Author Topic: one (investing) question at a time  (Read 74010 times)

scrubbyfish

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Re: one (investing) question at a time
« Reply #50 on: December 08, 2014, 04:54:48 PM »
Le Barbu, if you (and anyone else here) is up for it, I'd love to get your input on this thread: http://forum.mrmoneymustache.com/ask-a-mustachian/canada-income-tax-non-refundable-tax-credits/msg476919/#msg476919

It seems to me I can have about $43,000 in taxable income before I start being taxed. Correct? Not correct?

Le Barbu

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Re: one (investing) question at a time
« Reply #51 on: December 08, 2014, 07:01:22 PM »
Scrubby, this is a bit out of my knowledge but it still look like you are wright with this 43k = no tax

I doubt that you cannot use the TFSA without penalty over the DRSPs because TFSA are filled with money already taxed. I dont see why CRA would enable someone to use it ?

If your income and finances are not stable, go ahead with a high interest saving account for a cash cushion. Than, you can "crank" you stock % in investing accounts. Its another way to increase short term liquidity and long term return.

If your taxes are about zero, the mere interests will remain to you.

scrubbyfish

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Re: one (investing) question at a time
« Reply #52 on: December 08, 2014, 07:30:24 PM »
Question 6: Do I have this right so far??

Stocks
  • a.k.a. equity
  • each stock is ownership of at least a tiny sliver of a company
  • a "fund" will have stock in each of dozens or hundreds of companies
  • any one or more stock can go way up and down in value at any point
  • most are expected to rise considerably over the long term
  • suitable for long term investments, where after many rises and falls, one is withdrawing down the line at more than was put in
  • stocks can be in Registered or non-registered accounts, but if room in Registered accounts is limited, preserve that for bonds and have stocks in non-Registered accounts
Bonds
  • a.k.a. fixed-income
  • a loan to more stable entities, such as Canadian government
  • all are expected to increase in value by a relatively low amount
  • always result in payments, and these payments are subject to federal and provincial income tax
  • aim to hold these inside Registered accounts, so that the income is free of taxation
  • while my income is dramatically lower than my tax point, this is moot
  • I can still put all bonds inside Registered accounts, in case my income ever goes up again
Money Market
  • buying and selling actual currencies, Treasury bills, etc
  • often little financial gain overall, but capital originally invested is quite assured to be safe and whatever was put in can usually be withdrawn anytime
  • not fixed income, so no predetermined, prescheduled payments, and no tax concerns
  • can be in Registered or non-registered accounts, but if room in Registered accounts is limited, preserve that for bonds and have stocks in non-Registered accounts
General
  • If I believe that stocks will ultimately increase, and that bonds may not meet inflation, then it is silly for me to have bonds or money market inside an account that does not permit withdrawals for many years.

MDM

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Re: one (investing) question at a time
« Reply #53 on: December 08, 2014, 07:42:36 PM »
Question 6: Do I have this right so far??

Yes!

scrubbyfish

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Re: one (investing) question at a time
« Reply #54 on: December 08, 2014, 07:47:05 PM »
I doubt that you cannot use the TFSA without penalty over the DRSPs because TFSA are filled with money already taxed. I dont see why CRA would enable someone to use it ?

It's not the CRA that disallows it; it's the province of BC's disability benefits program that disallows it.

The latter allows a person to have savings in some account-types and not others. It's arbitrary and not based in anything relevant, but it's a firm rule (law). I'm setting my finances up on the assumption that I (or my son) may need the program again at points in my life. For example, I managed to get by without it for well over a decade, but then some business craziness happened and I fell way into its eligibility criteria again. It gets worse, though! The province's disability program, rental assistance program, etc, all allow and disallow different accounts, too, lol! So you have to know in advance which type of tragedy you'll be having ;)

scrubbyfish

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Re: one (investing) question at a time
« Reply #55 on: December 08, 2014, 08:46:23 PM »
Question 6: Do I have this right so far??

Yes!

Really?!? Wow, I had anticipated at least a few cross-outs! Okay, I will start working on the next q...

scrubbyfish

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Re: one (investing) question at a time
« Reply #56 on: December 08, 2014, 09:36:49 PM »
Question 7: What are "exchange traded funds"?

That's it. I've seen the internet's answers, now hoping for a scrubbyfish version :)

MDM

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Re: one (investing) question at a time
« Reply #57 on: December 08, 2014, 11:45:07 PM »
Question 7: What are "exchange traded funds"?

That's it. I've seen the internet's answers, now hoping for a scrubbyfish version :)
The simplest version is that there is no difference between Exchange Traded Funds (ETFs) and any other fund (with "fund" as defined in Question #6).  That's not strictly true, but it is true enough for the type of investing (e.g., keep it simple; buy and hold) it appears you are looking to do. 

The differences between any two funds (whether ETF or not), that include different stocks, are usually much greater than the difference between an ETF vs. a non-ETF that hold the same stocks.

To get "more correct" we'd probably need to start internet-speak.  Is there something in particular about ETFs that you would like to know?

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Re: one (investing) question at a time
« Reply #58 on: December 08, 2014, 11:52:22 PM »
Each stock exchange has more than stocks available on it.

