Alberta Securities Commission

Your Investing Questions

Have you always wanted to know more about investing, but been afraid to ask? You aren’t the only one! Read through the questions we received from investors throughout the province during the Everything You Always Wanted to Know contest, and see our answers.

A friend recently invited me to a seminar promoting a new investment opportunity. Should I go?

I’ve heard a lot about ponzi schemes in the news. Do you have any information on this that I can look through?

Q: What are mezzanine investments?

- @jess4002

A: A mezzanine investment is generally described as capital provided to a company in exchange for subordinated debt (e.g., debt that ranks below secured creditors with first priority) or preferred equity (e.g., preferred shares that only outrank common shares). In essence, the investor is providing capital with a higher risk of not getting paid back in exchange for a higher rate of return. For more information on mezzanine investments and financing, please check out the information provided by Investopedia.

Q: I keep hearing about raising capital through share dilution. What is this exactly and is this a last resort for funding for the BOD/management?

- Devin

A: “Share dilution” occurs when a company requiring new financing issues additional common shares for purchase, increasing the number of outstanding shares. The capital raised from this sale goes directly to the company for its use. As the outstanding number of shares increases, the percentage of shares (but not the actual number of shares) an investor holds (assuming that investor did not purchase any of the new shares) decreases, which is why it is referred to as a dilution. Share dilution can also occur through the “exercise of options” or conversion of other securities (such as convertible debentures, which are debt instruments that can be converted to shares).

Share dilution, when it occurs as a result of the issuance of new shares, is not necessarily a last resort for funding - for instance, a company may be proposing to undertake a significant project and may have determined that the best option is not to issue more debt (i.e., bonds), but to issue more equity (i.e., shares) because it represents a better value for the company.

Q: When's the best time to invest for retirement?

- @jess4002

A: It’s a good idea to start investing early in life, in order to take advantage of the benefits of time and compound interest. However, it is also never too late to start. As a person goes through life, they will have different investment objectives and different time horizons of when they’d like to meet those objectives. It’s therefore important to develop a long-term investment plan that can be adjusted along the way.

Q: What are the pros and cons of home ownership as an investment?

- @jess4002

A: The ASC doesn’t oversee ownership of real estate as an investment (such as the described scenario) or for personal occupation as these circumstances are generally not considered to be a sale of a security under the Securities Act in Alberta. However, here is a brief overview from Investopedia of some considerations to keep in mind.

Q: How can I tell if my stocks are doing well?

- @jess4002

A: You will want to regularly “check-in” on your investments to see how they are doing and if they are still helping you achieve your investment goals. If not, you may need to make some adjustments. If you use the services of a financial adviser, have them help you with this.

Q: Venture capital funds…what are they? Should they form a part of ones investment portfolio?

- GRfromEdm

A: Venture capital funds are investment funds that pool money from investors seeking private equity stakes in “start-ups” and small and medium-size enterprises with robust growth potential. Generally, venture capital funds are characterized as high-risk/high-reward opportunities. You should always discuss your portfolio mix with a registered adviser or financial planner to determine if this type of fund fits with your investment goals.

Q: What kinds of risks should I be looking for when investing?

- @HeySeto

A: There are many types of risk that can affect an investment - even guaranteed investments have some risk. Your investment objectives will help you determine how much risk you should take. You may also want to meet with a registered financial adviser to gain a better understanding of what level of risk you are comfortable with. Read more on our Risk: How much can you take? page.

Q: When is the best age to start investing?

- @HeySeto

A: It’s good to start investing early in life in order to take advantage of the benefits of time and compound interest. However, it is also never too late to start. At each stage of life you will have different investment objectives and different time horizons of when you’d like to meet those objectives, so it is important to develop a long-term investment plan that you can adjust along the way. Check out Investments 101 (PDF) for young investors and our brochure on Registered Education Savings Plans (RESPs) for parents who want to invest for their children.

Q: What do you recommend for a young person with little debt to be investing in?

- @HeySeto

A: This is a question that is best directed to a registered financial adviser. If you don’t have an adviser, we have many resources that can help you get started including:

The How Do I Start chapter in Who’s Taking Care of Your Money?
Questions to ask when choosing a financial adviser (PDF)
Confirm registration – to make sure your adviser is registered

Investment Planning Worksheet (PDF) – to help you prepare for your first meeting with your adviser.

