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A practical guide to helping you achieve a lifetime of financial security

Shedding light on

Investing

LEARN MORE ABOUT:

Investmentsavailabletoyou

Whatyoushouldknowaboutrisk

Howyoucanaffordtoinvest

Life’s brighter under the sun

About this guideThisbookletispartofaseriesdesignedtohelpyoucreateacomprehensiveplanforalifetimeoffinancialsecurity.

Itprovidesanoverviewofthegeneraltypesofinvestmentchoicesavailabletoyouandwhereyou’reabletobuythem.You’llalsolearnabouttherisksofinvestingandthingsyoucandotobemoreconfidentandcomfortablewithyourinvestmentdecisions.

Checklistsandworksheetshelpyouclarifyyourinvestmentgoalsandprioritiesinordertobuildaninvestmentplanthat’srightforyouandyourfamily.

Tohelpyouunderstandthevariousinvestmentproducts,we’llpointyoutoafewonlineresourcesthroughoutthisbooklet.

TABLE OF CONTENTS

When should I become an investor? . . . . . . . . . . . . . . . . . . . . 4 Settingmyfinancialgoals(checklist). . . . . . . . . . . . . . . . 5

General types of investments . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Stocks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Mutualfunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Segregatedfunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Guaranteedinvestmentcertificates. . . . . . . . . . . . . . . . 16

Accumulationannuities. . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Payoutannuities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Linkeddepositnotes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

What are registered investments? . . . . . . . . . . . . . . . . . . . . . 22 Registeredretirementsavingsplans. . . . . . . . . . . . . . . . 22

Registeredretirementincomefunds. . . . . . . . . . . . . . . 23

Registerededucationsavingsplans. . . . . . . . . . . . . . . . . 23

Tax-freesavingsaccount . . . . . . . . . . . . . . . . . . . . . . . . . . 24

What should I know about risk? . . . . . . . . . . . . . . . . . . . . . . . 25 Typesofrisk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Diversification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Thevalueofprofessionaladvice. . . . . . . . . . . . . . . . . . . 29

How much can I afford to invest? . . . . . . . . . . . . . . . . . . . . . . 30 Mymoneyfinder(worksheet). . . . . . . . . . . . . . . . . . . . . . 31

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

4

WHEN SHOULD I BECOME AN INVESTOR?

Chancesare,youalreadyhave!

Peopleoftenthinkthatbeingan“investor”involveshavinglotsofmoneyandexpertise…andtakinglotsofrisks.

Butifyou’redoingthingslikesettingasidesomesavingsormakingregisteredretirementsavingsplan(RRSP)contributions,you’realreadywellonyourway.Andifyouhaven’tstartedyet,it’snevertoolate.

Withabitofplanninganddiscipline,investingevenasmallamounteachmonthgetsyourmoneyworkingforyou–andputsyouontherightpathtoreachingyourfinancialgoalsandgettingthethingsyouwantoutoflife.

DID YOU KNOW?

Myth:Afinancialplanistoocomplicated.

Truth: Afinancialplanisassimple,orascomplex,asyou’dlike.It’suptoyou.

TIP

MakeyourgoalsSMART

Specific Measurable Achievable

Relevant Time-bound

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Writedownyourgoals:

Tohelpmakethemhappen

Asagreatfirststeptowardscreatingasuccessfulplan

My short-term goal for the next two years

My goals My priorities Specific terms

Example:saveforavacation

medium IwanttotakeacruisenextFebruary.Iwanttosave$150amonthtohelppayforit.

My long-term goals

My goals My priorities Specific terms

Example:saveformychild’seducation

high Insevenyears,myoldestwillgoofftoschool.Iwanttosave$50amonthforherRESPandhaveitmatchedbythegovernmentgrant.

SETTING MY FINANCIAL GOALS

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GENERAL TYPES OF INVESTMENTS

Oneofthegreatthingsaboutbeinganinvestoristhenumberofoptionsyouareabletochoosefromtohelpyourmoneygrow.Itisimportanttohaveageneralunderstandingofthecommontypesofinvestmentsavailable,sincesomemaybemoresuitabletoyourgoalsthanothers.

Someofthemorepopularinvestmentoptionsinclude:

Stocks

Bonds

Mutualfunds

Segregatedfunds

Guaranteedinvestmentcertificates

Accumulationannuities(InsuranceGICs)

Payoutannuities

Linkeddepositnotes

DID YOU KNOW?

Myth:Youcan’tenjoytodayandsavefortomorrow.

Truth:Afinancialplanletsyoubalanceenjoyingtodayandtomorrow.It’saboutknowingwhereyourmoneyisgoing.

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Stocks

What are they?

Whenyoubuystocks(alsocalledsharesorequities),youarebuyingpartialownershipinacompany.Acorporationmayissuecommonsharesorpreferredshares(orboth).Thepriceofthestockgoesupanddownbasedonanumberofcomplexfactors,includinghowwellthecompanyisdoing,thegeneralstateoftheeconomy,andevenhowconfidentinvestorsareinthestockmarketoverall.

