1. Capital Market Securities
1.1. Government Bonds
1.1.1. Definition
1.1.1.1. It is a debt that is used to support government spending and obligations.
1.1.2. Who Issues
1.1.2.1. The government
1.1.3. Time
1.1.3.1. 1 - 30 years
1.1.4. Advantage
1.1.4.1. They pay a steady interest income return
1.1.4.2. Low risk of default for U.S. bonds
1.1.4.3. Exempt from state and local taxes
1.1.4.4. A liquid market for reselling
1.1.4.5. Is assessable through mutual funds and ETFs
1.1.5. Disadvantage
1.1.5.1. Offer low rates of return
1.1.5.2. Fixed income falls behind with rising inflation
1.1.5.3. Carry risk when market interest rates increase
1.1.5.4. Default and other risks on foreign bonds
1.1.6. Example
1.1.6.1. Federal government bonds
1.1.6.2. Treasury bills
1.1.6.3. Treasury notes
1.1.6.4. Treasury bonds
1.1.6.5. Zero-coupon bonds
1.1.6.6. Municipal bonds.
1.2. Corporate Bonds
1.2.1. Definition
1.2.1.1. It is a debt that is issued by a firm which is sold to investors.
1.2.2. Who Issues
1.2.2.1. A Firm
1.2.3. Time
1.2.3.1. If short term (less than three years), medium term (four to 10 years), or long term (more than 10 years)
1.2.4. Advantage
1.2.4.1. Bond holders generally rank higher as a creditor than shareholders
1.2.4.2. Bond coupon payments are structured
1.2.4.3. Some can convert into stock
1.2.4.4. Typically have a better return than other bonds
1.2.4.5. Pricing of corporate bonds is typically stable.
1.2.5. Disadvantage
1.2.5.1. It may not diversify your portfolio
1.2.5.2. It does not generally provide capital growth
1.2.5.3. Having interest rates rise can make corporate bonds less profitable.
1.2.6. Example
1.2.6.1. Convertible bond
1.2.6.2. Callable bond
1.2.6.3. Investment-grade bond
1.2.6.4. Junk bond.
1.3. Preferred Stocks
1.3.1. Definition
1.3.1.1. It is a stock that entitles the holder to a fixed dividend.
1.3.2. Who Issues
1.3.2.1. Corporation
1.3.3. Time
1.3.3.1. Five years
1.3.4. Advantage
1.3.4.1. High dividend rates
1.3.4.2. Non-cyclical
1.3.4.3. Graded by rating agencies
1.3.4.4. Qualified Dividends Taxed at Capital Gains Rate
1.3.5. Disadvantage
1.3.5.1. Lack of voting rights
1.3.5.2. Dividends can be cut or suspended
1.3.5.3. Limited upside potential
1.3.5.4. Interest rate sensitivity
1.3.6. Example
1.3.6.1. On July 22, 2016, the three-month Libor was 0.6541%, calculating the quarterly dividend for the Goldman Sachs Series D Preferred Stock to be $0.26 per share or 4.13%, slightly above the minimum 4% guaranteed ($0.25 per quarter, $1 per year) dividend.
1.4. Common Stocks
1.4.1. Definition
1.4.1.1. It is a type of security that represents ownership of equity in a company.
1.4.2. Who Issues
1.4.2.1. Companies
1.4.3. Time
1.4.3.1. Must exceed 60 days throughout the 120-day period
1.4.4. Advantage
1.4.4.1. Huge gain yields
1.4.4.2. Restricted legal liabilities
1.4.4.3. Is an easy purchase and sale.
1.4.5. Disadvantage
1.4.5.1. Investment with high risk
1.4.5.2. Inability to control
1.4.5.3. Gets paid last
1.4.6. Example
1.4.6.1. A company had 100 shares outstanding, one share would be equal to one percent ownership of the company.
2. Derivatives Markets
2.1. Futures
2.1.1. Definition
2.1.1.1. A standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future
2.1.2. Who Issues
2.1.2.1. Commodity FuturesTrading Commission (CFTC).
2.1.3. Time
2.1.3.1. It is identified by their expiration month.
2.1.4. Advantage
2.1.4.1. It allows you to pay on margin, so you’re only putting down a small percentage of your contract price when you enter the stock futures contract
2.1.4.2. It offers some protection against price fluctuations
2.1.4.3. It can be a valuable part of a total investment strategy
2.1.5. Disadvantage
2.1.5.1. It can be risky
2.1.5.2. By entering in a contract for a fixed price, you may miss out on the benefits of major price movements
2.1.6. Example
2.1.6.1. If a day trader buys a natural gas futures contract (NG) at 2.065, and sells it later in the day for 2.105, they made a profit.
2.2. Options
2.2.1. Definition
2.2.1.1. A contract which gives the buyer the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price prior to or on a specified date, depending on the form of the option.