Q: Is there a lot to be learned from those investment courses or are they kind of useless?

- @bluevektor

A: There are some important questions to ask before signing up for or attending an investment course or seminar. For instance:

Who is offering the course/ seminar? – is the company or individual qualified to teach the course and are they in good standing with securities regulators?
How much are they charging for the course? There are many free or inexpensive sources of information available to investors. Does the fee to attend seem reasonable?
What does the person offering the course have to gain from you being there? Are they looking to gain more clients and ultimately sell you their product? Look for reputable, unbiased sources when choosing investment courses. Courses and information offered through libraries, universities or colleges or through a government regulator such as the ASC tend to be more objective with good, unbiased information.

Check out our Courses and Resources to see if any interest you. You may also want to read our information on Investment Seminars.

Q: How do go about investing on my own?

- @jess4002

A: Some investors prefer to do their own research and select their own investments. If you are thinking of taking this approach, ask yourself the following questions to help decide if you are ready:

How much time are you willing to spend sorting through investment choices and keeping up with the markets?
How confident are you in your investment knowledge and ability to carry out your decisions?

If you need some guidance, you may want to seek the services of a financial adviser.

Q: What is an investment policy statement and why do I need one?

- @jess4002

A: An investment policy statement sets out the investment objectives of the client and describes the investment strategies that the portfolio manager should utilize to reach those objectives. Specific information on issues such as asset allocation, risk tolerance, and liquidity requirements (i.e., the need to access the funds on short notice) are often included. This document can outline risk tolerance, investment objectives and so on.

Q: What are the benefits of investing through a credit union vs one of the big banks?

- @bluevektor

A: The right adviser for you will depend on what products and services you need, and how much you’re willing to pay for advice. Advisers can work at places like banks, financial planning firms, brokerage firms and investment management firms. Not all advisers offer the same products and services or have the same expertise. Some specialize in certain kinds of investments. Others can offer you a wide range of investments and services. Read more on getting the help you need with our Working with a financial adviser (PDF) booklet.

Q: What is day trading and how does it work?

- @jess4002

A: Day trading is just that – the purchase and subsequent sale of a security in the same day. Day traders attempt to make profits by leveraging substantial amounts of capital to benefit from small price movements in highly liquid securities. While the difference in the price paid the proceeds from the sale are relatively small, the large volumes traded can result in substantial amounts of money being generated.

Day traders often count upon momentum being their ally as they enter into trades that can last anywhere from a few seconds to a few minutes. The idea is to identify short and longer-term trends that last seconds to minutes to perhaps an hour or more with the idea that all open trades will be closed out prior to the trading session ending. Day trading can be extremely risky and is definitely not for everyone.

Q: What are the pros/cons of saving vs. investing my money?

- @HeySeto

A: Saving your money essentially means keeping it aside in physical form (whether that is under your mattress, in a piggy bank or in a savings account at your financial institution). While your money is generally not at risk of being lost through this approach, your savings will not increase except as you add to it yourself. In fact, inflation – the increase in the price of goods and services over time – can decrease the real value of your savings.

Investing, on the other hand, can help your savings grow through something called “compounding”. A careful investment plan can help your money keep up with inflation, generate modest income, or grow substantially. However, the decision is ultimately up to you and the level of risk that you are willing and able to take with your money. Take our risk tolerance test to see where you fit.

Q: My parents are over 55 and have seen their portfolios dwindle in recent years. What should they do to keep their investments up?

- @HeySeto

A: Many older family members will want to remain financially independent as they age. If your parents are finding their retirement savings and investments won’t meet their health care and other financial requirements, they may need additional sources of financial support. It’s likely that your parents’ personal circumstances (e.g. income, lifestyle, risk tolerance) have changed since they first made their investments so it would be a good idea for them to meet with their adviser to reassess their investment strategy.

Older investors should also be wary of being tempted with risky investments offering unbelievable returns in efforts to quickly make up for financial losses. Due diligence and research will help protect their money from a potential investment scam.