You have managed funds. These are outside the stock exchange, and buy shares or money market stuff or bonds or a combination, and manage these things so that they can grow the money you put in the fund. Because the value of this stuff changes from day to day, the value of the fund changes from day to day. To make life easy for themselves, they split the fund into units, and when you deposit funds you buy units of the fund.

Some companies then decided to do exactly the same, but put the "managed fund" onto the stock exchange and effectively 1 unit of a managed fund = 1 share in an ETF. (Note, no managed fund is also an EFT, but some ETFs have the same sets of underlying investment assets as some managed funds).

 EFTs have lower management fees than managed funds, and are only available in some ways. For instance, there a lot of people on the forum who whinge about their 401K not having Vanguard ETFs as an option.




Le Barbu

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Re: one (investing) question at a time
« Reply #59 on: December 09, 2014, 06:39:29 AM »
Question 6: Do I have this right so far??

Bonds
  • a loan to more stable entities, such as Canadian government
some bonds are linked to +/- stable entities (foreign government, corporations etc.) some of them are called "junk" bonds and pay more interest because of the increased "risk". They are not all the same.
  • all are expected to increase in value by a relatively low amount
Actually, bonds can also DECREASE in value, just like stock but for different reasons and usualy, not at the same time (not correlated).



General
  • If I believe that stocks will ultimately increase, and that bonds may not meet inflation, then it is silly for me to have bonds or money market inside an account that does not permit withdrawals for many years.

Glad you get that one, most seasoned investors dont even think about it. In an account that does not permit withdrawals for many years, bonds are a DRAG and their only utility is to "smoothen" the ride for you to "sleep at night".

« Last Edit: December 09, 2014, 07:07:33 AM by Le Barbu »

Heckler

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Re: one (investing) question at a time
« Reply #60 on: December 09, 2014, 06:46:45 AM »
Scrubby,

I do not know anything about disability plans or benefits.

However I do know contributions to an RSP will reduce the income tax you need to pay now, and can also be withdrawn from as taxable income anytime.

From the horses mouth:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/rrsps-eng.html


Make sure you use transfer forms if you move RSP or TFSA from one institute to another.  Do not withdraw funds unless you intend it as taxable income.

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Re: one (investing) question at a time
« Reply #61 on: December 09, 2014, 06:55:15 AM »
As for tax rates you will pay %15 federal tax on your first $43,953 of income.

http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

You will also pay 5.05% provincial income tax on your first $37,606.

 http://www2.gov.bc.ca/gov/topic.page?id=E90F9F1717DB451BB7E4A6CC0BDC6F9F


This might be reducible via disability tax credits. I'd see an accountant if you don't know.


So, if you take money out of an RSP next year if you aren't making more than $37K total you'll be paying 20% income tax on what you take out of RSP as income.

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Re: one (investing) question at a time
« Reply #62 on: December 09, 2014, 06:56:51 AM »
Plus you'll pay any fees from your RSP account provider to pull income from your RSP.  BMO InvestorLine charges $50 per transaction to remove funds as income.

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Re: one (investing) question at a time
« Reply #63 on: December 09, 2014, 07:34:10 AM »
Hey scrubbyfish! I am on this journey too to learn about investing. Looks like you're getting some good feedback from this thread, along with a lot of us other folks checking it out! If you're looking for some other reading about couch-potato-like investing, try "Millionaire Teacher" by Andrew Hallam. Its a very readable and straightforward view of ETF investing.


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Re: one (investing) question at a time
« Reply #64 on: December 09, 2014, 08:20:11 AM »
Question 6: Do I have this right so far??
Bonds
  • all are expected to increase in value by a relatively low amount
  • always result in payments, and these payments are subject to federal and provincial income tax

Money Market
  • not fixed income, so no predetermined, prescheduled payments, and no tax concerns

For Bonds, there are two ways you can lose money:
- For bond mutual funds, the share price can decrease.  This typically happens when interest rates rise.  However, you still continue to receive dividend payments so depending on how much the share price falls, the share price reduction can be greater than the money paid in dividends.
- For individual bonds, the issuing company/government entity can default on the loan.  This is what happened in Detroit, MI - the city wasn't generating enough money in taxes and other fees to pay their required bond (loan) payments.  The city went into default, and the people who own the bonds will only receive a small part of their original investment back.

For Money Markets, these are technically fixed income.  Most Money Markets pay dividends monthly, just like a bank account pays interest.  Since the interest rates here in the U.S. are horrible, they aren't paying as much in dividends in the past, which makes it seem like they do not generate any dividends at all.   

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Re: one (investing) question at a time
« Reply #65 on: December 09, 2014, 08:47:40 AM »
Question 7: What are "exchange traded funds"?

That's it. I've seen the internet's answers, now hoping for a scrubbyfish version :)

My version? Dont bother with ETFs right now, especialy if you're gonna end with TD or RBC because they offer index funds with MER under 1% and not transaction fees.

TD portfolio exemple : 25% TDB909 (canadian bonds), 25% TDB900 (canadian stocks), 25% TDB902 (US stocks) and 25% TDB911 (international stocks). Perfectly balanced portfolio (half way between Average Joe and Mustachian). Average MER of 0.42% (180$/year for a 43k portfolio and no transaction fees, neither for buying or selling, never). If you feel you can go without bonds, a 35%-35%-30% split is kickass (35% can. stock, 35% US stock and 30% int. stock). This kind of index funds portfolio can be suitable until you hit the 100k mark, then you should be a lot more knowledgeable in investing and switch to ETFs.

