lautorite.qc.ca Comment choisir Choosing Investments avec qui investir

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1 lautorite.qc.ca Comment choisir Choosing Investments avec qui investir

2 About the AMF The Autorité des marchés financiers (AMF) is the regulatory and oversight body for Québec s financial sector. Its mission is to protect the public by applying the laws and regulations that govern insurance, securities (for example, stocks and bonds), deposit institutions (other than banks) and the distribution of financial products and services. The AMF has published three brochures to help consumers manage their personal finances. The second in the series, this brochure will help you choose the investments that suit you. The other brochures are: Reviewing Your Personal Finances and Choosing an Investment Dealer or Representative. NOTICE The AMF, its management and staff are not liable for the consequences of any errors in this brochure, which is provided for your information only. The AMF does not offer any advice on the purchase or use of specific financial products or services. Legal deposit Bibliothèque et Archives nationales du Québec, 2016 ISBN (on-line version) Also available in French

3 Table of contents The three main characteristics of investments... 4 Types of investment income... 4 Five steps to choosing suitable investments: 1. Know yourself Understand the best types of investments for you Understand certain tax plans Decide how to allocate your assets Read and understand the information required for decision-making...16 Main types of investments...18 Were you pleased with your latest investment? Think back to the first time you made an investment, for example, by contributing to your RRSP. Then answer the following questions: 1. Which type of investment did you choose (e.g. stocks, bonds)? 2. Are the capital and the return guaranteed? If so, who is offering the guarantee? 3. What are the conditions for cashing in your investment? 4. What is the expected return? 5. How much tax will you have to pay on the gains? 6. Are there other more suitable investments for you? Many investors can t answer these questions. Yet this is YOUR money. So, before investing, investigate. This brochure sets out five steps to choosing investments that will help you achieve your financial goals. Before taking these steps, we recommend you read the brochure Reviewing Your Personal Finances. Another brochure you may find useful is the third one in this series, called Choosing an Investment Dealer or Representative. To learn more about investments, we also suggest you look at the AMF s Short Investment Glossary. Choosing Investments 3

4 Before following the steps, you should know that investments have different characteristics: THE THREE MAIN CHARACTERISTICS OF INVESTMENTS Expected return Liquidity Risk This is the gain you expect to obtain on your investment. For some types of investments, the return you actually earn may not be the same as what you expected. Fees and taxes will reduce the return. Means the ability to easily convert an investment to cash. This is the possibility that you will earn a lower return on your investment than expected or lose some or all of it. Investments differ by the type of income they can generate: TYPES OF INVESTMENT INCOME EXAMPLE Interest Dividends Capital gain (or loss) The amount a borrower pays an investor to use his/her money. The portion of the profits that a corporation distributes to its shareholders. The difference between the sale and purchase price of an investment. A $1,000 investment in a GIC earning 2% per year will generate $20 in interest after one year. Company ABC pays its shareholders a quarterly dividend of $0.30 on each common share they own. You sell a share for which you paid $12 for $20. You have a capital gain of $8. However, if you sell the same share for $9, you have a $3 loss. Five steps to choosing suitable investments You might want to consult with a representative on these steps. 4 Autorité des marchés financiers

5 1. Know yourself Before investing, you must determine your goals and establish your investor profile. Define your investment objectives Why are you investing? How long will you hold the investment? What kind of return are you expecting? Is the risk worth it? If you don t need high returns to achieve your financial goals, you could choose low-risk investment vehicles, even though their potential return can be limited. For instance, the return on a long-term bond is probably higher than on a short-term bond from the same issuer. This type of investment can fluctuate depending on interest rates but if you hold onto it until maturity, you ll get the promised return (unless the issuer runs into financial difficulties). Establish your investor profile Do you prefer investments with stable but possibly lower returns or riskier ones that could earn more? Some people lose sleep when the value of their investments drops. So before you choose a risky vehicle, make sure you understand all the possible consequences, especially a worst-case scenario. Knowing your investor profile will be useful when you meet with a representative. Don t be afraid to share your concerns, because he/she has an obligation to know you before suggesting investments. The more information available to the representative, the better he/she can help you achieve your financial goals. In this regard, we recommend reading the guide Choosing an Investment Dealer or Representative. Choosing Investments 5