Q: How do you recommend looking at investing long-term w/o worrying about the short-term fluctuations?

- @HeySeto

A: If your financial plan calls for long-term investments, then short-term fluctuations should not impact your daily life – since you are not intending to access those invested funds in the short-term, their short-term valuation should not worry you. Of course, you may want to consult with a financial adviser to discuss your concerns about the short-term fluctuations of your investments and whether you should alter your investment portfolio.

Q1: The current economic climate has made me wary to invest - is it a good time to be investing? I feel like I will lose money now.
Q2: Is it risky to invest when public sentiment is negative?

- a couple of Albertans

A: One of the Top Ten Investing Mistakes is “doing the wrong thing at the wrong time”. If you have a good investment plan, there’s less need to panic when markets fall. If you do have a plan, take the opportunity to reassess your risk tolerance and investment objectives. If you don’t have a plan, take the time to make one (use the services of a financial adviser or planner if you need assistance) and stick to it through the ups and downs. Read our recent Investor Watch for more tips on investing in a volatile market.

Q: With so much int'l economic turmoil, what are safe bets in diversifying my portfolio country- and industry-wise?

- @HeySeto

A: Any investment has a certain level of risk. You’d be wise to consult with a financial adviser who can help you determine the level of risk you are comfortable with (part of a requirement called “Know Your Client”). Based on this, they can help you build a plan, choose suitable investments, track your progress and adjust your plan when needed. In the meantime, check out our blog on six ways to avoid investment fraud in a volatile market.

Q: What are the fees to look at when creating your investment portfolio?

- @HeySeto

A: When you use the services of a financial adviser, be sure to ask them upfront about their fees and the fees of the investment products. Some examples of questions you could ask include:

How are you paid? (advisers can be paid by salary, commission, a flat fee, or a combination of these methods).
What services do you offer and what will they will cost?
What are the total fees to buy, hold and sell the investment?
Do you have to pay a penalty or fee if you have to sell the investment quickly or before its maturity date?

For more information, order a free copy of the Investing Basics (PDF) and Working with a Financial Adviser (PDF) brochures or view them online via the links provided.

Q: How important is it to research the financial professional you want to help you with investing?

- @HeySeto

A: It’s very important to choose a financial professional who has the necessary qualifications and experience, who is registered with your local securities regulator and who you believe is trustworthy. Did you know that over a million Canadians have become victims of investment fraud? (Source: CSA 2009 Investor Index) Not doing your due diligence could cost you a lot, both financially and emotionally. Find out how you can research the background of someone offering you an investment.

Q: When I buy an ETF, does the ETF provider buy the equivalent amounts of the actual stocks contained in the ETF?

- @goinkforward

A: The majority of people will buy units of an ETF (exchange traded fund) in the secondary market (i.e., on an exchange). In that case, you are merely buying the stake from someone else. New units purchased from an ETF sponsor (i.e., the public company issuing the ETF units) to be sold in the secondary market are created when a designated broker delivers a “basket of securities” to the ETF sponsor and, in return, ETF units of equal value are provided to the designated broker. The designated broker subsequently sells the units to the public on the exchange. For more specific information about how a particular ETF matches an index, a group of companies, or other reference asset, you should review the prospectus and consult the ETF sponsor.

Q: Why do the economic conditions and political events in other countries affect the markets in Canada?

- @fluffylambs

A: Markets will incorporate all available information into the price of a stock, including expectations for future economic growth, political events, profitability, etc. Thus, if the world economy is viewed to be slowing, or if a significant political event occurs, market participants will reflect this information into the prices they are willing to pay or accept for a given stock. The aggregate effect on all stocks is visible through the impact to market indices.

Q: How do I calculate the book value of a publicly traded company?

- GRfromEdm

A: From the company’s latest balance sheet, divide the total for shareholder’s equity (which typically includes shareholder capital and retained earnings) by the number of shares outstanding. Some investors adjust book value by subtracting the value of intangible assets from shareholder’s equity before dividing by the number of shares outstanding to calculate a “tangible book value,” which can be significantly lower than book value for companies that have made a number of acquisitions over time and have recorded intangible assets for accounting purposes.