If you end up to RBC, switch the above with RBF563(TDB909), RBF556(TDB900), RBF557(TDB902) and RBF559(TDB911). Slightly higher MER (average arround 0.7% but still affordable for a portfolio under 100k.

Right now, after you dropped your MER from 2% to 0.4% or even 0.7%, the most important thing is to pay no fees (transactions) because they can "wash" any other MER improvement.

Then, make sure to fill the RDSPs as much as you can to get all the gov. match available.

Open an Hight Interest Saving Account for a cash cushion. 5k to 10 would be safe in your situation.
« Last Edit: December 09, 2014, 08:55:34 AM by Le Barbu »

scrubbyfish

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Re: one (investing) question at a time
« Reply #66 on: December 09, 2014, 08:57:17 AM »
Hi Heckler,

Thanks for all that!

If I use an RRSP or a TFSA, I'm automatically made ineligible for a different source of $6000/yr, so I'll probably be avoiding those altogether.

It seems my tax credits allow me $43000 in income at 0%, and last year my "taxable income" was $10,000, so the tax part is moot for now. (For anyone interested, I explored this here: http://forum.mrmoneymustache.com/ask-a-mustachian/canada-income-tax-non-refundable-tax-credits/msg476919/#msg476919)

It's helpful to know that if the $6000/yr option becomes moot, that I would actually be able to withdraw from the RRSP account and simply pay my tax rate (plus banker fees) on the amount. That could work well (if the RRSP matter changes in my situation).

scrubbyfish

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Re: one (investing) question at a time
« Reply #67 on: December 09, 2014, 09:06:20 AM »
Hey scrubbyfish! I am on this journey too to learn about investing. Looks like you're getting some good feedback from this thread, along with a lot of us other folks checking it out! If you're looking for some other reading about couch-potato-like investing, try "Millionaire Teacher" by Andrew Hallam. Its a very readable and straightforward view of ETF investing.

Hi Shooter_D, good to meet you! Thanks so much for the book recommendation. This one IS in our library system, and my order is now placed! Thanks!

All: Of the recommendations made earlier, I've started with the course from YNAB that samuck posted (thanks, samuck!) here http://forum.mrmoneymustache.com/investor-alley/one-%28investing%29-question-at-a-time/msg475476/#msg475476 I thought I'd start with that because (a) I know I love YNAB and that it would likely be in language I can understand, and (b) it was available to me immediately. So far so good!

scrubbyfish

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Re: one (investing) question at a time
« Reply #68 on: December 09, 2014, 09:28:00 AM »
For Bonds, there are two ways you can lose money:
- For bond mutual funds, the share price can decrease.  This typically happens when interest rates rise.  However, you still continue to receive dividend payments so depending on how much the share price falls, the share price reduction can be greater than the money paid in dividends.

Not quite grasping this.
So, say I have $100 in a bond.
It's supposed to pay me $1/mo in dividend payments.
But the share price falls by 25%, so now I'm still getting $1/mo but my $100 initial investment is only $75 now.
Is that it?

For individual bonds, the issuing company/government entity can default on the loan.  This is what happened in Detroit, MI - the city wasn't generating enough money in taxes and other fees to pay their required bond (loan) payments.  The city went into default, and the people who own the bonds will only receive a small part of their original investment back.

Wow! I was aware of the effects of this in Detroit, but I hadn't known how it happened. Thanks for a real-life example to help make sense of bonds for me.

arebelspy

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Re: one (investing) question at a time
« Reply #69 on: December 09, 2014, 10:32:42 AM »
For Bonds, there are two ways you can lose money:
- For bond mutual funds, the share price can decrease.  This typically happens when interest rates rise.  However, you still continue to receive dividend payments so depending on how much the share price falls, the share price reduction can be greater than the money paid in dividends.

Not quite grasping this.
So, say I have $100 in a bond.
It's supposed to pay me $1/mo in dividend payments.
But the share price falls by 25%, so now I'm still getting $1/mo but my $100 initial investment is only $75 now.
Is that it?

Let's say you have a bond for $100 that pays you 5%, or $5 annually.

Then rates rise to 6$, and you want to resell your bond.  Your bond is worth less.

Someone could buy a new $100 bond that will pay them $6 annually, so why would they buy yours?

Instead you'll have to sell yours for less than $100, for them to be willing to take $5 annually (in fact, it should fall to be worth $83.33, so that when they receive that $5, it represents a 6% yield on their investment, which is the going rate).

If rates fall, to say 4%, your bond is worth more.  Because someone wanting to spend $100 on a bond will only get $4 annually - if they buy yours for 100, they'd be way ahead.  So you charge a premium for it, and your $100 bond is worth more.

Does that make more sense?  (It may require a couple of readings.)  :)
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scrubbyfish

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Re: one (investing) question at a time
« Reply #70 on: December 09, 2014, 10:54:51 AM »
Thanks, arebelspy! Hmmmm...

