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(08) FINANCE
Disclaimer: These articles are not intended as professional advice.
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Compound Interest - The Rule of 72                                     Edited by Kemet Newsletter (2014)

It is simple. It is not magic. It is not rocket science. It is compound interest. It is the rule of 72.
 

The rule of 72 is a technique to estimate the number of years a sum of money invested at a certain compound interest rate will double. The rule of 72 is used by dividing 72 by the rate of interest earned.                           


Example: 72 Divided by 1% = 72 years (If you have $5000.00 invested at 1%, it will take you 72 years for that money to reach $10,000.00. 72 Divided by 12% = 6 years (If you have $5000.00 invested at 12%, it will take you 6 years for that money to reach $10,000.00


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Guaranteed Investment Certificate (GIC)

Edited By Kemet Newsletter 


A Guaranteed Investment Certificate (GIC) is a Canadian investment that offers a guaranteed rate of return over a fixed period of time, most commonly issued by trust companies or banks. Due to its low risk profile, the return is generally less than other investments such as stocks, bonds, or mutual funds. It is similar to a time or term deposit as known in other countries.


The rate of return on a GIC varies depending on the various factors, such as the length of the term and specified interest rates from the Bank of Canada. At the time of purchase, the rate is higher than the interest on a savings account.


The principal amount is not at risk, unless the bank defaults. The guarantee for GIC is provided by the Canada Deposit Insurance Corporation  (CDIC) up to a maximum of $100,000 (principal and interest combined), as long as the issuing financial institution is a CDIC member, and the original term to maturity is five years or less. Financial institute are introducing new type of GIC such as Ladder, Market Growth, etc. 


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What Is A Bond?                                                                                                  Edited by Kemet Newsletter


Technically speaking, a bond is a loan. Whose usually are the borrowers? In most case it is the government, provinces, local municipality, companies etc. All of these entities need money to operate -- to fund the deficit or to build roads and finance factories -- so they borrow capital from the public by issuing bonds.


When a bond is issued, the price you pay is known as its "face value." Once you buy it, the issuer promises to pay you back on a particular day -- the "maturity date" -- at a predetermined rate of interest -- the "coupon." A key difference between stocks and bonds is that stocks make no promises about dividends (Interest) or returns.


Bell Canada Enterprise (BCE) dividend may be regular, but the company is under no obligation to pay it. When BCE issues a bond however, the company guarantees to pay back your principal (the face value) plus interest. If you buy the bond and hold it to maturity, you know in most times how much you're going to get back. That's why bonds are also known as "fixed-income" investments -- they assure you a steady payout or yearly income. Although they can carry some risk, this regular income is what makes them inherently less volatile than stocks


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The Stock Market                                               Edited by Kemet Newsletter

The stock market is like no other market. It is a place where you can buy or sell almost anything. When the Stock Market keep going up it is called a Bull Market. When it keep going down it is called a Bear Market.

Everyone participate or is influence by the Stock Market directly or indirectly via your Financial Institute, Insurance Company, or Government involvement. This is return to you in the form of Bank Interest, Company Pension Plan, Canada Pension Plan, Old Age Security, Child Benefits, Insurance payment etc.


RICH OR POOR IT IS NICE TO HAVE MONEY

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To achieve financial comfort, you need a plan.  Regardless of how small the amount, you need to invest regularly.  You need patience and avoidance of greed, a well conceived plan of action, plus knowing where, when and how to invest is also important. 


MONEY CAN’T BUY HAPPINESS BUT IT CAN BUY COMFORT

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Perhaps you never invest in the stock market and wonder what it is all about.  Well it is about all the things you might use in your every day life.  You can invest in the things of life and be a part owner, or save and be a creditor. You can also do both. 


THE LACK OF MONEY IS THE ROOT OF MOST EVIL

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Some of the every day products in our lives and the type of shares that can be bought on stock exchanges are:-

 

Gold * Silver * Diamonds * Crystals * Steel * Uranium *  Auto * Aircraft’s   * Bikes   * Boats   * Ships * Water  *  Corn * Wheat * Bread * Meat * Beef * Chicken * Pork *  Phones * Cable * TV * Radio * Music * Sports * Gas *  Guns * Tanks * Cement * Lumber * Medicine * Coal *  Banks * Insurance Co  * Real Estate * Shoes * T-shirts * Coats * Shirts * Pants * Sugar * Alcohol * Beer * Marijuana * Etc 


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What Is A Stock?                                                                                            Edited by Kemet Newsletter


A stock is a share of ownership of a company. As the owner of the shares the investor has a claim on the company assets and ownership. 


Example of a simple view of a shareholder company.


Suppose someone name Paul is starting a company name Pies R Us and need $100,000.00 but only has $10,000.00 and do not want to borrow the other $90,000.00 from the bank. He finds 9 other private investors to invest $10,000.00 each to make up the $90,000.00. In return he give them each a Stock Certificate that represent 10% of the company assets which includes the Building, Pie pans, Baking machines, Baking Oven, etc., and 10% of any future earnings and voting rights.


After one year Pie R Us is doing well. The value increased to $200,000.00. This means every share of the company is now worth $20,000.00. That is $200,000.00 divided ten (10). It is now twice the original $10,000.00. The original nine (9) investors can keep their shares or sell it which would give them a 100% profit. If the company was not successful, the stock value can also drop. This is how stock work. Public Traded Companies Stocks like Bell Canada are bought and sold daily on the Major Stock Exchanges.


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What Is Dividend?                                                                                             Edited by Kemet Newsletter

Some company reward their shareholders by paying out a portion of its profits in the form of a Dividend (Interest) rather than retaining those earnings for investment in the company. For publicly traded companies, dividends are usually paid on a fixed schedule (monthly, quarterly, semi-annually or annually) and the total amount you receive is based on the number of shares you own prior to a record date. Most dividend is paid in cash or if permitted you can request the cash be re-invested back into the company through a Dividend Re-Investment Plan (DRIP) to buy more shares if the company has such a plan. Sometimes the company allows you to purchase via the Re-Investment the stock at a discount to the current stock price.


In certain cases, a company may choose to pay a stock dividend, i.e. instead of cash some or the entire dividend may be paid by issuing new shares. This allows the company to hold onto its cash, but depending on the tax characteristics of the dividend shareholders may owe taxes to the government on that income, even though no actual cash was received. Many companies such as Real Estate Investment Trusts (REITs) and Business Development Companies (BDCs) must pay out by Government law 90% of their profit after expenses to their shareholders.


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