Risk Tolerance

Math 11 Essentials

Four Stages of Life - Investing Early Career Established Pre-Retirement Retirement

Risk Tolerance

How much fluctuation your financial resources you can withstand

Affected By:

The actual amount of money you have after expenses

Your ability to recover if you do suffer losses

For most people, the money they have after expenses increases as they move through their working years.

As you near retirement your ability to recover after losses decreases.

3 Basic Investment Options (objectives) Safety (not ending up with less than you

started with) Income (getting regular payments – interest

or dividends) Growth (ending up with more than what you

started with)

Income return:

A regular dividend (from stocks) or interest (from bonds)

Capital Gain:

Occurs when you sell an investment for more than what you paid for it

Total Return

The sum of the two returns (income return and capital gain)

The riskier the investment, the greater the potential return! And also the greater possible

loss.

Types of Investments

Government Bonds Canada Savings Bonds GIC: Guaranteed Investment Certificate Corporate Bonds Stocks

Types of Stocks

Small Cap Stocks: shares in small, not established companies

Blue Chip Stocks: shares in large, well established companies

Rank the Investment ObjectivesJoel has just retired. He will receive his Canada

Pension. He must decide what to do with his RRSP investments to supplement his pension. He knows that a dollar will most likely not buy as much in 10 years as it will today

Joel

1) Safety of Principle – He’s not working anymore so he cant afford a big loss.

2) Income – Since he is retired he could use the regular income of stocks/bonds to supplement his pension.

3) Growth – since he knows the dollar wont buy as much, he doesn’t want his money to lose value

How would you recommend he invest his RRSP money and why? Put some into Canada Savings bonds or

GIC’s because they are safe and you can get regular income from them.

Also put some into Corporate Bonds. They have the potential for growth, but are still semi-low risk

He could take a little and put into Blue Chip Stocks to play with so he can try to increase his money. But don’t put it in Small Cap Stocks (too risky)