So, when I buy a bond for $100, the dividend rate is set, and remains at that amount for as long as the bond exists (short of a Detroit situation or equivalent)? Is that correct?

i.e., When I buy a bond for $100, I'm agreeing to receive, say, $5 per year for as long as I hold the bond?
And the agreement for $5 per year is attached to the bond, so even when I sell it, I'm selling not only the bond, but its established dividend rate, too. Is that right? It doesn't matter how many times the bond is bought and sold, that bond always offers the dividend that was originally set.

Meanwhile, standard interest rates go up and down, so sometimes the $5 on $100 is the same as the going rate, sometimes more than the going rate, sometimes less than the going rate. So, if I need to sell it on a day the going rate is better than that which is permanently attached to my bond, I will have to sell my bond for less, for the buyer's overall yield to be equal to any other they could buy.

Is that it?

arebelspy

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Re: one (investing) question at a time
« Reply #71 on: December 09, 2014, 11:00:07 AM »
That is correct.  You now understand bond basics.  :)
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arebelspy

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Re: one (investing) question at a time
« Reply #72 on: December 09, 2014, 11:01:55 AM »
Most people don't understand why when bond rates rise, the value of their bonds drop. They think "higher rates should be good and earn me more money" but don't understand that their bond is now at a lower rate than the going rate, so they'll have to sell it at a discount.  You have now passed the average person's understanding of bonds after 5 minutes of learning.  :)

If you hold the bond to maturity, the fluctuations along the way in price don't matter.
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scrubbyfish

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Re: one (investing) question at a time
« Reply #73 on: December 09, 2014, 11:04:40 AM »
This kind of index funds portfolio can be suitable until you hit the 100k mark, then you should be a lot more knowledgeable in investing and switch to ETFs.

I am there now (the money, not the knowledge).

Yes to optimizing the RDSP (and RESP)! This is priority for me. But because my income is sometimes insanely low, I cannot rely on income to fund it, so I will have one account that holds the money to transfer to these monthly. (For those wondering, the RDSP is dramatically optimized by putting in a few thousand dollars per year, and not all of one's savings at once. I need to ensure a source of funds to transfer into it for each of many years. But we'll be getting to all that later.)

Yes, the disability program allows me to have up to $10,000 in cash, so I have that set aside.

scrubbyfish

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Re: one (investing) question at a time
« Reply #74 on: December 09, 2014, 11:09:22 AM »
That is correct.  You now understand bond basics.  :)

You have now passed the average person's understanding of bonds after 5 minutes of learning.  :)

ohmygoodness, I am very excited. I have tears in my eyes, feel my stomach turning, and am fanning my face with one hand.

It's really weird to just not be able to understand something for so long, and want to, and then finally get it!! A very big deal.

I'm only a little ways in to all of this, I know, but it feels like when I'm learning a new language (three so far!) and after so much effort, something clicks and I can understand everyone around me at the market, and I'm suddenly living in vivid-colour 3-D.

arebelspy

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Re: one (investing) question at a time
« Reply #75 on: December 09, 2014, 11:22:03 AM »
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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Re: one (investing) question at a time
« Reply #76 on: December 09, 2014, 11:35:41 AM »
This kind of index funds portfolio can be suitable until you hit the 100k mark, then you should be a lot more knowledgeable in investing and switch to ETFs.

I am there now (the money, not the knowledge).



hum, your investesments are up to 100k? I just tought it was 43k...

Anyway, if your money is splitted over many accounts and still in the learning process, you can definetly hold some TD or RBC index funds for at least 1 more year. Thrust me, I went trough the same "crush learning" process years ago and it takes 1-2 years to get the whole picture.

Are you getting further with your banking options?

scrubbyfish

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Re: one (investing) question at a time
« Reply #77 on: December 09, 2014, 01:28:32 PM »
I have been loving that high-five GIF :)

To process everything so far, especially that last brainburst, I've been walking, cleaning, filing, stapling, and folding.

I see there are at least four questions in my head right now, but I'm better off sticking to one of my blocks at a time, so I'm going back to the exchange traded funds answers, and picking up from there.

MDM: Upon processing, I think your response was probably sufficient for my needs, yes. Thanks!

Question #8*: What is a stock exchange?

i.e., I thought there was just one big, worldwide, imaginary place (like the internet, or radio waves) that does things with money. But deborah said, "Each stock exchange has more than stocks available on it." And, "You have managed funds. These are outside the stock exchange..." And, "Some companies...put the "managed fund" onto the stock exchange..."

Now it occurs to me that you guys have mentioned things like "TSX = Toronto Stock Exchange", so I see there is more than one.
What is one?
How does a company put a fund "onto" it, and how does a fund exist "outside of" it?
What does each do, such that one is separate from another?

* I now see that I had two Question #6s. Onward.

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Re: one (investing) question at a time
« Reply #78 on: December 09, 2014, 01:44:47 PM »
As a Canadian, we usualy trade on the Toronto Stock eXchange (TSX) and New-York Stock Exchange (NYSE, one of the 3 biggest stock exchange in the USA, there is also the NASDAQ and Dow Jones, but those 2 are more "specialized" in tech and industrials)

The first is suitable for trading about anything with CAD (Canadian Dollar) and NYSE is for trading with USD (US Dollar)

I think its ennough, isnt it ?