2.2.2. Who Issues
2.2.2.1. The employer company on its own stock.
2.2.3. Time
2.2.3.1. About 2.5 years
2.2.4. Advantage
2.2.4.1. Provides higher potential returns
2.2.4.2. Provides great leverage
2.2.4.3. Is a strategic investment alternative.
2.2.5. Disadvantage
2.2.5.1. Options’ trading is very complex
2.2.5.2. Higher spreads
2.2.5.3. Difficult to get information such as quotes and analytics
2.2.5.4. Lose the value of an option due to time decay when closing to the expiry date.
2.2.6. Example
2.2.6.1. If an option has a premium of 35 cents per contract, buying one option would cost $35 ($0.35 x 100 = $35)
3. Investment Funds
3.1. Exchange-Traded Funds
3.1.1. Definition
3.1.1.1. A type of security that involves a collection of securities such as stocks that often tracks an underlying index
3.1.2. Who Issues
3.1.2.1. Corporations
3.1.2.2. Governments
3.1.2.3. Banks
3.1.3. Time
3.1.3.1. 1 to 3 years.
3.1.4. Advantage
3.1.4.1. Access to many stocks across various industries
3.1.4.2. Low expense ratios and fewer broker commissions
3.1.4.3. Risk management through diversification
3.1.4.4. They exist that focus on targeted industries
3.1.5. Disadvantage
3.1.5.1. Actively-managed ETFs have higher fees
3.1.5.2. Single industry focus ETFs limit diversification
3.1.5.3. Lack of liquidity hinders transactions.
3.1.6. Example
3.1.6.1. SPDR S&P 500 (SPY)
3.2. Mutual Funds
3.2.1. Definition
3.2.1.1. It is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.
3.2.2. Who Issues
3.2.2.1. Corporations
3.2.2.2. Governments
3.2.2.3. Banks
3.2.3. Time
3.2.3.1. 1 to 3 years.
3.2.4. Advantage
3.2.4.1. Liquidity
3.2.4.2. Diversification
3.2.4.3. Minimal investment requirements
3.2.4.4. Professional management
3.2.4.5. Variety of offerings
3.2.5. Disadvantage
3.2.5.1. High fees
3.2.5.2. Commissions
3.2.5.3. Other expenses
3.2.5.4. Large cash presence in portfolios
3.2.5.5. No FDIC coverage
3.2.5.6. Difficulty in comparing funds
3.2.5.7. Lack of transparency in holdings
3.2.6. Example
3.2.6.1. One of the most famous mutual funds in the investment universe is Fidelity Investments' Magellan Fund (FMAGX).
4. Non-Marketable Instruments
4.1. Savings
4.1.1. Definition
4.1.1.1. It is the money an individual has after subtracting their consumer spending amount from their disposable income, during a time period.
4.1.2. Who Issues
4.1.2.1. The individual issues this
4.1.3. Time
4.1.3.1. Based on the individual’s goals.
4.1.4. Advantage
4.1.4.1. Earn interest potentially,
4.1.4.2. Easy to open and access
4.1.4.3. It’s secure
4.1.5. Disadvantage
4.1.5.1. Requires a minimum balance
4.1.5.2. Lower interest rates compared to investments
4.1.5.3. Limits on withdrawals
4.1.6. Example
4.1.6.1. Deposit account, pension account, investment fund, and cash at RBC.
4.1.6.1.1. The individual opens an account to fund their money into, the bank pays them interest because the bank uses their money to make loans to others.
4.2. GIC's
4.2.1. Definition
4.2.1.1. Guaranteed Investment Certificate is a Canadian investment that offers a promised rate of return over a time period.
4.2.2. Who Issues
4.2.2.1. Trust companies or banks
4.2.3. Time
4.2.3.1. Usually 1 to 5 years, can go up to 10 years
4.2.4. Advantage
4.2.4.1. Not heavily affected by market fluctuations
4.2.4.2. It is very safe
4.2.4.3. Term and interest rates are customizable
4.2.5. Disadvantage
4.2.5.1. Low liquidity
4.2.5.2. Low rate of return
4.2.5.3. After tax return is lower
4.2.6. Example
4.2.6.1. Cashable and non-redeemable GICs at ScotiaBank, these give you the option to withdraw within 30 days.
4.3. Canada Savings Bond
4.3.1. Definition
4.3.1.1. A financial product that Canadians could purchase, it offered a competitive interest rate and a guaranteed minimum rate.
