Building Wealth For Canadians All-in-One For Dummies®
Visit to view this book's cheat sheet.
Table of Contents
Building Wealth For Canadians All-in-One For Dummies®
Building Wealth For Canadians All-in-One For Dummies®
Published by
John Wiley & Sons Canada,
Ltd. 6045 Freemont Boulevard
Mississauga, Ontario, L5R 4J3
Copyright © 2012 by John Wiley & Sons Canada, Ltd.
Published by John Wiley & Sons Canada. Ltd.
No part of this book, including interior design, cover design, and icons, may be reproduced or transmitted in any form, by any means (electronic, photocopying, recording, or otherwise) without the prior written permission of the publisher. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd., 6045 Freemont Blvd., Mississauga, ON L5R 4J3, or online at . For authorization to photocopy items for corporate, personal, or educational use, please contact in writing The Canadian Copyright Licensing Agency (Access Copyright). For more information, visit or call toll free, 1-800-893-5777.
Trademarks: Wiley, the Wiley logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com, Making Everything Easier, and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries, and may not be used without written permission. All other trademarks are the property of their respective owners. John Wiley & Sons, Inc., is not associated with any product or vendor mentioned in this book.
Limit of Liability/Disclaimer of Warranty: The contents of this work are intended to further general scientific research, understanding, and discussion only and are not intended and should not be relied upon as recommending or promoting a specific method, diagnosis, or treatment by physicians for any particular patient. The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation any implied warranties of fitness for a particular purpose. In view of ongoing research, equipment modifications, changes in governmental regulations, and the constant flow of information relating to the use of medicines, equipment, and devices, the reader is urged to review and evaluate the information provided in the package insert or instructions for each medicine, equipment, or device for, among other things, any changes in the instructions or indication of usage and for added warnings and precautions. Readers should consult with a specialist where appropriate. The fact that an organization or Website is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or Website may provide or recommendations it may make. Further, readers should be aware that Internet Websites listed in this work may have changed or disappeared between when this work was written and when it is read. No warranty may be created or extended by any promotional statements for this work. Neither the publisher nor the author shall be liable for any damages arising herefrom.
For general information on John Wiley & Sons Canada, Ltd., including all books published by John Wiley & Sons, Inc., please call our warehouse, Tel 1-800-567-4797. For reseller information, including discounts and premium sales, please call our sales department, Tel 416-646-7992. For press review copies, author interviews, or other publicity information, please contact our marketing department, Tel 416-646-4584, Fax 416-236-4448.
For technical support, please visit .
Wiley also publishes its books in a variety of electronic formats and by print-on-demand. Not all content that is available in standard print versions of this book may appear or be packaged in all book formats. If you have purchased a version of this book that did not include media that is referenced by or accompanies a standard print version, you may request this media by visiting . For more information about Wiley products, visit us at .
Library and Archives Canada Cataloguing in Publication
Building wealth for Canadians all-in-one for dummies / Bryan Borzykowski ... [et al.].
Includes index.
Issued also in electronic formats.
ISBN 978-1-118-18106-5 (pbk.)
1. Investments—Canada. 2. Finance, Personal—Canada.
I. Borzykowski, Bryan
HG5152.B85 2012 332.6’0971 C2011-907867-8
E-ISBNs: 978-1-118-22393-2, 978-1-118-22396-3, 978-1-118-22399-4
Printed in the United States of America
1 2 3 4 5 RRD 16 15 14 13 12
About the Authors
Bryan Borzykowski is an award-winning financial journalist, who writes mostly about investing, personal finance and small business. He’s the co-author of Day Trading For Canadians For Dummies and contributes to the Globe and Mail, Business magazine, the Toronto Star, MoneySense and other leading Canadian publications. You can find Bryan at or on Twitter @bborzyko.
Andrew Bell was an investment reporter and editor with The Globe and Mail for 12 years. He joined Business News Network as a reporter in 2001. Bell, an import from Dublin, Ireland, was for 10 years the main compiler of Stars & Dogs in Saturday’s Globe. The roundup of hot and damp stocks and mutual funds was an invaluable therapeutic aid in relieving his own myriad jealousies, regrets, and resentments. He has also taken to the stage, where he practises a demanding “method” that involves getting the audience and other performers as off-balance and upset as possible. He lives in Cabbagetown, Toronto, with his wife and daughter.