Like I told you, I would not bother with ETFs right now, considering your learning process.

Funds can be "managed" (manager buy and sell securities) or "Index" Funds just track Indexes (lower fees because automatic buy and sell). They are usualy provided with no load (to buy or sell) from Big Bank or Funds providers.

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Re: one (investing) question at a time
« Reply #79 on: December 09, 2014, 02:24:08 PM »
Question #8*: What is a stock exchange?

i.e., I thought there was just one big, worldwide, imaginary place (like the internet, or radio waves) that does things with money. But deborah said, "Each stock exchange has more than stocks available on it." And, "You have managed funds. These are outside the stock exchange..." And, "Some companies...put the "managed fund" onto the stock exchange..."

Now it occurs to me that you guys have mentioned things like "TSX = Toronto Stock Exchange", so I see there is more than one.
What is one?
How does a company put a fund "onto" it, and how does a fund exist "outside of" it?
What does each do, such that one is separate from another?

* I now see that I had two Question #6s. Onward.

This particular wikipedia article seems less jargon-ish than many: http://en.wikipedia.org/wiki/Stock_exchange.  Some quotes from it:
Quote
A stock exchange...provides services for stock brokers and traders to buy or sell stocks, bonds, and other securities.
...
Stock exchanges often function as "continuous auction" markets, with buyers and sellers consummating transactions at a central location, such as the floor of the exchange.

To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions.

Quote
Companies must meet an exchange's requirements to have their stocks and shares listed and traded there, but requirements vary by stock exchange:

New York Stock Exchange: To be listed on the New York Stock Exchange (NYSE) a company must have issued at least a million shares of stock worth $100 million and must have earned more than $10 million over the last three years.
NASDAQ Stock Exchange: To be listed on the NASDAQ a company must have issued at least 1.25 million shares of stock worth at least $70 million and must have earned more than $11 million over the last three years.

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Re: one (investing) question at a time
« Reply #80 on: December 09, 2014, 02:56:56 PM »
Let us say that you had a business making paper. You developed a new method and your paper was awesome. Many people wanted to buy your paper, so you started to get more employees, and you were making paper together - you even got someone to specialise - do the accounts, embed butterflies in special paper...

Then you realised that you needed to enlarge - your back yard wasn't big enough, so you needed a factory and a lot of money. You could do two things - get a loan, or become a public company. If you became a public company you would issue shares. You might want $1M, and reckon that your process, and your existing company was worth $1M. So you would issue $2M worth of shares. Lets say that each share might be worth $1, so you would keep 1M shares (because what you have is already worth $1M), and you would want to trade 1M shares. So you give each person something saying they own $1 of your company, and they give you $1. As you sell more and more paper, your company is thought to be worth $4M, so every share is now worth $2. If you go broke, all the shares are worth little (they are probably worth something, as you have a factory...)

A stock exchange is a place where (if you follow their rules) you can sell your shares - shares are also called stocks, and it is where people exchange (sell and buy) their stocks.

As each country has different tax laws, generally each country has at least one stock exchange. As companies are subject to the laws and taxes of their own country, generally they are only on the stock exchange of their own country. So, if you want Apple shares, you need to get them from a US stock exchange.

scrubbyfish

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Re: one (investing) question at a time
« Reply #81 on: December 09, 2014, 03:14:51 PM »
:: jaw dropped again ::

Unbelievable. Bless you all.

Heckler

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Re: one (investing) question at a time
« Reply #82 on: December 09, 2014, 03:46:26 PM »
Sorry scrubby but I haven't graduated from bond class yet.


1.  How does an ETF bond fund like VAB work then?  I have 44 "tester" shares that I was expecting a $3 December dividend from.   I signed up for DRIP but the value is too low for a share so I was expecting cash to pop up in my account.   Nada. 

2.  What kind of bullshit segregated bond fund did I buy from my Sunlife work plan?   Plenty in there for a DRIP but Sunlife told me there are no dividends because it's the share price which goes up over time but not the number of units.   It's Blackrock Universe Bond Index Segregated Fund and has risen in price from $28.425 in July to $28.7591 with a 0.35 MER and -0.6 to 1.6 monthly returns.
« Last Edit: December 09, 2014, 03:56:48 PM by Heckler »

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Re: one (investing) question at a time
« Reply #83 on: December 09, 2014, 04:06:49 PM »
That is why your graph lines were so different. The S&P 500 are different companies to the TSX composite companies, so they have gone up and down differently.

Your investment line did similar wiggles to the TSX line, which was why I said it looked like it was mainly TSX and bonds.

scrubbyfish

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Re: one (investing) question at a time
« Reply #84 on: December 09, 2014, 04:23:52 PM »
What kind of bullshit segregated bond fund did I buy from my Sunlife work plan?

Heckler: In case it ends up making you feel better, here is the thread I started almost exactly one year ago about the kind of "bullshit segregated fund" I bought from SunLife: http://forum.mrmoneymustache.com/ask-a-mustachian/what-did-i-invest-in-%28canada-sunwise%29/msg180144/#msg180144  As you can see there, I got PHENOMENAL, patient, caring, thorough assistance from Heart Of Tin and huadpe, and some much-needed comfort from marty998. I highly recommend starting a thread just to ask about the details on your product. It was very helpful. It was my brave question, and the excellent help received there, that was the start of my forward movement. Obviously, I have moved slowly, but I've been diligently working away at all of this. And I am intent on not making the same mistake again.

