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COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd 10 - 1 Chapter 10 – Investment Planning
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COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd
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Chapter 10 – Investment Planning
Chapter 10 – Investment Planning
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Chapter 10 - Learning Goals
LG 1 - Discuss the role that investing plays in the personal financial planning process and identify several different investment objectives.
LG 2 - Distinguish between primary and secondary market, as well as listed exchanges and the over-the-counter market.
LG 3 - Explain the process of buying and selling securities and recognize the different types of orders.
LG 4 - Develop an appreciate for how various forms of investment information can lead to better investing skills and returns.
LG 5 - Gain a basic understanding of the growing impact that the computer and the Internet are having on the field of investments.
LG 6 - Describe an investment portfolio and how you’d go about developing and managing a portfolio of securities.
Learning Goals
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Internet Links and On-Line Resources
• Fiscal Agents Financial Services Group Website to help you find the right product.
• Investopedia.com offers a comprehensive investment tutorial and a glossary of financial terms.
• Retirement planner at Morningstar’s retirement center.• Toronto Stock Exchange (TSX)• Implications of the Efficient Markets Hypothesis (EMH) at Wikipedia.org.• IBM’s Investor site – Guide to Understanding Financial Reports.• Money Sense.ca – numerous articles, tools and tips for investors• Investopedia.com – a free site that has extensive informaiton on investing
(click on “Tutorials” )• The Motley Fool has sections on fundamentals of investing, mutual fund
investing, choosing a broker, investment strategies and styles.• Smart Money University offers Investing 101.• Canadian Investment Review – how much diversification is enough?• Portfolio tracker at Sympatico’s MSN site
Web Links
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Key Chapter Terms and Definitions Investing Speculating Investment plan Derivative securities Securities markets Prospectus Over-the-counter market Organized securities exchang
es Listed security Unlisted security Bid price Ask price Bull market Bear market Stockbroker Full-service broker Discount broker Canadian investor protection f
und (CIPF) Arbitration
Odd lot Round lot Market order Limit order Good ‘till cancelled (GTC)
order Stop-loss order (stop) Margin purchase Short sale Annual report S&P/TSX composite index Dow Jones Industrial Average
(DJIA) Standard & Poor’s (S&P)
indexes NYSE index NASDAQ index Day trader Portfolio Diversification Asset allocationTerms
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DefinitionsInvesting
The process of placing money in some medium such as stocks or bonds in the expectation of receiving some future benefit.
Terms
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DefinitionsSpeculating
A form of investing in which future value and expected returns are highly uncertain.
Terms
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DefinitionsInvestment Plan
A statement, preferably written, that specifies how investment capital will be invested for the purpose of achieving a specified goal.
Terms
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DefinitionsDerivative Securities
Securities such as futures and options, whose value is derived from (or linked to) the price behaviour of an underlying asset or financial asset.
Terms
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DefinitionsSecurities markets
The marketplace in which stocks, bonds, and other financial instruments are traded.
Terms
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DefinitionsProspectus
A document made available to prospective security buyers that describes the firm and a new security issue.
Terms
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DefinitionsOver-the-counter (OTC) market
The market in which securities not listed on one of the organized exchanges are traded.
Terms
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DefinitionsOrganized securities exchanges
Exchanges where various types of securities are traded by exchange members for their own accounts and the accounts of their customers.
Terms
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DefinitionsListed security
A security that has met the prerequisites for, and thus is traded on, one of the organized security exchanges.
Terms
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DefinitionsUnlisted security
A security that is traded in the over-the-counter market; such a trade is made directly between the investor and the security dealer.
Terms
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DefinitionsBid price
The price at which one can sell a security.
Terms
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DefinitionsAsk price
The price at which one can purchase a security.
Terms
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DefinitionsBull market
A condition of the market normally associated with investor optimism, economic recovery and expansion; characterized by generally rising securities prices.
Terms
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DefinitionsBear market
A condition of the market typically associated with investor pessimism and economic slowdown; characterized by generally falling securities prices.
Terms
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DefinitionsStock broker (account executive, investment advisor)
A person who buys and sells securities on behalf of clients and provides them with investment advice and information.
Terms
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DefinitionsFull-service broker
A broker who, in addition to executing clients’ transactions, provides them with a full array of brokerage services.
Terms
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DefinitionsDiscount broker
A broker with low overhead who charges low commissions and offers little or no services to investors.
Terms
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DefinitionsCanadian investor protection fund (CIPF)
A trust fund established to protect customer accounts against the financial failure of a brokerage firm.
Terms
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DefinitionsArbitration
A procedure used to settle disputes between a brokerage firm and its clients; both sides of the “story” are presented to the board of arbitration, which makes a final and often binding decision on the matter.
Terms
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DefinitionsOdd lot
A quantity of fewer than 100 shares of a stock.
Terms
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DefinitionsBoard/round lot
A quantity of 100 shares of stock, or multiples thereof.
Terms
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DefinitionsMarket order
An order to buy or sell a security at the best price available at the time it is placed.
Terms
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DefinitionsLimit order
An order to either buy a security at a specified or lower price, or to sell a security at or above a specified price.
Terms
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DefinitionsGood ‘till cancelled (GTC) order
A limit order placed with instructions that it remain in effect indefinitely or until canceled.
Terms
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DefinitionsStop-loss (stop) order
An order to sell a stock when the market price reaches or drops below a specified level.
Terms
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DefinitionsMargin purchase
The purchase of securities with borrowed funds, the allowable amount of which is limited by the stock exchange.
Terms
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DefinitionsShort sale
A transaction that involves selling borrowed securities with the expectation that they can be replaced at a lower price at some future date; generally made in anticipation of a decline in the security’s price.
Terms
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DefinitionsAnnual report
A report made available to shareholders and other interested parties that includes a variety of financial and descriptive information about a firm’s operations over the recent past (usually the last fiscal year).
Terms
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DefinitionsS&P/TSX composite index
The most widely followed measure of stock market performance in Canada.
Terms
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DefinitionsDow Jones Industrial Average (DJIA)
The most widely followed measure of stock market performance in the United States; consists of 30 blue-chip stocks listed mostly on the NYSE.
Terms
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DefinitionsStandard & Poor’s (S&P) index
An index of the performance of all stocks listed on the New York Stock Exchange.
Terms
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DefinitionsNYSE index
An index of the performance of all stocks listed on the New York Stock Exchange.
Terms
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DefinitionsNASDAQ index
An index, supplied by the National Association of Securities Dealers, that tracks the performance of stocks traded on the OTC market.
Terms
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DefinitionsDay trader
An investor who buys and sells stocks (and other securities) rapidly throughout the day in the hopes of making quick profits.
Terms
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DefinitionsPortfolio
A collection of securities assembled for the purpose of meeting common investment goals.
Terms
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DefinitionsDiversification
The process of choosing securities having dissimilar risk-return characteristics in order to create a portfolio that will provide an acceptable level of return and an acceptable exposure to risk.
Terms
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DefinitionsAsset allocation
A plan for dividing a portfolio among different classes of securities in order to preserve capital by protecting the portfolio against negative market developments.
Terms
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THE END!