6 The following brief questionnaire will give you a good idea of your investor profile. We define three broad categories of investors: conservative, moderate and aggressive. There are different types of investor profile questionnaires. For more accurate results, speak to an authorized representative. 1. Personal financial situation If the value of your investments fell during the year, would you have to put a project aside? A. Yes, I would not be able to carry out my projects B. Somewhat. I would have to postpone some projects C. Not at all 2. Investment knowledge Do you know the differences between the various types of investments? A. Not at all B. Somewhat C. Very well 3. Investor experience What types of investments have you already made? A. Very few, perhaps only investments with guaranteed principal and return, e.g. GICs, T-bills and government bonds B. In different types of investments, e.g. GICs, bonds or mutual funds and riskier investments C. In different types of investments, mainly riskier investments such as derivatives 4. Investment horizon - liquidity When will you need your investment money? A. In less than 3 years B. 3 to 10 years C. 10+ years 6 Autorité des marchés financiers

7 5. Return/Risk The following three investments show a best and worst range of possible returns. Which one would you be most likely to hold? A. Investment A B. Investment B C. Investment C Three possible investments with three possible returns 30% 25% 30% 20% 15% 10% 5% 1% 3% 10% 0 5% 10% 15% -5% Investment A Investment B Investment C -15% Worst possible return Best possible return 6. The emotional factor If your investments fell by 10%, how would you feel? A. It would bother me. I may lose sleep over it and maybe sell off. B. It wouldn t bother me because I believe that in the long run, I ll get the return I expect. C. I would invest more money in the vehicle. SCORING Give yourself 1 point for every A answer, 2 points for every B and 3 points for every C. There is no best answer. The number of points will simply help you understand the kind of investor you are. Answer as honestly as possible. Choosing Investments 7

8 Interpretation of results 0-9 points CONSERVATIVE INVESTOR You prefer safer investments and are not comfortable with fluctuations. Perhaps you can t afford to lose money due to your financial and personal circumstances (e.g. age, family situation). Make sure your investments reflect this reality by holding mostly GICs, T-bills, savings bonds and similar vehicles. Because you re likely to obtain modest returns with these types of investments, it s important to start saving early to compensate for this fact. Remember to shop around before investing: Not all financial institutions offer the same returns for GICs points MODERATE INVESTOR You re prepared to take calculated risks to obtain higher returns but aren t very comfortable with significant fluctuations, perhaps because your financial and personal circumstances don t allow you to lose a significant portion of your investment. Good diversification is important to you. If you hold a combination of guaranteed investments, bonds and stocks, you ll benefit from the generally higher returns provided by the riskier securities over the long term but limit the risk exposure of the overall portfolio. 8 Autorité des marchés financiers

9 16+ points AGGRESSIVE INVESTOR You re not afraid of risk and are comfortable with sharp fluctuations. Your financial and personal situation is such that you can withstand a potentially heavy loss. You believe that in the long run, you ll be rewarded because riskier vehicles tend to outperform guaranteed investments. CAREFUL! Many people only think that they re aggressive investors but as soon as their investments lose value, they panic and sell. This profile is for people who have a good grasp of stock market cycles and don t let emotions guide their investment decisions. Choosing Investments 9

10 2. Understand the best types of investments for you Even if you invest with the help of a representative, you should understand the vehicle you re investing in. After all, as we said earlier, it s your money. More specifically, you should know:. How will you make money with this investment? Does it earn dividends, interest or capital gains?. Will the investment fluctuate? If so, what kind of events will make it gain or lose value? Is there a chance that these events will occur?. Is there a cost to acquire this investment? Are there fees attached, e.g. annual management fees? Will you make money despite all these costs? If so, is the risk worth it? Are there risk-free investments on the markets that would earn you a comparable return?. Can you access your money if you need it? If necessary, refer to the second part of this brochure, which describes the main types of investments. 10 Autorité des marchés financiers