Heckler

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Re: one (investing) question at a time
« Reply #85 on: December 09, 2014, 04:29:00 PM »

Le Barbu

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Re: one (investing) question at a time
« Reply #86 on: December 09, 2014, 06:13:26 PM »
Sorry scrubby but I haven't graduated from bond class yet.


1.  How does an ETF bond fund like VAB work then?  I have 44 "tester" shares that I was expecting a $3 December dividend from.   I signed up for DRIP but the value is too low for a share so I was expecting cash to pop up in my account.   Nada. 


Heckler, have a closer look to your account, VAB should pay dividend on dec. 3th IF you hold the shares before nov. 26th (ex. dividend date).

scrubbyfish

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Re: one (investing) question at a time
« Reply #87 on: December 09, 2014, 07:05:55 PM »
Question 9: Why would I invest longterm in bonds or money market?

We've touched on aspects of this... 

Stocks can go so wildly up and down, and may stay down for even several years at a time, so we cannot rely on them being higher than the invested amount if we're selling/withdrawing them within a few years. Yes?

Bonds and money market things are -not always but- usually more stable, so if we're going to need to withdraw them within a few years, we have a much greater chance of being able to pull out at least what we put in. Yes?

But if we have no intention of withdrawing the money for, say, 15 years, why would we have any of that amount in bonds?


e.g., Canada's Registered Disability Savings Plan offers massive government contributions and matches so long as we don't pull even a penny out for so many years. If we withdraw one penny, we lose thousands of gifted dollars. So, I have no intention of pulling anything out of those accounts for at least the required timeframe. Shouldn't all of that be in stocks, then?

Yet, I thought somewhere here said the RDSP I'm managing for my son should be 40/60 bonds/stocks because I'm managing it for someone else. How are bonds valuable in that case?

arebelspy

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Re: one (investing) question at a time
« Reply #88 on: December 09, 2014, 07:13:20 PM »
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

MDM

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Re: one (investing) question at a time
« Reply #89 on: December 09, 2014, 07:52:38 PM »
Question 9: Why would I invest longterm in bonds or money market?

We've touched on aspects of this... 

Stocks can go so wildly up and down, and may stay down for even several years at a time, so we cannot rely on them being higher than the invested amount if we're selling/withdrawing them within a few years. Yes?
Yes.

Quote
Bonds and money market things are -not always but- usually more stable, so if we're going to need to withdraw them within a few years, we have a much greater chance of being able to pull out at least what we put in. Yes?
Yes for money market.  Currently there is a very good chance you will be able to pull out exactly - no less than, but also no more than - what you put in.  That's because many money market accounts are paying ~0% now.
Depending on the definition of "a few" years, and given that interest rates are currently very low, I don't know that there is a "much" greater chance for bonds vs. stocks.  If only we could predict the future in detail....

Quote
But if we have no intention of withdrawing the money for, say, 15 years, why would we have any of that amount in bonds?

e.g., Canada's Registered Disability Savings Plan offers massive government contributions and matches so long as we don't pull even a penny out for so many years. If we withdraw one penny, we lose thousands of gifted dollars. So, I have no intention of pulling anything out of those accounts for at least the required timeframe. Shouldn't all of that be in stocks, then?

Yet, I thought somewhere here said the RDSP I'm managing for my son should be 40/60 bonds/stocks because I'm managing it for someone else. How are bonds valuable in that case?
Here is a decent "why bonds?" summary: http://janebryantquinn.com/2013/07/why-should-anyone-buy-bonds/

Another reason has to do with portfolio rebalancing.  Let's say you are 100% in stocks and have a year like 2008.  Your investment value drops 50%.  You are smart enough to see this as a buying opportunity - but where do you get the funds with which to buy?
If you have X% in stocks and (100-X)% in bonds, you could take money from your bond funds (which presumably haven't fallen nearly as much as stocks) and use that to buy cheap stocks.


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Re: one (investing) question at a time
« Reply #90 on: December 10, 2014, 06:37:15 AM »
Question 9: Why would I invest longterm in bonds or money market?

Yet, I thought somewhere here said the RDSP I'm managing for my son should be 40/60 bonds/stocks because I'm managing it for someone else. How are bonds valuable in that case?

It's me (the one who make that statement). In fact, because of that "Average Joe Investment Policy", lets imagine this hypothetical situation.

Ex. You manage money for someone else (disable, minor or any other reason) Then, someone get angry (jalous related or whatever) and challenge you over your management skills. Then, it happen to be right in the middle of a market downturn. Can you stand to explain to the authorities "I invested in 100% stock because Le Barbu on MMM told me it's the best investment on the long run, lets wait for 5 or 10 years and all this mess will be fixed"?

You see the picture ?