Christopher Cottier, BSc, MBA, is a senior investment advisor based in British Columbia. In 1982, he left the world of banking to join the investment industry in Vancouver so he could continue to pursue his love of rugby. More than twenty five years later, he’s still managing money and playing rugby. With Betty Jane Wylie, Christopher is the co-author of The Best Is Yet to Come: Enjoying a Financially Secure Retirement (Key Porter). Christopher was ably assisted by Daniel Quon, BA, who has been awarded the Queen Elizabeth 11 Golden Jubilee Medal.
Andrew Dagys, CMA, is a best-selling author who has written and coauthored several books, including Stocking Investing For Canadians For Dummies and Investing Online For Canadians For Dummies. He has appeared on Canada AM and several popular CBC broadcasts to offer his insights on the Canadian and world investment landscapes. Andrew has contributed columns to CanadianLiving, Forever Young, and other publications. He has appeared on Canada AM and several popular CBC broadcasts to offer his insights on the Canadian and world investment landscapes.
Matthew Elder is a writer and communications consultant based in Toronto. Previously he was vice-president, content and editorial, of Morningstar Canada. A Montreal native, he was a columnist and editor specializing in personal finance with The Gazette for 10 years before moving to the Financial Post in 1995, where he was mutual funds editor and columnist until joining Morningstar in 2000.
Lita Epstein, who earned her MBA from Emory University’s Goizueta Business School, enjoys helping people develop good financial, investing, and tax planning skills. She designs and teaches online courses and has written more than 20 books, including Bookkeeping For Dummies and Reading Financial Reports For Dummies, both published by Wiley.
Douglas Gray, B.A., LL.B., formerly a practicing lawyer, has extensive experience in all aspects of real estate and mortgage financing. He has acted on behalf of buyers, sellers, developers, investors, lenders and borrowers. In addition, he has over 35 years of personal experience investing in real estate. He is the author of 26 best-selling real estate, business and personal finance books, as well as a consultant and columnist.
Mr. Gray gives seminars on real estate throughout Canada to the public, as well as for professional-development programs for the real estate industry. He has presented to more than 250,000 people and is frequently interviewed by the media as an authority on real estate and small business entrepreneurship. Mr. Gray is president of the Canadian Enterprise Development Group Inc. and lives in Vancouver, BC. His website is .
Michael Griffis became an active trader in the mid 1980s. He first traded commodities and precious metals after taking a commodities trading class as part of his MBA program at Rollins College. He became a stockbroker in 1992, where he helped businesses and individuals manage investments in stocks, bonds, mutual funds, retirement plans, 401(k) employee-savings plans, and asset management programs. Michael is an author and business owner and has written about stock trading for online audiences.
Ann C. Logue, MBA, is the author of Day Trading For Dummies and Emerging Markets For Dummies. She has written for Barron’s, The New York Times, Newsweek Japan, Wealth Manager, and the International Monetary Fund. She is a lecturer at the Liautaud Graduate School of Business at the University of Illinois at Chicago. Her current career follows 12 years of experience as an investment analyst. She has a B.A. from Northwestern University and an M.B.A. from the University of Chicago, and she holds the Chartered Financial Analyst (CFA) designation.
Peter Mitham has written on Canadian real estate for publications in Canada and abroad. He contributes a weekly column of real estate news for Business in Vancouver and writes regularly for Western Investor, a sister publication focused on real estate investment opportunities in Western Canada, as well as Canadian Real Estate Magazine. He has also collaborated with Douglas Gray on The Canadian Landlord’s Guide: Expert Advice for the Profitable Real Estate Investor (Wiley).
Paul Mladjenovic, CFP is a certified financial planner practitioner, writer, and public speaker. His business, PM Financial Services, has helped people with financial and business concerns since 1981. He is the author of Stock Investing For Dummies (Wiley) and has accurately forecast many economic events, such as the rise of gold, the decline of the U.S. dollar, and the housing crisis. Paul’s personal website can be found at .
Publisher’s Acknowledgments
We’re proud of this book; please send us your comments at . For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993 or fax 317-572-4002.