How do they work?

Stocksoffertwowaysforinvestorstomakemoney:

Dividends–anamountpaidtostockholders,whichrepresentsashareinthecompany’sprofits.

Capital gains–ifyousellyoursharesataprofit(morethanwhatyouboughtthemfor)theprofitiscalledacapitalgain.

Ifyousellyoursharesforlessthanyouboughtthemfor,thedifferenceiscalledacapitalloss.

Who buys them?

Stocksarebettersuitedtoexperiencedinvestorsbecauseyouneedquiteabitofexpertisetomakethebestselections.Youmustalsobewillingandabletospendtimeresearchingandkeepingacloseeyeonhowyourinvestmentsaredoing.

Investinginstocksismostappropriateforpeoplewithasizableamountofmoneytoinvest,sinceyouneedtobeabletospreadyourinvestmentdollarsoveranumberofstockstoreducerisk.Youalsohavetobeabletowithstandtheupsanddownsofthemarket.Plus,tradingfeescanbequiteexpensive.

TIP

Mutual fundsareaneasywaytogettheadvantagesofinvestinginstocks–butwithlowercosts,morediversificationandlessrisk(seepage12).

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Where can I invest in them?

Stocksareboughtandsoldonanexchange,suchastheTorontoStockExchange(TSX).Aninvestmentadvisorcanhandletradesonyourbehalforyoucanchoosetotradeonyourownthroughadiscountbrokerage.

DEFINITIONS

Common shares–generallygiveyouarighttovoteattheannualmeetingandtoelectthedirectorsofthecompany.Commonsharescan–butdonotalways–paydividends.

Preferred shares–donotgiveyouvotingrightsbutdopaydividends.

Discount brokerage–afirmthatexecutestradesonbehalfofindividualinvestors.Theychargealowercommissionbutprovidealowerlevelofserviceandadvicethanofferedbyatraditional,full-servicebrokerage(e.g.investmentadvice,in-houseinvestmentresearch,etc.).

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Bonds

What are they?

Abondisatypeofinvestmentthatisactuallyaloanbetweenaborrowerandalender.You(astheinvestor)arethelenderandtheborrowerisgenerallyagovernmentorcorporation(knownastheissuer).

How do they work?

Theissuerpromisestoregularlypayasetinterestratetotheinvestoratregularperiodsontheprincipalamountofthebonduntilthematuritydate.Oncethebondmatures,theinterestpaymentsstopandtheissuermustrepaytheinvestorthefullamountofthebond.

Likestocks,bondscanbetraded.Thepriceor“marketvalue”ofabondfluctuatesthroughoutitslifetime,mostlybecauseofchangesinthecurrentinterestrate.

TIP

Bond mutual fundsareaneasyandeffectivewaytoinvestina“pool”ofbonds(seepage10).

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THINGS TO REMEMBER

Whenabondpriceisequaltoitsfacevalue,itistradingatpar.

Whenabondpriceisbelowitsfacevalue,itistradingata discount.

Whenabondpriceisaboveitsfacevalue,itistradingata premium.

Who buys them?

Bondsappealtopeoplewhoarewillingtogiveupthehighergrowthpotentialofstocksforincreasedsafety.Ifabondisofhighquality(theissuerisinafinancially-strongpositiontomaketheinterestpayments,aswellasrepayyourprincipal)andheldtomaturity,youaremostlikelytogetbackyourinitialinvestment,plusinterest.

Awordofcaution:bondsdohavesomerisk.Becausebondpricesfluctuate,youmaylosemoneyifyousellthebondbeforematurity.Thereisalsoariskthatthebondissuermaygobankruptandwillbeunabletorepayyourprincipal.


WiththeexceptionofCanadaSavingsBonds,whicharesoldatmostfinancialinstitutions,individualbondsareboughtorsoldthroughaninvestmentadvisorinwhatiscalledtheover-the-counter(OTC)market.

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DEFINITIONS

Principal (or face value) –theoriginalamount“borrowed”byabondissuer.Thisrepresentsthepriceofanindividualbondwhenitisfirstissuedforsaletoinvestors.

Coupon rate–thespecifiedrateofinterestthatispaidonabond.

Maturity date–thedatethebondissuermustrepaytheprincipalamountofthebond.

Common types of bonds

Government bonds –Issuedbyfederal,provincialormunicipalgovernments.Generallyconsideredtobethemostsecuretypeofbondwithlowriskofdefaultandlowerreturns.

Canada savings bonds and provincial savings bonds–Issuedbythefederalorprovincialgovernment.Payamodestreturnandarenottransferablebutaregenerallyredeemableatanytimeleadinguptomaturityforthefullfacevalueplusanyaccumulatedinterest.

Real-return bonds –Issuedbythefederalgovernment.Payinterestandprincipalthatareadjustedforinflation.