However, for your son's RDSP, it would be perfectly suitable to get that 40/60 or even a 25/75 bond/stock split and NOBODY can ever challenge you, EVER. It does not mean there is a rule over this, just common use in investing world. Asside of your son's RDSP, you can do what you want, it's your money.

scrubbyfish

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Re: one (investing) question at a time
« Reply #91 on: December 10, 2014, 07:05:21 AM »
Ex. You manage money for someone else (disable, minor or any other reason) Then, someone get angry (jalous related or whatever) and challenge you over your management skills. Then, it happen to be right in the middle of a market downturn. Can you stand to explain to the authorities "I invested in 100% stock because Le Barbu on MMM told me it's the best investment on the long run, lets wait for 5 or 10 years and all this mess will be fixed"?

You see the picture ?

However, for your son's RDSP, it would be perfectly suitable to get that 40/60 or even a 25/75 bond/stock split and NOBODY can ever challenge you, EVER. It does not mean there is a rule over this, just common use in investing world. Asside of your son's RDSP, you can do what you want, it's your money.

There are rules about the investment decisions I make for my minor son's money?
I can be required to account to a third party about my decisions?
Who is this third party ("authorities")?

Le Barbu

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Re: one (investing) question at a time
« Reply #92 on: December 10, 2014, 07:26:44 AM »
Ex. You manage money for someone else (disable, minor or any other reason) Then, someone get angry (jalous related or whatever) and challenge you over your management skills. Then, it happen to be right in the middle of a market downturn. Can you stand to explain to the authorities "I invested in 100% stock because Le Barbu on MMM told me it's the best investment on the long run, lets wait for 5 or 10 years and all this mess will be fixed"?

You see the picture ?

However, for your son's RDSP, it would be perfectly suitable to get that 40/60 or even a 25/75 bond/stock split and NOBODY can ever challenge you, EVER. It does not mean there is a rule over this, just common use in investing world. Asside of your son's RDSP, you can do what you want, it's your money.

There are rules about the investment decisions I make for my minor son's money?
I can be required to account to a third party about my decisions?
Who is this third party ("authorities")?

From what I know about this, there are NO rules, just "common uses" in managing money. YOU (scrubbyfish) are the best person to know if this can apply to your "particular" situation. If you are divorced, your "ex" could be the one who challenge you. If you feel or think to be in a situation you have to show someone you did a good job managing your son's money, then invest it in a more "common" way. If not, then take your own decisions based on your researches. In French, we call this "Act like a Good Father". Don’t know the English expression that fit.

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Re: one (investing) question at a time
« Reply #93 on: December 10, 2014, 07:50:27 AM »
Question 9: Why would I invest longterm in bonds or money market?

Another reason has to do with portfolio rebalancing.  Let's say you are 100% in stocks and have a year like 2008.  Your investment value drops 50%.  You are smart enough to see this as a buying opportunity - but where do you get the funds with which to buy?
If you have X% in stocks and (100-X)% in bonds, you could take money from your bond funds (which presumably haven't fallen nearly as much as stocks) and use that to buy cheap stocks.

+1.  DH had a 25% bond/75% stock mix in his retirement account for this exact reason.  Keeps the dividend-paying bonds sheltered from taxes, plus gives us additional money to take advantage of any market drops. 

Best thing to do is ask yourself these questions:

- Do I want to own any bonds?

- Do I have the emotional strength to sell stocks when they are valued high, and put the money into bonds that are valued low (and vice versa)?

- Do I want to buy something once (i.e. stocks or a balanced fund) and not have to think about moving money between funds every 1-2 years to keep a certain ratio of stocks to bonds?

In the big picture, there is evidence showing that moving money between stocks and bonds over time gets you a greater overall return on your money.  But there is also evidence that keeping it 100% in stocks is the best option.  A lot of the data analysis depends on the timeframe chosen, the mutual funds chosen, the timing of the move between stocks and bonds, etc.  Basically - data can be manipulated to prove any point.

What you need to know if whether you are a "purchase it and forget it" person, or if you want to be actively involved in moving the money around on a 1-2 year basis.  Both options are legit.  You need the option that enables you to sleep at night. 

scrubbyfish

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Re: one (investing) question at a time
« Reply #94 on: December 10, 2014, 08:01:55 AM »
Fascinating info about bonds. Thanks!

Based on what I'm learning, I do not see value in them for "being safer", and the tax sheltering matter doesn't apply in my case (though possibly could in some years), but the matter of having something close to cash savings at the ready for buying stocks-while-cheap makes sense to me.

In terms of "buying stocks while cheap", would I just go about my life until a lot of people are freaking out about stocks plummeting, then just add, say, $10,000 (whatever I want and have available) to whatever funds I'm already in? i.e., I'm not researching and picking stocks at that point, just adding to the highly diversified fund(s) I've already selected?

What you need to know if whether you are a "purchase it and forget it" person, or if you want to be actively involved in moving the money around on a 1-2 year basis.  Both options are legit.  You need the option that enables you to sleep at night.

I'm pretty sure I wouldn't want to move things every 1-2 years. I might be willing to look at things every 5 years, and tweak things at that point if I felt it was really important to do that, or repair major errors in my decisions in the meantime, but otherwise I see myself as "purchase it and forget it" person.

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Re: one (investing) question at a time
« Reply #95 on: December 10, 2014, 08:13:26 AM »

In terms of "buying stocks while cheap", would I just go about my life until a lot of people are freaking out about stocks plummeting, then just add, say, $10,000 (whatever I want and have available) to whatever funds I'm already in? i.e., I'm not researching and picking stocks at that point, just adding to the highly diversified fund(s) I've already selected?