Some of the people who helped bring this book to market include the following:
Acquisitions and Editorial
Editor: Anam Ahmed
Production Editor: Pauline Ricablanca
Editorial Assistant: Kathy Deady
Technical Editor: Christopher Cottier
Cover Photo: © iStock / Feng Yu
Cartoons: Rich Tennant ()
Composition Services
Project Coordinator: Kristie Rees
Layout and Graphics: Sennett Vaughan Johnson, Lavonne Roberts
Proofreaders: Rebecca Denoncour, Lisa Young Stiers
Indexer: BIM Indexing & Proofreading Services
John Wiley & Sons Canada, Ltd.
Deborah Barton, Vice President and Director of Operations
Jennifer Smith, Publisher, Professional and Trade Division
Alison Maclean, Managing Editor
Publishing and Editorial for Consumer Dummies
Kristin Ferguson-Wagstaffe, Product Development Director, Consumer Dummies
Ensley Eikenburg, Associate Publisher, Travel
Kelly Regan, Editorial Director, Travel
Publishing for Technology Dummies
Andy Cummings, Vice President and Publisher
Composition Services
Debbie Stailey, Director of Composition Services
Introduction
Long gone are the good old days, when the stock market was producing solid returns and worries about retirement savings were non-existent. As bad as the recent financial crisis was — and it was gruesome, with the Canadian stock market falling about 36 percent in 2008 — there was plenty good that came out of it, including a renewed conversation on how people can build wealth.
Today, you can’t read the news without landing on a money saving tip or some investment advice and that’s a good thing — it means people are taking a greater interest in their financial futures. And that’s where we come in. Building wealth is still possible. People retire with healthy bank accounts every day and, despite what you may read, Canadians will continue to live out their dreams long after their working lives are over. The difference between today and years gone by, though, is that now you have to know what you’re doing. Canadians can’t just put their money in any investment and watch it grow. You need to understand the way stocks and mutual funds work, be able to read an annual report, and get a sense of how professional traders play the markets.
Building Wealth All-in-One For Canadians For Dummies will help you gain that knowledge and more. From understanding the concept of guaranteed investment certificates to the fast-paced world of day trading, we’ll help you find out everything you need to know about building wealth and growing your portfolios. When you’re done with this book, you should be well on your way to building that nest egg you’ve always wanted.
About This Book
You already know that financial issues are a hot topic these days — otherwise you wouldn’t be reading this paragraph. If you’re in your local bookstore, look around — you probably see a tonne of tomes on building wealth, portfolio management, investing, trading, and more. No one has time to read everything, which is why we put together Building Wealth For Canadians All-in-One For Dummies. This is your starting point. In nearly 700 pages we tackle everything from understanding your net worth and mutual fund basics to choosing the rights stocks and making currency trades.
Yes, that’s a lot of pages, but not only is it better than reading myriad books on each topic, but you can also use this as a reference. Keep it in your desk, stash it next to your computer, or take it with you on a long flight. Every time you have a question about bonds, stocks, or funds, or if you need to remember how to calculate a net worth statement, open this up and you’ll likely find your answer.
Ultimately, we don’t care how you choose to grow your wealth, we just want you to grow it and build it properly. That’s why we present numerous different wealth-building options for every kind of investor.
It’s always a good idea to read as much as you can — so go ahead and buy other books that speak to some of these topics — but keep this one handy; we promise you’ll come back to it again and again.
Conventions Used in This Book
Because some information in this book really deserves to stand out, you’ll find certain conventions that apply to the following situations:
Website addresses appear in this font
.
Terms and phrases that may be unfamiliar to you appear in italics. You’ll find an appropriate definition of the term or phrase nearby.
Bolded words or phrases highlight the action parts of numbered steps or keywords in bulleted lists.
The occasional sidebar (a shaded grey box) has information that’s interesting to know but not necessarily critical to your understanding of a particular wealth-building topic.
Throughout this book, you’ll find cross-references to other sections that have information that adds to or supplements the content you’re perusing. If a cross-reference directs you to a section in the same Book, you’ll read something like, “Check out Chapter 3 for more information.” If the cross-reference is to a different Book, look for something like, “Find out more in Book II, Chapter 2.”
Foolish Assumptions
You’ll be happy to know that, when it comes to this book, all our reader assumptions are thrown out the window. Well, almost all. We do assume that you want to grow your bank account and, ultimately, retire with more than a few Shekels in your pocket. Whether you’ve opened your first bank account or are a bona fide number cruncher, you’ll find something useful here. You just need a desire to save, invest, and learn. That’s really it.