Corporate bonds–Issuedbycorporations.Generallyofferhigheryieldsbutposegreaterrisks,asreflectedinthecreditratingoftheissuer.

Strip (zero coupon) bonds –Issuedbycorporations.Paynointerestduringthelifeofthebond.Purchasedatadiscountandmatureatpar.

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Mutual funds

What are they?

Whenpeopleinvestinamutualfundtheirmoneyispooledtogetherandinvestedinabroadrangeofstocksand/orbonds.Aprofessionalinvestorcalledafund,managermakestheday-to-dayinvestingdecisions.Poolingassetstogetherallowsyoutobuysomethingbiggerthanyoucouldaffordonyourown.

How do they work?

Whenyouinvestinamutualfund,you’reactuallybuyingunitsofthefundandreceiveashareofanygains(orlosses).Youalsoshareinaportionofthefund’sincomeofdividendsandinterest,alongwithitsexpenses,asrepresentedbythefund’smanagementexpenseratio(MER).

Eachmutualfundhas:

Distinct objectives–investorsneedtomakesuretheobjectivesalignwiththeirowngoals.

A distinct management style–forexample,aggressivegrowth,conservativevalue,activelytradedvs.securitiesheldtomaturity.

Its own fee structure.

Bothobjectivesandmanagementstyleinfluencewhatthefundmanagerdoeswiththeday-to-daydecisionsandimpactsthetypeofstocksandbondsheldinsidethefund.

THINGS TO REMEMBER

Mutualfundsgenerallyfallintooneofthreebroadcategories:

Equity funds–investprimarilyinstocks.

Income (or bond) funds–investprimarilyinbondsandotherdebtinstruments.

Balanced funds–investinamixofbothdebtandequities.

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Who buys them?

Mutualfundsareanexcellentchoiceformanyinvestors.You’reabletogettheadvantagesofinvestinginawidearrayofdifferentstocksand/orbonds–whichlowersyouroverallrisk–butwithoutneedingtohavethelargeamountofmoneyitwouldtaketobuyeachstockorbondbyyourself.Mutualfundsalsotendtohavelowerfeesthanwhatyouwouldpaytotradestocksandbonds.


ThereareliterallythousandsofmutualfundsavailabletoCanadianinvestors–frommanyfinancialinstitutions.

DEFINITIONS

Net asset value per share (NAVPS) –thevalueofamutualfundshareorunit,whichiscalculatedbyaddingthevalueofallinvestmentsownedbythefundminusanyexpenses,anddividingbythenumberofunitsthathavebeenissuedforsale.

Management expense ratio (MER) –theamountpaidbyafundformanagementfeesandoperatingexpenses,expressedasanannualpercentageofthevalueofthefund.Operatingexpensesincludesuchthingsasadministrationfees,harmonizedsalestax(HST),andvirtuallyallothercostsofoperatingthefund.TheMERisshownasapercentageofthetotalvalueofthefund(e.g.1.75%)andischargedevenifthefundgoesdowninvalue.

Mutual fund performance–youraccountstatementshowsthefund’sperformanceaftertheMERissubtracted.

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Segregated funds

What is a segregated fund?

Segregatedfundsareonlyavailableasinvestmentswithinasegregatedfundcontract.Likemutualfunds,alargepoolofmoneyisinvestedinstocks,bonds,orothersecuritieswiththegoalofgrowingthevalueoftheentirepool.

Theunderlyinginvestmentofasegregatedfundisoftenoneormoremutualfunds.Asinsurancecontracts,segregatedfundshavesomebenefitsthatmutualfundsdonot.

Guarantees

Segregatedfundcontractsguarantee75%to100%ofyourpremiums(minuswithdrawals)whenthecontractmatures,oronyourdeath.Thevalueofthecontractisnotguaranteedatothertimes.Manysegregatedfundcontractsalsoofferincomeguarantees.

Bypass of probate

Withinsurancecontracts,upondeath,theproceedsarepaiddirectlytoyournamedbeneficiarywithoutpassingthroughyourestate,savingtimeandestateadministrationfees.

Potential creditor protection

Segregatedfundcontractsarepotentiallyprotectedagainstseizurebycreditors.Thiscanbeabigadvantageforbusinessownersandprofessionalswantingtoprotectagainstanunexpectedlawsuitorbankruptcy.Creditorprotectiondependsonseveralfactors,amongthemnamingtherightbeneficiaryandprovinciallaw.Consultyourtaxandlegaladvisors.

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Who buys them?

Segregatedfundcontractsarepopularwithpeoplewhowantthegrowthpotentialofmarketinvestmentsbutwiththeaddedsecurityofguarantees.Theyareespeciallypopularwithpeoplenearingretirementorbusinessowners.


Segregatedfundcontractsareavailableonlythroughlifeinsurancecompanies.

DID YOU KNOW?