4.3.2. Who Issues
4.3.2.1. The Canadian Government
4.3.3. Time
4.3.3.1. Until maturity or three years
4.3.4. Advantage
4.3.4.1. Easy to buy
4.3.4.2. Fixed interest rate
4.3.4.3. Guaranteed to be cashable at any given time
4.3.5. Disadvantage
4.3.5.1. Discontinued
4.3.5.2. Penalty or lose interest for cashing in bonds too early
4.3.5.3. You can only buy bonds at certain times of the year
4.3.6. Example
4.3.6.1. The bonds were available in a wide range of options such as $100, $500, and $10,000, they were only issued by the Canadian Government.
5. Money Market Instruments
5.1. Treasury Bills
5.1.1. Definition
5.1.1.1. They are debt securities that are generally short term investments, it allows the government to obtain short and medium term liquidity.
5.1.2. Who Issues
5.1.2.1. Provincial and Federal Governments.
5.1.3. Time
5.1.3.1. Less than a year
5.1.4. Advantage
5.1.4.1. Safe
5.1.4.2. Easy to understand
5.1.4.3. Available at affordable prices.
5.1.5. Disadvantage
5.1.5.1. Low interest rates
5.1.5.2. Low yield
5.1.5.3. They mature too quickly
5.1.6. Example
5.1.6.1. The government issues them at different denominations such as $5000, $25,000, and $1 million, the minimum being $1000.
5.2. Commercial Paper
5.2.1. Definition
5.2.1.1. A short term unsecured promissory note.
5.2.2. Who Issues
5.2.2.1. Large corporations
5.2.3. Time
5.2.3.1. 30 days to 1 year
5.2.4. Advantage
5.2.4.1. Quick and cost effective way to raise capital
5.2.4.2. Cheaper than a bank loan
5.2.4.3. Has a wide range of maturity
5.2.5. Disadvantage
5.2.5.1. Its availability is very limited
5.2.5.2. The credit available by banks may get reduced
5.2.5.3. Very closely regulated by the RBI guidelines
5.2.6. Example
5.2.6.1. The Bank of Canada offers this starting from April 2nd 2020 and will operate for 12 months.
5.3. Eurodollars
5.3.1. Definition
5.3.1.1. A U.S. dollar-denominated deposits at foreign banks or at the overseas branches of American banks
5.3.2. Who Issues
5.3.2.1. Overseas company
5.3.3. Time
5.3.3.1. Short term, often less than 6 months
5.3.4. Advantage
5.3.4.1. More competitive
5.3.4.2. Lower interest rates for borrowers
5.3.4.3. Higher interest rate for lenders
5.3.5. Disadvantage
5.3.5.1. Higher risks
5.3.6. Example
5.3.6.1. You can trade them electronically on Chicago Mercantile Exchange.
5.4. Repurchase Agreements
5.4.1. Definition
5.4.1.1. Is a form of short term borrowing for dealers in governments securities.
5.4.2. Who Issues
5.4.2.1. One party sells to another
5.4.3. Time
5.4.3.1. 3-14 days, can be overnight too
5.4.4. Advantage
5.4.4.1. Liquidity
5.4.4.2. High yield
5.4.4.3. Flexible
5.4.5. Disadvantage
5.4.5.1. Are subject to counter party risk
5.4.5.2. Amount of loss can be uncertain
5.4.5.3. Can suffer from loss from principal or interest
5.4.6. Example
5.4.6.1. Trader A sells a specific security to trader B for a set price and agrees to buy back the security for a specified amount at a later date.
5.5. Banker's Acceptance
5.5.1. Definition
5.5.1.1. A negotiable piece of paper where it is promised by the bank for a future payment.
5.5.2. Who Issues
5.5.2.1. Banks
5.5.3. Time
5.5.3.1. Usually 90 days, but can range from 30 to 180 days
5.5.4. Advantage
5.5.4.1. Smaller financial risks
5.5.4.2. A very low cost
5.5.4.3. No payments in advance
5.5.5. Disadvantage
5.5.5.1. You have to go through a financial analysis
5.5.5.2. You have to meet the bank’s standards
5.5.5.3. It involves collaterals
5.5.6. Example
5.5.6.1. Bank of Canada offers this, but you must provide weekly balance sheets
6. Value Investing
6.1. Definition
6.1.1. It is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
6.2. Advantages
6.2.1. Big profits
6.2.2. Low risks
6.2.3. High reward
6.2.4. Cool approach
6.2.5. The power of compounding
6.2.6. Reliable blue chips
6.3. Disadvantage
6.3.1. Value companies hide
6.3.2. Patience
6.3.3. The pitfalls of waiting
6.3.4. Rowing against the stream
6.3.5. Poor diversification
6.4. 6 Factors of Methodology
6.4.1. Company performance
6.4.2. Company debt
6.4.3. Profit margins
6.4.4. Is the company public?
6.4.5. Commodity reliance
6.4.6. Is it cheap?
6.5. Example
6.5.1. Berkshire Hathaway is a multinational holding company that has invested in many businesses to which it has expanded their portfolio, one of their investments being Dairy Queen.