We start with net worth–building basics and then get into more complex trading strategies, so while we suggest starting at Book I, Chapter 1, you can also flip through to the section that best suits your investing level.
How This Book Is Organized
Building Wealth For Canadians All-in-One For Dummies is sorted into six parts so that you can find what you need to know quickly.
Book I: The Basics of Building Wealth
We know you’re anxious to get your money growing, but before you jump into the stock market you need to understand just what it takes to build wealth. That means paying down debt, investing in an RRSP, and more. Get a good grasp of the basics and you’ll be well on your way.
Book II: Making Money with Mutual Funds
Canadians love mutual funds. And it’s not hard to understand why. These products hold numerous securities, so they’re well diversified, and with professional management you don’t have to worry about picking stocks. But like with any investment, you need to know what you’re buying. This book explains everything you need to know about mutual funds, from the different types to the returns you can expect and how fund fees affect returns.
Book III: The Skinny on Stocks
Some investors like to be a little more hands-on with their wealth building. That’s where stocks come in. Pick the right one and your net worth could soar. Of course, choose a dud and you could be in trouble. In this book we reveal how stock investing can help grow a portfolio and what you need to do to make sure you’re buying the right companies.
Book IV: Trials and Tribulations of Trading
Trading — short-term buying and selling — isn’t for everyone, but do it right and you can add some serious wealth to your portfolio. Not only does this book explain how to make short-term trades, but you’ll learn about things like short selling and leverage too. The book isn’t just for traders — long-term investors also will learn a tonne about the markets.
Book V: Delving into Day Trading
Day trading has come in and out of fashion over the years, but one thing’s for certain: if you love the markets, have a lot of time on your hands, and can keep your emotions in check, this type of trading may be the ideal wealth building method for you. This book digs deep into technical analysis, but we also talk about how taxes and regulation affect investors.
Book VI: Reviewing Real Estate Investing
For some Canadians, investing in the market isn’t enough. Real estate typically provides investors regular income and asset appreciation, and with property values continuing to skyrocket returns can be better than what you’d find in equities. But real estate investing comes with its own rules and challenges. This book walks you through all that — we explain what to look for in a rental property, how to buy and sell real estate, the differences between owning residential and commercial spaces, and more.
Icons Used in This Book
You’ll see various icons scattered around the margins of the text. Each icon points out a certain type of information, most of which you should know or may find interesting. They go as follows:
Where to Go from Here
Well, open up the book and get going! We suggest starting with Book I, Chapter 1, which gives you some basic information on building wealth. Before you can start investing, you need to know how debt affects net worth, so it’s a good idea to figure that out. If you already make it a priority to pay down debt, then you can start with Book II to get a handle on investing. The entire book offers up interesting investing advice, so even if you just want to trade a few stocks, or park your cash in a mutual fund, it’s a good idea to read the other chapters to learn as much as you can about growing your wealth.
However, if you’re an adrenaline junkie looking to trade stocks on a more frequent basis, you could start with Book IV or Book V, where we talk, more specifically, about swing and day trading.
Finally, if you’re itching to investing in real estate, flip to Book VI, where we talk, in depth, on how to invest in more tangible assets.
Book I
The Basics of Building Wealth
Contents at a Glance
Chapter 1: The Basics of Building Wealth
The Road to Building Wealth Starts Here. . .
The Net Worth Statement
Use the Net Worth Statement to Reach Your Goals
Avoid Bad Debt
Dump Debt Sooner
Start Saving
Understanding Risk and Reward
Realizing Gains through Compounding
Focusing on a Goal
Starting Your Savings Now
Starting and Staying with a Diversified Investment Approach
Developing a Dollar Cost Averaging Plan
Chapter 2: Playing It Safe
Starting with Savings Accounts
Tiered Accounts
Diving in to Savings Accounts
Considering Guaranteed Investment Certificates
Learning about Bond Basics
Purchasing Bonds
Looking at Bond Performance: The Indices
Chapter 3: Mind your Rs and Ts: RRSPs and TFSAs
Investing in RRSPs
What Is a Tax-Free Savings Account?
Mother’s (and Father’s) Little Helper: The RESP
Investing with Your Eye on Taxes