Somesegregatedfundcontractsofferanincomeguarantee.Thiscanprovideasecureannualincomeguaranteedforyourlifetime.*Itmayevenincreasewithinvestmentperformance.

*Subject to legislated minimums for registered retirement income fund (RRIF) type plans and maximums for life income fund (LIF) type plans, and certain conditions and contractual provisions.

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Guaranteed investment certificates

What are they?

Guaranteedinvestmentcertificates(GICs)areamongthesafestandsimplestinvestmentsyoucanmake.Inessence,investorsdepositmoneyandreceiveaguaranteedamountofinterestforaguaranteedperiodoftime.

How do they work?

WithGICs,youagreetokeepyourmoneyinvesteduntilasetmaturitydate.Inexchangeforlockinginyourmoney,theinterestrateyoureceiveisusuallyhigherthanwhatispaidinasavingsaccount.Maturitydatesareavailableinaslittleas90daysbutusuallyrangefromonetofiveyears.

YouaregenerallyallowedtocashinyourGICbeforethematuritydate,butwillusuallypayapenalty.

Who buys them?

GICsarepopularwithpeoplewhowantasafewaytoinvestshorter-termsavingsandgetaguaranteedinterestrate.Buttheyarealsopracticalforyourlonger-terminvestments,too,ifyou’relookingforawaytolowertheriskofyouroverallportfolioofinvestments.


GICsareofferedbymostbanks,creditunionsandtrustcompanies.

DID YOU KNOW?

GICsmaybeeligibleforCanadaDepositInsuranceCorporation(CDIC)coverage,whichprotectsyourinvestment(uptocertainlimits)ifthefinancialinstitutionwhereyourdepositisheldbecomesinsolvent.Seewww.cdic.caformoreinformation.

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DID YOU KNOW?

Moneyinvestedinanaccumulationannuityisprotected(uptocertainlimits)byAssuris,anorganizationthatprotectsCanadianpolicyholdersintheeventofinsurancecompanyinsolvency.Visitwww.assuris.caformoreinformation.

Accumulation annuities

What are they?

Accumulationannuities(AAs),alsoknownasInsuranceGICs,areatypeofinvestmentthatisavailableonlythroughlifeinsurancecompanies.TheyareannuitycontractswithinvestmentoptionssimilartoGICs,butalsoofferdifferentguaranteesandallowyoutodesignateabeneficiary,whethertheinvestmentisregisteredornon-registered.

How do they work?

LikeGICs,withAAsyouagreetoinvestyourmoney:

foraguaranteedamountofinterest

foraguaranteedperiodoftime.

WithAAs,youcaninvestamultiplelumpsumsormakedepositsatregularorflexibleintervals.ThevalueoftheAAgrowsasyoumakedepositsandearninterestuptoamaximumage.

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Who buys them?

AAsmeetthesameinvestmentobjectivesasGICs.ButunlikeGICs,withAAsyougettheseadditionaladvantages:

Beneficiary designation–You’reabletonameabeneficiarytoreceivethevalueofyourannuityuponyourdeath,evenfornon-registeredplans.Themoneyispaiddirectlytoyourbeneficiary,whichavoidsthecostsanddelaysofprobate.

Potential creditor protection–Aslongasthenamedbeneficiaryqualifiesunderprovinciallaw,investmentsmaybeprotectedagainstseizurebycreditorsincaseofanunexpectedlawsuitorbankruptcy.Thisisespeciallyvaluableforself-employedprofessionalsandsmallbusinessowners.


AAsareonlyavailablethroughinsurancecompanies.

DID YOU KNOW?

Myth:Financialplanningisallaboutnumbers.

Truth:It’saboutsettinggoalsandenjoyingyourlife.Butknowingthenumberscanhelpmakeithappen.

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Payout annuities

What are they?

Apayoutannuityisdesignedforpeoplewhowanttoconverttheirsavingsintoaguaranteedincomestreamforeither:

asetperiodoftime,or

fortheirlifetime.

Youusealumpsumamountofmoneytobuyapayoutannuity.

Youcanchoosetohavetheincomebeginimmediatelyoratalatertime(thisiscalleda“deferredannuity”).

How do they work?

Theincomecanbepaidmonthly,annually,oratanyotherintervalagreeduponatthetimeofpurchase.However,theincomeamountusuallyremainsfixed.Thisamountusuallydependson:

Age at the time of purchase –generally,theolderyouare,thelargertheincomeforalifeannuity.

Gender–becausewomenhavealongerlifeexpectancy,eachincomepaymenttoawomantendstobesmallerforalifeannuity.

Amount used to buy the annuity–thehigherthepremiumpaid,thehigheryourincomewillbe.

Interest rates at the time of purchase –higherinterestmeanshigherincomepayments.

Guaranteed period –ifyourannuityhasaguaranteedperiodandyoudieduringthisperiod,wewillpayadeathbenefit.Thelongertheguaranteedperiodyouchoose,theloweryourincome.