This is called "Market Timming" and it is proved to be a fool game. Even if peoples are in panic about stocks, it does not mean they are cheap. In fact, they can still be overpriced, nobody knows. When stock market plummet and bonds outperform stocks, it's just because...bonds have outperformed stocks for that time frame.

Because your situation makes your taxes extremely low, even with a 43k/year income, set asside a 10k chunk in a High Interest Saving Account. This way, you have a security net and you can make the annual contributions to optimize your RDSP etc.

MDM

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Re: one (investing) question at a time
« Reply #96 on: December 10, 2014, 10:12:20 AM »

In terms of "buying stocks while cheap", would I just go about my life until a lot of people are freaking out about stocks plummeting, then just add, say, $10,000 (whatever I want and have available) to whatever funds I'm already in? i.e., I'm not researching and picking stocks at that point, just adding to the highly diversified fund(s) I've already selected?


This is called "Market Timming" and it is proved to be a fool game. Even if peoples are in panic about stocks, it does not mean they are cheap. In fact, they can still be overpriced, nobody knows. When stock market plummet and bonds outperform stocks, it's just because...bonds have outperformed stocks for that time frame.

Because your situation makes your taxes extremely low, even with a 43k/year income, set asside a 10k chunk in a High Interest Saving Account. This way, you have a security net and you can make the annual contributions to optimize your RDSP etc.
Although there is not a clear distinction between "portfolio rebalancing" vs. "market timing", neither are they identical.  A recent, short, thread on the issue: http://forum.mrmoneymustache.com/investor-alley/what-is-the-best-method-for-rebalancing-a-portfolio.  GardenFun's comments are also good.

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Re: one (investing) question at a time
« Reply #97 on: December 10, 2014, 10:44:12 AM »
Question 9: Why would I invest longterm in bonds or money market?

if we have no intention of withdrawing the money for, say, 15 years, why would we have any of that amount in bonds?

Because intentions do not always match actions. In the midst of a stock-market crash, especially if you have never experienced one, fear can take over, leading you to sell stocks at a low point, suffering great losses. Even if you told yourself that you would never sell. By holding a portion of the portfolio in bonds, the overall value of the portfolio suffers less during a stock-market crash, and that reduces the feeling of panic and makes it easier to stick with your original plan to "stay the course". So essentially the main role of bonds (for someone still accumulating money) is to provide a psychological comfort.

100% stocks is expected to provide the highest long-term return, for an emotionless robot. But for a human, having some percentage of the portfolio in bonds is likely to provide a higher real-life return, by preventing that human from making poor decisions.

The investing method we generally advise here is pretty straightforward, which leaves the decision about what percentage of your portfolio to hold in bonds as one of the most difficult parts. Because it requires you to predict how you will emotionally react to situations you may not have experienced before. If you truly have robotic control over your emotions, then 100% stocks might be ok. But if seeing the value of the RDSP get cut in half would make you sweat and sleep poorly, then you'll want some portion in bonds.

scrubbyfish

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Re: one (investing) question at a time
« Reply #98 on: December 10, 2014, 11:30:42 AM »
Excellent, MDM and skyrefuge! Thank you!!

This is really great (a.k.a. helpful!) stuff.

The biggest factor with the RDSP is that the vast majority of the gain comes not from investment growth but from government matches and contributions. For my son's account, when I optimize it, the government will put in $90,000 over the course of twenty years. If I pull out one penny within 10 years of a government contribution, the government pulls out the contributions. So, if I continue optimizing the Plan, my son would make his first withdrawal not sooner than 30 years after I started it. Thus, one is very motivated to pull out nothing, no matter what (which is why the government has created this account; its goal is that people with disabilities will commit to building reserves so that they can fund their own additional, disability-related life costs.)

The Registered Education Savings Plan, on the other hand, he might use as early as 8 years from now -it's for post secondary education, and the government does not have time stipulations that would cause him to lose out on the 20% match received there. So, that would be a different ball of wax -more upsetting if, when he wants to go to school, holdings were at 50% value of the contributions made. As a person with disabilities, he would be eligible for the disability grants in university, but all signs so far point to him wanting to go to trade school, which might leave us more reliant on self-funding.

Oh my, look how things are starting to coalesce between my brain and investing!

scrubbyfish

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Re: one (investing) question at a time
« Reply #99 on: December 10, 2014, 01:04:41 PM »
Okay, I'm now grasping enough that I'm able to form a question like, "On my YuckyChart, why the heck is the TSX Composite showing so much worse than the S&P500? Is this a short term blip, or is this common? If it's common, why the heck would I invest in the TSX vs the S&P500?"

And then I'm able to Google that, and find three great articles that say, "Yes, for the past several years at least, the TSX has sucked compared to the S&P500. It used to have some specific strengths, specifically in banking and [something else]. But not so much lately. So, people who ever want to get ahead should probably invest in US-listed funds as well. The US has a much wider range of fund-types, its medical system rakes in the dough, and so on."

Oh.

Does this match the sense of those of you on here?

Question 10: What does it mean to "track an index"? What is an index, and what is it to track one?