11 3. Understand certain tax plans Registered Retirement Savings Plan (RRSP) An RRSP is a plan in which your investments grow tax-free. These investments can be stocks, bonds, mutual funds, GICs and others. An RRSP is mainly used to save for retirement. The contributions are tax deductible, thus lowering your taxable income, possibly resulting in a tax refund. You can always cash in your RRSP but you will only get back a portion of the money because the amount you withdraw will be added to your income for the year and you will be taxed accordingly. If you wait until retirement to make a withdrawal, you ll probably pay less tax because your income will be lower at that time. CAREFUL! Unlike the TFSA, amounts withdrawn from your RRSP cannot be recontributed. For more information about RRSPs, read the brochure Mieux investir pour accumuler davantage en vue de la retraite (available in French only). Home Buyers Plan (HBP) The HBP is a program that lets you withdraw money from your RRSP tax free to buy or build your first home. If you buy the home with your spouse, you can each withdraw money from your RRSP. However, you must make an annual repayment to your RRSP equal to 1/15 th of the total amount withdrawn until the amount is fully repaid. There is no tax deduction for the amounts repaid. A number of limits, conditions and exceptions apply to this plan. Refer to our brochure titled Benefit from the HBP while staying on course for retirement, available on the AMF s website, or visit the Canada Revenue Agency at for more information. Choosing Investments 11

12 Tax-Free Savings Account (TFSA) A TFSA is a plan in which your investments (stocks, bonds, GICs, etc.) grow tax free. With a TFSA, you can save for whatever reason you want (e.g. to buy a home, a car). Unlike an RRSP, contributions to a TFSA are not tax deductible. On the other hand, you pay no taxes when the money is withdrawn. In other words, the interest, dividends or capital gains on your investments are not taxable. TFSA RRSP When can I start contributing to the plan? As of 2009, provided you are 18 years or older. At any age. You re entitled to contribute as soon as you declare income. How much can I contribute? You must be 18 and over to contribute to a TFSA. Unused contribution room can be used in subsequent years. See the table on page 14 for the maximum allowable contributions from year to year. 18% of income (up to a maximum of $25,370 in 2016 and $26,010 in 2017), less the pension adjustment amount appearing on your T4 slip from the Canada Revenue Agency. Unused contribution room can be carried forward to subsequent years. What happens if I exceed the maximum allowable amount? You will be charged a 1% penalty on the over-contribution for each month that an excess exists in the account (the maximum over-contribution for an RRSP without penalty is $2,000). What types of investments are allowed? Generally, the types of investments allowed in a TFSA are the same as for an RRSP, including GICs, stocks, bonds and mutual funds. Investments in labour-sponsored investment funds are not eligible as TFSA contributions. 12 Autorité des marchés financiers

13 TFSA RRSP Can I contribute to a spousal plan? No, but you can give your spouse the money to contribute to his/her TFSA. How are the contributions taxed? The income generated by the deposits is tax free. Although the contribution is not tax deductible, the amounts you withdraw are not taxable. What are the tax implications of a withdrawal? You can withdraw any amount at any time with no tax consequences because there is no tax on the amounts accumulated. Yes, however you, and not your spouse, will benefit from the tax deduction. The amount deposited grows tax free, and your contributions reduce your taxable income. However, when you withdraw money from your RRSP, it is added to your income. You can withdraw any amount at any time; however, these amounts are taxable. If I withdraw money from the plan, can I replace it later? You can replace the amounts in your TFSA if you wish but only the following year. What happens if I don t contribute the maximum? Your contribution room is carried forward, i.e. you can contribute the amount later on. Where can I make the contributions? You cannot replace money withdrawn from your RRSP unless it was taken out under the Home Buyers Plan (HBP), the Lifelong Learning Plan (LLP) or similar plans. Since 1991, if you have unused contribution room, it accumulates, i.e. you can contribute later on. In most financial institutions, e.g. banks, credit unions, trust companies, life insurance companies or investment firms. Ask your representative. Can I open more than one TFSA/RRSP? Yes. In such a case, the contribution limit applies to all the institutions combined. For example, if your limit is $5,000, you can put in a total of $5,000 and not $5,000 per institution. Can I borrow to contribute to the plan? Yes. However, the interest on your loan will not be tax deductible. Also, in the case of the TFSA, there is no tax refund to help you repay the loan. Choosing Investments 13