DID YOU KNOW?

Youmaysetupapayoutannuitytobe“indexed”sothatpaymentsincreaseatafixedpercentageannually,tohelpkeepupwithincreasesinthecostofliving.

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Who buys them?

Payoutannuitiesareforpeoplewhowantaguaranteedregularincomethatisworry-freeandsecure.Youdon’tneedtoactivelymanagethemorworryaboutfluctuationsinthemarketorchangesininterestrates.Theyprovidetheaddedsecurityofallowingyoutodesignateabeneficiary(ifyouhaveelectedtohaveaguaranteedperiod)forregisteredornon-registeredcontractsandmaybeprotectedfromcreditors.

Whenyouretire,orupuntiltheendoftheyearyouturn71,youhavetheoptiontotransferyourRRSPintoapayoutannuity,whichgivesyouthebenefitofpayingincometaxonlyontheannuityincomepaymentsastheyaremadetoyou.RRIFscanbetransferredtoapayoutannuityatanytime.


Lifeannuitiesareavailableonlythroughinsurancecompanies.

FACT

Types of payout annuities

Life annuity –providesincomeforaslongasyoulive.Youalsohaveanoptionthatguaranteesthenumberofyearsthatpaymentsaremadesothatifyoudieduringthistime,adeathbenefitispaidtoyourbeneficiary.

Joint life annuity–providesincomepaymentsforaslongasyouoryourjointannuitant(e.g.spouseorcommon-lawpartner)live.

Term certain annuity–guaranteesaspecifiednumberofincomepayments.Ifyoudiebeforeallthespecifiedpaymentsaremade,adeathbenefitispaidtoyourbeneficiary.

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Linked deposit notes

What are they?

Linkeddepositnotes,alsoknownasprincipal-protectednotes,aresimilartobonds.Likebonds,theyrepayyourprincipalinfullwhenhelduntilmaturity.

How do they work?

Linkeddepositnotesinvestinanunderlyingbasket–ormixture–ofinvestmentsforthetermthatyouselect.Termsusuallyvaryfromthreeto10years.

Attheendoftheterm,therateofreturnyoureceiveiscalculatedbasedontheoverallperformanceofthebasketofinvestments.Ifthereturnispositive,youarepaidyouroriginalprincipalplusinterest.Ifthereturnisnegative,onlyyouroriginalprincipalisreturned.

Who buys them?

Becauseyouneverloseyourinitialinvestment,linkeddepositnotesaresuitableforpeoplewhochoosetogiveuphighergrowthpotentialinexchangeformoreofaguarantee.Thistypeofinvestmentoftenappealstopeoplewhoareretiredornearretirement.


Linkeddepositnotesaresoldbymanybanks,trustcompanies,creditunionsandbrokeragefirms.

DID YOU KNOW?

Myth: Idon’thaveenoughmoneytodaytosavefortomorrow.

Truth:Savingalittlemoneytodaywillmakeabigdifferencetomorrow.Andyoulikelyhavemoremoneythanyourealize.

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WHAT ARE REGISTERED INVESTMENTS?

Mosttypesofinvestmentsmaybeheldaseitherregisteredornon-registered–sowhat’sthedifference?Registeredinvestmentsaredesignedtoencourageyoutosavebyprovidingspecialtaxbenefits.

Here’saquicklookatthebasictypesofregisteredinvestmentsyou’reabletotakeadvantageof.

Registered retirement savings plansEveryyearyouareallowedtocontributeapercentageofyourearnedincome(uptoamaximumamount)toregisteredretirementsavingsplans(RRSPs).Contributionsreduceyourtaxableincomeintheyearyoucontribute.ThemoneyinvestedintheRRSPalsohasothersignificanttaxbenefitssinceyoudon’tpaytaxoncapitalgainsandotherincomeearnedbyyourinvestments(e.g.dividends)untilyouwithdrawmoneyfromtheplan.

You’reabletowithdrawallorpartofyourRRSPmoneyatanytime,dependingonyourinvestment.Withdrawalsaresubjecttowithholdingtaxandareincludedinyourtaxableincomeintheyearofthewithdrawal.Exceptionstothisruleinclude:

fundtransfersfromoneRRSPtoanother;

transferringfundstoaregisteredretirementincomefund(seenextpage);

transferstoanotherretirementincomeplansuchasapayoutannuity;

withdrawalsforfirsttimehomeownersundertheHomeBuyers’Plan,subjecttorepaymentrules;

withdrawalsfromtheLifelongLearningPlan–upto$10,000ayeartoatotalmaximumof$20,000tofinancetrainingoreducationforyou,yourspouseoryourcommon-lawpartner(note:youmustrepaythewithdrawalsoveraten-yearperiodortheybecometaxable).

TIP

Bytheendoftheyearinwhichyouturnage71,allofthemoneyinyourRRSPsmustbewithdrawnortransferredtoaRRIForpayoutannuity.

