creating an investment portfolio

What is an investment portfolio?

A collection of different types of investments designed to grow in value at a rate that matches your risk tolerance.

What is Step 1 of building an investment portfolio?

Investor personality profile (know your client).

What is the purpose of an investor personality profile?

To gain information about your risk tolerance.

How do you find out your investor personality profile?

By completing a questionnaire through a bank or mutual fund company.

What are the four factors an investor must consider?

Risk, return, time frame, and liquidity.

What is risk?

The degree of uncertainty about the expected return from an investment.

What is return?

The overall gain or loss expected from an investment; higher returns come with higher risk.

What is a time frame?

The number of years available to invest.

What is liquidity?

The ease with which an investment can be turned into cash.

Why is liquidity important?

To provide a cushion for emergencies, fulfill goals, pay known expenses, and take advantage of investment opportunities.

What is the rule of thumb for liquidity?

Keep 3–6 months of living expenses available.

How do you reduce your investment risk?

By diversifying your portfolio (not putting all your eggs in one basket).

What are the four ways to diversify your portfolio?

By degree of risk, by term, by industry, and by geography.

How do you diversify by degree of risk?

Invest in stocks with different risk levels (e.g., Bell Canada, Barrick Gold, Google, Ford, Twitter, Air Canada).

How do you diversify by term?

Invest in GICs with staggered terms (1–5 years) to reduce interest rate risk (laddering).

How do you diversify by industry?

Invest in stocks from different sectors like financial services, oil and gas, telecommunications, auto, gold, etc.

How do you diversify by geography?

Invest in stocks or bonds across the country or internationally.

What are drawbacks of geographic diversification?

Different taxes, currency differences, and unstable governments.

What is Step 2 of building an investment portfolio?

Setting your goals and financial objectives.

What does SMART stand for in goal setting?

Specific, Measurable, Attainable, Realistic, Time-bound.

Example of a SMART goal?

To purchase a $15,000 car within 5 years of graduating from college/university.

What are the three goal time frames?

Short term (1–3 years), medium term (3–5 years), and long term (5+ years).

What are the three types of financial investment objectives?

Safety of principal, income, and growth.

What is the risk factor, rate of return, and timeframe for safety of principal?

Low to secure risk, lower return, 1–3 years.

What is the risk factor, rate of return, and timeframe for income objective?

Low to medium risk, moderate return, 3–10 years.

What is the risk factor, rate of return, and timeframe for growth objective?

High risk, higher return, 10+ years.

Example: If saving for college in 1–2 years, what is the objective?

Safety of principal.

Example: If saving for retirement in 20 years, what is the objective?

Growth.

What is a net worth statement?

A personal balance sheet listing what you own (assets) and what you owe (liabilities); the difference is your net worth.

Why prepare a net worth statement?

To see your current financial position, create a strategy for goals, measure progress, and feel secure about the future.

What is needed to grow your net worth?

A positive cash flow (earning more than you spend).

What is a cash flow statement?

A record showing how you earn and spend money.

Why should you review your cash flow statement?

To find expenses to reduce or eliminate to increase savings for your goals.

What does a negative cash flow indicate?

You are spending more than you earn (in the negatives).

What is an RRSP?

Registered Retirement Savings Plan — helps people save for retirement.

How does an RRSP help you save money?

Allows you to invest part of your income tax-free until withdrawal.

What is the RRSP contribution limit?

18% of gross income, up to a maximum of $31,560.

Why does the RRSP exist?

So people save for their own retirement rather than relying on government support.

When do you pay tax on RRSP funds?

When you withdraw them during retirement, usually at a lower tax rate.

Where can you invest in an RRSP?

Through a bank, insurance company, or credit union.

What can an RRSP invest in?

Savings accounts, GICs, stocks, and mutual funds.

What happens if you don’t contribute your full RRSP limit?

You can carry forward the unused contribution to the next year.

What do you need to start building your RRSP bucket?

A job that provides a T4 slip and a filed income tax return.

What is a Notice of Tax Assessment?

A document from the government confirming your income and showing how much you can contribute to your RRSP.

Example: Bob’s RRSP carry forward calculation.

2024: $40,000 × 18% = $7,200 limit; contributed $1,000 → $6,200 carry forward. 2025: $42,000 × 18% = $7,560 + $6,200 = $13,760 new limit; contributed $3,000 → $10,760 carry over.

Why don’t you want a large RRSP carry over?

Because you want to fill your RRSP bucket each year for maximum growth.

What can you do with your RRSP funds?

Use for retirement, home purchase (HBP), or education (LLP).

What is the Home Buyers Plan (HBP)?

A program allowing first-time buyers to withdraw up to $35,000 ($70,000 for couples) from RRSPs to buy or build a home.

What are the HBP repayment terms?

Must repay the withdrawn amount within 15 years (1/15 per year) or the unpaid amount is taxed.

Can you use RRSP funds for rental property under the HBP?

No, only for a principal residence.

What is the Lifelong Learning Plan (LLP)?

A program allowing you to withdraw up to $10,000 per year from your RRSP for post-secondary education (you, spouse, or partner).

What are the LLP repayment terms?

Must repay within 10 years (1/10 per year minimum) or unpaid amounts are taxed.

Can LLP funds be used for your children’s education?

No, only for your own, your spouse’s, or your common-law partner’s education.

Can you repay more than the minimum under the LLP or HBP?

Yes, you can pay back more than required each year.