14 TFSA RRSP When does the plan have to be wound up? Upon death. On December 31 of the year you turn 71, at which point you can transfer the funds to a Registered Retirement Income Fund (RRIF), purchase an annuity, or cash in the RRSP. Table of Maximum TFSA Contributions Year Maximum annual contribution Maximum cumulative contributions 2009 $5,000 $5, $5,000 $10, $5,000 $15, $5,000 $20, $5,500 $25, $5,500 $31, $10,000 $41, $5,500 $46,500 Registered Education Savings Plan (RESP) An RESP is a plan that allows you to save money tax free in order to finance part or all of your child s post-secondary education. Although the contributions are not tax deductible, they do entitle the plan holder to the Canada Education Savings Grant (CESG), subject to certain conditions. Québec residents are also entitled to the Québec Education Savings Incentive (QESI), subject to certain conditions. Moreover, some low-income families may qualify for the Canada Learning Bond (CLB). 14 Autorité des marchés financiers

15 4. Decide how to allocate your assets Asset allocation is the proportion of each type of investment you wish to have in your portfolio, in other words, how much of your portfolio will be made up of stocks, bonds, exchange-traded funds, etc. You can have more than one portfolio, each one with a different asset allocation. For instance, you can have an RRSP portfolio, a TFSA portfolio and a portfolio of non-registered investments (non-rrsp and non-tfsa, for example). To choose the most suitable asset allocation for you, consider such things as your investment objectives, risk tolerance and investment horizon. Your representative can help you with this. Diversify your investments The idea is not to put all your eggs in one basket. To this end:. Place your money in more than one institution;. Have different types of investments (e.g. real estate, stocks, bonds);. For investments with terms, diversify the maturities, for instance, have 1-, 2-, and 5-year GICs or bonds;. If you own stocks, invest in different sectors such as financial, resources and technology. Choosing Investments 15

16 5. Read and understand the information required for decision-making Make sure to receive complete written documentation on the investments you are contemplating. When you invest, with or without a representative, learn about the investments by consulting the following sources:. The prospectus (explains the type of investment and most importantly, the risk factors) or other official documents, such as the Fund Facts, which provide important information about a mutual fund in an easy-to-read concise form;. The website sedar.com (System for Electronic Document Analysis and Retrieval): All public companies must file certain documents and information;. The website of the financial institution selling the investment;. The financial statements of the company in which you are thinking of investing;. The company s MD&A (management s discussion and analysis): This is an information document that accompanies the financial statements and helps investors understand the company s performance and financial position. It gives management s point of view on the current financial position, recent performance and outlook for the future; 16 Autorité des marchés financiers

17 . The Annual Information Form: This document describes the company, its activities, subsidiaries, projects and risks to which it is exposed;. The company s investor relations department: This is where you ll find answers to questions about dividends, dates of shareholders meetings and other matters of interest to shareholders. Most large organizations offer this type of service or have a public relations department;. The person offering the investment. Get your information from more than one trustworthy source You should now be able to make the right investment decision for you. Once you have placed the money:. Understand and hold onto any documents that you have signed;. Read and keep any documents you receive about your investment;. Stay on top of your investments;. Balance your portfolio regularly by allocating and diversifying the assets;. Review your investor profile periodically. Choosing Investments 17