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Registered retirement income fundsBytheendoftheyearyoureachage71,youmustconvertyourRRSPstoanannuityorregisteredretirementincomefund(RRIF).Theincomefromaregisteredannuityand/orRRIFistaxableintheyearinwhichit’sreceived.TheinvestmentintheRRIFcontinuestobetax-sheltered.Youcontrolwhereyourmoneyisinvested,justlikeyoudidwithyourRRSP.

WithRRIFs,yousetupascheduleofregularincomepaymentsfromtheplanaccordingtoyourretirementneedsandtheannualminimumwithdrawalamountrequiredbytaxlegislation.Youalsohavetheflexibilitytotakeextraincomeamountatanytime.

Registered education savings plansRegisterededucationsavingsplans(RESPs)helpyousaveforachild’spost-secondaryeducation.Interestorcapitalgainsoncontributionsaretax-freeuntilthemoneyiswithdrawntopayforthebeneficiary’spost-secondaryeducationcostsatanapprovededucationalinstitution,ortheplanisclosed.Whenthemoneyiswithdrawnforeducationalpurposes,theamountistaxabletothestudent.

UnlikeRRSPs,contributionstoanRESParenottax-deductible.However,RESPcontributionsareeligiblefortheCanadaEducationSavingsGrantthroughwhichthefederalgovernmentmaymatchaportionofyour

contributions.VisitthestudentloansandRESPssectionofesdc.gc.caformoreinformation.

DEFINITIONS

Capital gain –ifyourinvestmentincreasesinvalue,acapitalgainistheprofityoumakeonthesale(thedifferencebetweenyouroriginalpurchasepriceandthepriceyousellitfor).

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Tax-free savings accountUnlikeanRRSPwhichfocusesonsavingforretirement,thetax-freesavingsaccount(TFSA)issetupinawaythathelpsyousaveforgoalsthroughoutyourlifetime–acar,home,orstartingabusinessareafewexamples.

WiththeTFSA,you’reabletocontributeupto$5,5001eachyeartoasavingsaccount,GIC,InsuranceGIC2,segregatedfundcontractormutualfund.Anygrowthintheplanistax-free.Withdrawalsareallowedatanytimeandarenottaxed.

Whenyoufileyourtaxreturneachyear,thegovernmentwilldetermineyourremainingavailableTFSAcontributionlimitforthecomingyear,justlikeanRRSP.ButunlikeanRRSP,theamountyoucontributeisnotdeductedfromyourtaxableincomefortheyear.

Anywithdrawalsmadeinthecurrentcalendaryearwillbeaddedtoyourcontributionroomforthefollowingyear.Anyunusedcontributionroomcarriesovertothefollowingyear.Thereisnolimittohowmuchorhowlongcontributionroommaybecarriedforward.

TIP

Youdon’thavetowithdrawallofyourmoneyoutofyourTFSAbyacertainage,butyoudon’tstartearningcontributionroomuntilyouare18yearsold*andyoumustbeaCanadianresident.

*Some provinces may require you to be 19 years old before you can open a TFSA, depending on the type of investment.

1TheTFSAcontributionlimithaschangedovertheyears.From2009to2012inclusive,itwas$5,000.For2013and2014itwas$5,500.In2015itwas$10,000.For2016,theTFSAcontributionlimitis$5,500.

2InsuranceGICsareAccumulationAnnuitiesissuedbySunLifeAssuranceCompanyofCanada.

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WHAT SHOULD I KNOW ABOUT RISK?

Whileit’struethatallinvestmentscarryatleastsomelevelofrisk,thegoodnewsisthatriskcanworktoyouradvantage.Oneofthesimpletruthsofinvestingisthatthehighertherisk,thegreaterthepotentialforhigherreturns.

Types of riskWhenyouthinkofinvestmentrisk,youlikelythinkofmarketrisk–thepossibilitythatthepriceofastockorbondwilldropbelowwhatyoupaidforit.Butthereareanumberofothertypesofriskyoualsoneedtoconsider:

Credit or default risk–thelikelihoodthatacompanyyou’veinvestedinwillgobankruptorhaveitscreditratingdowngraded.

Currency risk–howchangesinthevalueoftheCanadiandollarmightaffectthegrowthorvalueofyourinvestment.

low return high

low

ris

k hi

gh

guaranteed interest products

payout annuities

linked deposit notes

segregated funds

mutual funds

DID YOU KNOW?

Thereisawaytolowerrisk!It’scalleddiversification–turntopage27formoredetails.

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Expenditure risk –forpeopleenjoyinganincomefromtheirinvestments,theriskthatunplannedexpenseswilldepletecapitalorincometooquickly.

Health risk–thechancethatpoorhealthwillforceyoutoreducetheamountyou’resaving,orincreaseyourexpenses.

Inflation risk–thelikelihoodthatyourinvestmentwillmaintainitspurchasingpower.

Interest rate or reinvestment risk–howinterestratechangesmightreducethegrowthorvalueofyourinvestment.

