The next section of the Action Financial Group Orientation Series will deal with Investing and the various investment products or assets.
• Saving, banking, investing
• Cash and High Interest Savings Accounts (HISA)
• Guaranteed Investment Certificates (GIC)
• Mutual Funds
• Exchange Traded Funds (ETF)
Today we will deal with stocks.
A stock, also called a share, is an investment in which the investor buys part of a corporation with the intention and hope that the business of which they own a share will grow in value and generate profits.
Most corporations start out as small businesses, owned by an individual or a small group of individuals. As the business grows and becomes profitable, investors might become interested in buying the business to share in the profits and growth of the business; but they may not have the resources to buy the entire operation. The business could be divided up into shares, and investors can buy some of the stocks that represent these shares.
All owners (of the same class of shares) have the same rights to growth and profit, in proportion to the number of shares they own. They also take the risk if the business does not prosper, and share values may decline.
Since shares are parts of a corporation, the shareholders have limited liability for the activities of the corporation. Stocks or shares are traded on a stock market. Investors place orders through investment dealers to buy or sell the shares they want to trade. In order to sell a stock, there has to be a buyer willing to purchase the shares at a price that is acceptable to both the seller and the buyer. If a share owner places an order to sell their shares but no one is willing to buy it, no trade is completed. In other words, as a shareholder, you might own shares that cannot immediately be converted into cash. This may result in “illiquidity”. Some shares are widely held and actively traded. These would likely be more “liquid”, or more readily and frequently traded.
The growth in value of a stock is called a capital gain, half of which is taxable income. The profits that are generated in the company and distributed to the owners, who are the shareholders, are called dividends, which are also taxable income.
Stocks are not guaranteed investments.
Stocks can be held in various account types that we described in earlier sections of this series: Open, RRSP/RRIF, LIRA/LIF, TFSA, RDSP, RESP.
We hope you will find this information valuable and will increase your financial confidence. You can always find these articles on our website www.actionfinancialgroup.com.
In the next section we will deal with Mutual Funds.
Karin Rimnyak, Certified Financial Planner®
David Dryburgh, Certified Financial Planner®
Ian Barrie, Certified Financial Planner®
This information has been prepared by Karin Rimnyak who is an investment Advisor for iA Private Wealth. Opinions expressed in this email are those of the Investment Advisor only and do not necessarily reflect those of iA Private Wealth. iA private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.