18 Main types of investment There are many types of investments with different characteristics such as liquidity, return and risk. Because there is no one vehicle that balances all three characteristics perfectly, you must choose the ones that best meet your needs. For example, you may have to sacrifice return to have an investment that does not exceed your risk tolerance. Investment risk can be classified as follows: Low Medium High Investments for which the amount invested AND the return are guaranteed by deposit insurance, a government or a financial institution. With this type of investment, you know exactly what you ll get at maturity. However, you may not get the expected return and you may even lose money if you withdraw the funds before maturity. Investments for which the amount invested is guaranteed by a well-established company. The value of the investment may fluctuate until maturity, at which point you will get the principal back. If you liquidate the investment before its maturity, you could end up with no return and even lose some of the money you put in. Investments for which neither the amount invested nor the return is guaranteed. The value of the investment may fluctuate heavily over time, and you could lose some or all of the money you put in. Sometimes an investment can fall into more than one risk category. For instance, guaranteed investment certificates (GICs) are typically guaranteed by the issuer and therefore fall into the low risk category. However, there are also indexed GICs for which the return is not guaranteed, only the principal. These therefore fall into the medium risk category. This is why you must find out the characteristics of the investment you are contemplating. 18 Autorité des marchés financiers

19 Debt securities Debt securities are securities through which a borrower, which may be a government or a corporation, acknowledges having a debt toward the security holder. When you invest in a debt security, you are lending your money in exchange for interest. You do not become an owner in the company but a creditor. For example, if you invest $1,000 in a GIC, you are lending your money to a financial institution. The latter is therefore the borrower and you are the creditor. Guaranteed Investment Certificates (GIC) and term deposits These are debt securities issued by a financial institution in exchange for the money you lend them. Term Return Liquidity Risk CONVENTIONAL GIC 30 days to 10 years. Fixed rate of interest at maturity. INDEX-LINKED GIC Varies based on the performance of an index such as a stock market index. Most GICs must be held until maturity, but some may allow early redemption. A fee may apply in such a case. Generally guaranteed by the issuer. The principal may be insured in the event the issuer goes bankrupt by a deposit insurance agency (some restrictions apply). 1 The amount invested may be guaranteed by the issuer. There are other savings products on the market that are very similar to conventional GICs, but with interest that increases each year. For instance, you would earn 0.5% in year 1, 1% in year 2 and 5% in year 3. These vehicles have different names such as step-up bonds and climbing-rate term deposits. 1. For example, non-redeemable GICs with a term of more than five years are not covered by deposit insurance. See the AMF website for the brochure entitled Your deposits are protected. That s a guarantee! Choosing Investments 19

20 Guaranteed investments Before placing your money in a guaranteed investment, ask yourself the following questions:. Who is the guarantor? The Autorité des marchés financiers (deposit insurance), the Canada Deposit Insurance Corporation or a financial institution? An investment is never guaranteed by the individual who sells it but by an institution.. What exactly is the guarantee? Is it the return, the principal or both?. What are the conditions of the guarantee? Must the investment be held for 10 years for the guarantee to apply? Or is it 20 years?. Are there exclusions to this guarantee?. How much does this guarantee cost? 20 Autorité des marchés financiers

21 Bonds and debentures Bonds and debentures are debt securities issued by governments and corporations in exchange for the money you lend them. Debentures are similar to bonds, but are not backed by specific assets (land, buildings, machinery, etc). The issuer typically promises to pay a fixed interest rate to the buyer at certain intervals and pay back a predetermined amount at maturity, usually the face value, which is often a multiple of $1,000. Term Return Liquidity Risk Typically from one year to 30 years. Takes the form of:. Capital gain (loss) when sold; or. Interest. Depends on interest rates and the issuer s creditworthiness. 1 If the bond or debenture is held until maturity, the buyer will receive the return stipulated at the time of purchase. Available through dealers. Liquidity can decrease if interest rates rise or the issuer experiences financial difficulties. The longer the maturity, the greater the risk of fluctuation in the bond s value due to real or anticipated changes in interest rates or the issuer s financial position. Holders have a right to a portion of the company s remaining assets, if it is dissolved (rank ahead of shareholders). 1. Independent agencies rate the quality of certain debt securities. Choosing Investments 21