Liquidity risk–thepossibilitythatyoucan’tefficientlyaccessyourmoneywhenyouneedit.

Longevity risk –thechancethatyou’lllivelongerthanyourincomecansupportyou.

Market risk–thepossibilitythatthepriceofastockorbonddropsbelowtheoriginalpurchaseprice.

TAKE A CLOSER LOOK

Supposeyoukept$100,000underyourmattressforfiveyears.Ifinflationwastwopercentayear,here’swhatthepurchasingpowerofyourmoneywouldbeattheendofeachyear:

Year 1 $98,039

Year 2 $96,117

Year 3 $94,232

Year 4 $92,385

Year 5 $90,573

Inotherwords,youneedtoearnmorethantheinflationrateeveryyearjusttobeabletoaffordtheexactsamegoodsandservicesovertheyears.

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DiversificationBeingasuccessfulinvestormeansfindingtherightbalancebetweenriskandreturn.Oneofthesmartestandmosteffectivewaystodothisisthroughdiversification–whichissimplyinvestmentlingofordon’t put all your eggs in one basket.

Thismeansspreadingyourinvestmentsacrossthreemaintypesofinvestments:

Cash and cash equivalents–Providealowerinterestratebuthighsafetyandliquidity(abilitytoquicklyconverttocash).

Examples:

Savingsaccounts

GICs<1year

Fixed income investments–Offersecuritybyagreeingtorepaytheprincipal,provideaguaranteedincomestream,orboth.Levelofriskdependsonthequalityoftheinvestment.

Examples:

Bonds

Bondmutualfunds

Payoutannuities

Bondsegregatedfundcontracts

Equity investments–Tendtobemoreriskythanotherassetclassesovertheshort-term,buthistoricallyofferhigherreturnsinthelongrun.

Examples:

Stocks

Equitymutualfunds

Equitysegregatedfundcontracts

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How much of each asset class should your portfolio include?

Itdependson:

howmanyyearsyouhaveleftuntilretirement,

howmuchriskyou’recomfortablewith,

yourportfolio’sabilitytowithstandlosses,

whetheryou’reontracktoachievingyourinvestmentgoals.

THINGS TO REMEMBER

Alongwithspreadingyourinvestmentsacrossdifferentassetclasses(called“assetallocation”or“assetmix”),youcangetevenmorebenefitsifyoufurtherdiversifywithineachassetclassby:

Investmenttimehorizon(short,mediumandlong-term)

Industrysector

Companysize

Country/currency

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CHECKLIST

Anadvisorisabletohelpme:

Assess mycurrentsituationbyexaminingmyfinancesindetail.

Setrealisticfinancialgoals.

Createmyfinancialplantoachievemygoals,andputtheplanintoactionandmonitoritsprogress.

Revisemyplanaseconomicconditionsormylifeandgoalschange.

Protectmyhard-earnedsavingsandfinancialfutureagainstunexpectedcircumstances.

The value of professional advice

Why take more chances than you have to?

Whetheryou’reanewcomertoinvestingorhaveexperiencewithmakinginvestmentdecisions,anadvisorcanhelpyouminimizeyourriskandmaximizeyourinvestmentgrowthpotential.

30

HOW MUCH CAN I AFFORD TO INVEST?

Whenitcomestoinvesting,alittlegoesalongway.Startsavingwhenyou’reyoung.Puttingawayjust$100amonthcanresultinasubstantialretirementfund.

Visitwww.sunlife.ca/MyFinancialPlanformorehelpinplanningyourfinancialfuture.Clickontheprintableworksheet“12 tips for saving in your day-to-day spending”tofindsimplewaystosavemoneywithoutmakingmajorchangestoyourlifestyle.

Age

Return

2% return 4% return 6% return

20 25 30 35 40 45 50 55 60 65$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

TIP

Manyadvisorsrecommendyoutrytoputasideatleast10%ofyourafter-taxincomeforsavingsandinvestments.

DID YOU KNOW?

Myth:I’mnotwealthyenoughtoworkwithanadvisor.

Truth:Everyonecanbenefitfromsoundfinancialadvice,nomatterhowmuchmoneyyouhavetoworkwith.Infact,thetighteryourbudget,themoreimportantitistoinvestyourmoneywisely.

31

Usethisworksheetasastartingpointtohelpyoufigureouthowmuchmoneyyoucancontributeeachmonthtoasavingsandinvestmentplan.

Ifyourmonthlyexpensesaremorethanyourmonthlyincome,trycuttingbackonyourvariableexpensesandusingthismoneytopayoffdebts,startyourinvestmentplan,orboth.

