RRSP Tax Advantages
- Tax deductible contributions-get immediate tax relief by deducting contributions from annual income
- Tax deferral-deferred tax liability further when it’s possible your marginal tax rate will be lower in retirement than it was during contributing years
- Tax-sheltered earnings-money made is not taxed as long as it stays in the plan
How much can you contribute to a RRSP?
18% of earned income in the previous year OR the max contribution amount for the current tax year: $32490 for 2025.
TFSA
Tax Free Savings Account where you can put after-tax dollars.
- Available to Cnds 18+
TFSA Penalty
If you contribute too much, you’ll pay a penalty of 1% month on excess amount until you remove.
Difference Between TFSAs & RRSPs
- RRSP is intended for retirement savings
- TFSA can be for any type of savings goal
- RRSP contributions are tax deductible, TFSA are not
- You pay tax on RRSP withdrawals
RESP
Registered Education Savings Plan
- Savings grow tax free, no tax on the investment earnings, as long as they stay in the plan
- If you save for a child age 17 and under, the Fed gov outs money into the RESP as a grant or bond
- In some provinces, the prov gov may contribute too
- Can put money in whenever you want
- Up to a lifetime max of $50k/child
- Some plans require set monthly or annual contributions
- Contributions are not tax deductible, but you can withdraw them tax free from the plan at any time for any reason
- There’s a wide range of investment options available for RESP
TFSA Pros
- Investments grow tax-free + won’t pay any tax on withdrawal = can save tax free
- Annual contribution is indexed for inflation
- Don’t need earned income to contribute
FHSA
- Contribute 8k/year
- Max 40k total
- Tax-deductible
- Tax sheltered/free
- First time home buyers