22 Principal-protected notes (PPNs) Debt securities issued by financial institutions in exchange for the money you lend them. This type of investment does not necessarily have a fixed interest rate. The return is usually variable and is tied to a benchmark portfolio.* Term Return Liquidity Risk Typically between 5 and 10 years. Takes the form of:. Capital gain (loss) if sold before maturity; or. Interest. The return may be tied to the performance of a benchmark portfolio. Some PPNs guarantee a rate of return for certain years, e.g. the first year only. In some cases, the issuer may limit the return on a note or redeem it before maturity. There is no real secondary market for PPNs; therefore, it may be impossible to resell them to other investors. The principal is usually guaranteed by a financial institution. However, the guarantee does not apply if the note is redeemed before maturity; therefore, investors may not get all their money back. Since the return is tied to a benchmark, there is a risk that the interest paid will be less than expected or that there will be no interest payments at all. * Benchmark portfolio: a portfolio made up of stocks, stock market indexes or currencies whose fluctuations are used to determine the value and return of the PPN. Refer to the Short Investment Glossary on the AMF s website at 22 Autorité des marchés financiers

23 Equity securities Equity securities (stocks) constitute a type of ownership in a company. They may be made up of one or more classes of shares. Common stock Shares issued by companies. An investor who holds common shares generally has a right to vote and to receive dividends the company may declare Term Return Liquidity Risk None. Takes the form of:. Dividends. Capital gain (loss). Normally traded on a stock exchange or in over-the-counter markets (where unlisted stocks are traded between dealers). Share price may increase or decrease substantially. If the company is dissolved, shareholders have the right to a portion of the remaining assets if any are left after all the creditors have been repaid, including governments and holders of debt securities such as bonds and debentures. Holders of preferred shares also rank ahead of common shareholders. Choosing Investments 23

24 Preferred stock Shares issued by companies. An investor who holds preferred shares in a company is given special rights. For example, the company must pay dividends to preferred shareholders before doing so to common shareholders. However, preferred shareholders are normally not entitled to vote on decisions made by the company s officers. Term Return Liquidity Risk Most carry no term, but some are redeemable at the issuer s discretion. Takes the form of:. Cumulative dividends or not. Capital gain (loss). Some corporations offer dividends that are adjusted periodically based on interest rates, for example every five years. Share value depends on the interest rate demanded by other investors on similar shares. The value will decrease if rumours surface that dividends will be less than expected. Because they have different characteristics, the value of preferred shares will be affected differently. Read the issuer s prospectus to understand details about these shares and ask a representative for help if necessary. Typically traded on stock exchanges or in over-the-counter markets. The Board of Directors may decide to suspend dividends for certain periods in the event, for example, of financial difficulties. In such a case, not only would investors not receive dividends, but also the value of their stock may fall sharply. Rising interest rates can also push down the value of preferred stock. If the company is dissolved, preferred shareholders rank ahead of common shareholders but only if money is available after all the creditors have been repaid, including governments and holders of debt securities such as bonds and debentures. 24 Autorité des marchés financiers

25 Investment fund securities These securities give the investor ownership in a fund. Mutual funds A mutual fund is made up of money pooled by a number of investors and managed on their behalf by a manager, who selects different types of securities based on the fund s objectives. There are many types of mutual funds, including money market, fixed income, balanced, equities and international. Term Return Liquidity Risk None. Takes the form of:. Dividends. Interest. Capital gain (loss) realized by the fund or when investors sell their units. Can usually be sold back to the mutual fund. Some funds have a redemption fee, which is usually charged when investors sell their units during the first five to seven years. Depends on the mutual fund s investments (e.g. bonds, stocks). These securities are not guaranteed. Choosing Investments 25

26 NOTE : ETF benchmarks are not necessarily linked to a stock portfolio; they can also be linked to a bond, derivative or other portfolio. Exchange-traded funds (ETFs) Exchange-traded funds are traded like shares on a stock exchange. They usually track a benchmark index. Unlike a mutual fund, an ETF portfolio manager does not seek to maximize the fund s return but only to follow an index; this explains their typically lower management fees. The strategy of some ETFs is to use a leverage effect, meaning that their return will be, for example, twice the positive or negative daily return of a stock index. See the following page for more details. Term Return Liquidity Risk None. Takes the form of:. Dividends. Interest. Capital gain (loss) realized when investors sell their units. Traded on stock exchanges. Depends on the volatility of the index tracked by the fund. For example, an emerging market ETF could be riskier than an ETF that tracks the index of the largest companies listed on the stock exchange of an industrialized country. 26 Autorité des marchés financiers