Monthly household incomeMyincome $

Spouse/partner’sincome $

Other(e.g.rentalproperty) $

TOTAL MONTHLY HOUSEHOLD INCOME $

Fixed monthly expensesMortgage/rent $

Utilities/condofees $

Carloan $

Studentloan $

Businessloan $

Creditcardpayments $

Othermiscellaneousdebt $

Variable monthly expensesFood $

Entertainment $

Clothes $

Gifts $

TOTAL MONTHLY EXPENSES $

TOTAL INCOME MINUS TOTAL EXPENSES $

MY MONEYFINDER

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GLOSSARY

Capital gain–ifyourinvestmentincreasesinvalue,acapitalgainistheprofityoumakeonthesale(thedifferencebetweenyouroriginalpurchasepriceandthepriceyousellitfor).Capitalgainsarenottaxedatashigharateasemploymentincomeorinterest.

Capital losses–ifyousellyourinvestmentforlessthanyouboughtitfor,thedifferenceiscalledacapitalloss.

Common shares–oftenpaydividends,butnotalways.Theygenerallygiveyouarighttovoteatthecompany’sannualmeeting.

Company risk–theriskthattheindividualcompaniesyouinvestindon’tperformaswellasyouexpected.

Coupon rate–thespecifiedinterestratethatispaidonabond.

Credit or default risk–thechancethatacompanyyou’veinvestedinwillgobankruptorhaveitscreditratingdowngraded,makingitmoreexpensiveforthecompanytoborrowmoney.

Currency or exchange rate risk –howchangesinthevalueoftheCanadiandollarmightaffectthegrowthorvalueofyourinvestment.

Discount brokerage–afirmthatexecutestradesonbehalfofindividualinvestors.Theychargealowercommissionratebutdonotprovidethelevelofserviceofferedbyatraditional,full-servicebrokerage(e.g.investmentadvice,in-houseinvestmentresearch,etc.).

Inflation risk –thechancethatyourinvestmentwon’tletyoumaintainyourpurchasingpower.

Interest rate risk–howchangesinthecurrentinterestratemightaffectthegrowthorvalueofyourinvestment.

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Longevity risk –thechancethatyou’lllivelongerthanyourincomecansupportyou.

Management expense ratio (MER) –theamountpaidbyafundformanagementfeesandoperatingexpenses,expressedasanannualpercentageofthevalueofthefund.Operatingexpensesincludesuchthingsasadministrationfees,harmonizedsalestax(HST),andvirtuallyallothercostsofoperatingthefund.TheMERisshownasapercentageofthetotalvalueofthefund(e.g.1.75%)andischargedevenifthefundgoesdowninvalue.

Market risk –thepossibilitythatthepriceofastockorbonddrops,drivenbyageneraldropintheoverallmarket.

Maturity date–thedatethebondissuermustrepaytheprincipalamountofthebond.

Net asset value per share (NAVPS)–thevalueofoneshareorunitinamutualfund.Itiscalculateddailybyaddingthevalueofallinvestmentsownedbythefund(minusanyliabilities),anddividingbythenumberofavailableunits.

Preferred shares–donotgiveyouvotingrightsbutdopaydividends.

Principal (or face value) –theoriginalamount“borrowed”byabondissuer.Thisrepresentsthepriceofanindividualbondwhenitisfirstissuedforsaletoinvestors.

Probate –thecourtprocessusedtodeterminewhetherawillisvalidorinvalidandtoconfirmthepoweroftheexecutorappointedinthewill.

Rate of return–thegain(orloss)youmakeasapercentageofthetotalamountyou’veinvested.

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Want to learn more? AskyouradvisorforcopiesoftheotherSunLifeFinancialpublicationsinthisseriesorvisitsunlife.ca.

You work hard for your money. Investing is a smart way to get your money working for you.

Learningabouttheinvestmentoptionsavailabletoyouandunderstandinghowtomanagethepotentialrisksarethefirststepstowardbuildingaplanforabrighterfinancialfuture.

Onceyouhavetherightplaninplace,apennysavedmaybecomemuchmorethanapennyearned.

CREATE A BRIGHT FUTUREBuild. Protect. Enjoy!

Your advisor and Sun Life Financial are here to help .

The thought of building a lifetime of financial security can be intimidating. We’re busier, more financially independent and less reliant on our families. And we live in a marketplace full of complex products, benefits and offers.

Professionaladviceisinvaluableinhelpingussortitallout.Youradvisorhastheexpertisetounderstandyourneedsandshowyouhowtofulfillthem.Together,you’llcreateapersonalizedplanthataddressesyourgoalsforthefuture,andevolvethatplanasyourneedsandsituationchange.Youradvisor–andSunLifeFinancial–willhelpyougetthemostoutofyourplan.

Talk to your advisor today about Sun Life Financial! For more information and resources:

Visitsunlife.ca Call1 877 SUN-LIFE (1 877 786-5433)

Life’s brighter under the sunSunLifeAssuranceCompanyofCanadaisamemberoftheSunLifeFinancialgroupofcompanies.©SunLifeAssuranceCompanyofCanada,2016.810-3460-03-16

We’re dedicated to helping you achieve lifetime financial security.

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