27 Leveraged ETFs (suitable for sophisticated investors) These ETFs magnify upward and downward stock market movements. Some aim to deliver a multiple of the benchmark s daily return. For instance, they can offer double or triple the daily return of an index (be it a gain or a loss). Example: Josie invests $10,000 in a leveraged ETF that offers double the return of a stock index. Let s assume that one of the fund s stocks costs $25. Josie buys 400 shares. At the end of the day, the index goes up 1%. Josie s stock therefore goes up 2% and is now worth $ Since she owns 400 shares, Josie makes a profit of $200. CAREFUL! These funds do not reproduce the return multiple over the long term, but just the daily benchmark return. Choosing Investments 27

28 Segregated funds Segregated funds are issued by insurance companies. They are similar to mutual funds, but typically include a death benefit and a maturity guarantee. The fund s assets are held by an insurer separately from its other assets, hence the term segregated funds. Term Return Liquidity Risk To benefit from the maturity guarantee, the investment must often be held for 10 or 20 years. If the investor is prepared to forego the guarantee, the investment is redeemable at any time. Takes the form of:. Dividends. Interest. Capital gain (loss) realized by the fund or when investors sell their holdings. Can generally be sold back at any time to the fund. Some funds charge a redemption fee, usually if the redemption takes place in the first five to seven years. However, as a general rule, the investment must be held for 10 years to benefit from the maturity guarantee. Depends on the fund s investments. Individual segregated fund contracts offer a guarantee that protects, at maturity (often 10 years), at least 75% of the amount invested. Insurers also typically offer a death benefit guarantee. What is a death benefit guarantee? If you die before the contract matures and the value of your funds is less than the initial investment, the difference will be reimbursed. For amounts invested after a certain age, for example 80, the percentage of the principal guarantee may be less. 28 Autorité des marchés financiers

29 For more information about investments, refer to the Short Investment Glossary, available at Labour-sponsored investment funds and other similar funds Shares issued by a labour organization or a financial institution. Investors buy shares of the fund, which may entitle them to tax benefits. One of the goals of such funds is to create and maintain jobs. Term Return Liquidity Risk None. Mainly in the form of capital gain (loss). Depends on the performance of the assets in the fund. Investors may also benefit from tax benefits that increase their return. Labour-sponsored fund shares are redeemable only at retirement or early retirement as of age 55, subject to certain conditions. They may also be redeemed in exceptional circumstances such as the purchase of a home, return to school, loss of employment, business start-up, disability or terminal illness. A regional development fund is also available on the market whose shares are redeemable after seven years or earlier in the event of death, disability or terminal illness. The redemption criteria vary from one fund to the next. These funds invest a proportion of their assets in start-ups or SMEs, which may increase the risk. Choosing Investments 29

30 Socially-responsible investing Socially-responsible investing means taking factors such as the environment, human rights and other social or moral factors into account when selecting investments. It is a strategy that can take various forms. For example, you may decide to avoid the bonds and stocks of companies whose products and services you believe adversely affect society (for instance, military equipment or tobacco). You may also decide to only invest in what you believe to be socially-responsible companies such as those that develop renewable energy. Many shareholders urge companies to improve their environmental or social performance by tabling proposals at shareholder meetings. There are many socially-responsible and ethical mutual funds on the market. Read their prospectuses to find out whether their criteria reflect your values. 30 Autorité des marchés financiers

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32 To contact the Autorité des marchés financiers QUÉBEC CITY Place de la Cité, tour Cominar 2640, boulevard Laurier, bureau 400 Québec (Québec) G1V 5C1 MONTRÉAL 800, square Victoria, 22 e étage C.P. 246, tour de la Bourse Montréal (Québec) H4Z 1G3 INFORMATION CENTRE Québec City: Montréal: Elsewhere: You can also visit the AMF website at: lautorite.qc.ca Youth website: tesaffaires.com