Q: I find that a lot of people buy a property just to rent it out. What are the pros and cons of doing this?

- @jess4002

A: The ASC doesn’t oversee investing in real estate as an investment (such as the described scenario) or for personal occupation as these circumstances are generally not considered to be a sale of a security under the Securities Act in Alberta. However, here is a good overview from Investopedia of some considerations to keep in mind.

Q: If you were new at investing where would you start and where do you put your money how much do you need minimum?

- veronica (outside of Canada) – New South Wales

A: We see you are from outside of Canada – Australia perhaps? Check out this great MoneySmart website from the Australian Securities & Investments Commission that has lots of great information on getting started with investing. You are also more than welcome to check out our Getting Started page and all our ASC resources For Investors.

Q: What is a pyramid scheme?

- FM

A: In a pyramid scheme, participants actively promote the scheme and try to make money solely by recruiting new participants into the program. Find out more on our Investment Fraud Factsheet (PDF).

Q: How can I determine if an investment opportunity promoted in an advertisement is right for me?

- GRfromEdm

A: While many advertisements touting investments are legitimate, some ads provide misleading information to the public regarding potential investment opportunities. Find out more by reading our Prevention Checklist on Investment Ads (PDF). In addition, you should establish clear objectives for your investments, both as a whole and individually, and consider whether any investment you are contemplating fits into your plan. A registered financial adviser can help you set financial goals, choose investments and track your progress – read more on this in our brochure (PDF).

Q: Is it wise to follow investment advice from a family member, friend or colleague?

- GRfromEdm

A: While it is always good to get a second opinion from others when considering investments, consider consulting with a third party with business knowledge. While family, friends or colleagues can be great sounding boards, they may not have checked into the investment, the promoter or the company themselves. Don’t assume that they have done a background check and do your own research. Scam artists can sometimes take advantage of the common bonds people develop with their family or friends. They can also take advantage of your religious, professional or ethnic affiliations to gain your trust. This is called “affinity fraud”. To find out more read our Prevention Checklist for Affinity Fraud (PDF).

Q: What can I do to avoid investment fraud?

- @jess4002

A: Being familiar with the ways in which you might be approached, learning how to recognize different types of investment scams, and knowing who to contact to do a background check are all good ways to avoid investment fraud. Continue seeking out more tips and learn how to protect your money (PDF).

Q: What's wiser: paying off a car loan fast or putting money into an RRSP?

- @etta_mark

A: This is a question that would be best directed to a financial planner or adviser as you’ll want to know what make sense for you and your financial goals. Visit the website of the Financial Planning Standards Council to find a financial planner in your area or confirm registration of an adviser on our Confirm Registration page.

Q1: What is the benefit of investing for my income taxes?
Q2: What is a TFSA? Why should I use one when bank interest rates are so low?

- @HeySeto

A: For information about taxes and investing, including TFSAs, please visit the Canada Revenue Agency website. To learn more about any tax benefits in investing or to decide whether a TFSA is a suitable investment for your, seek the advice of a registered financial adviser. For information on how to choose a financial adviser, read How Do I?

Q: Besides your website, what online resources can help me learn more about investing?

- @HeySeto

A: You can visit the website of the Canadian Securities Administrators: www.securities-administrators.ca. You may wish to also want to check out these websites from the Investment Industry Regulatory Organization of Canada or the Mutual Fund Dealers Association of Canada that contain unbiased information about investing.

Q: How do I find out the legal/financial history of a company as it pertains to ASC?

- Wes

A: You can start by checking whether a company or individual offering an investment is or has been the subject of any enforcement action taken by the ASC. You may also wish to visit www.sedar.com to view any relevant financial statements or other disclosure documents filed by the company. For other legal matters relating to the company not directly involving the ASC you can consult local court records or do a general internet search.

Q: Are there any special taxes or breaks in investing here that are not in other provinces?

- Wes

A: For tax related questions, please contact Canada Revenue Agency or the Tax and Revenue Administration of the Government of Alberta Ministry of Finance.

Q: Good Debt - what is it? And is it wise to carry over into your retirement?

- GRfromEdm

A: The answer to this depends on an individual’s situation. To determine if this investment strategy is right for you, consult a financial planner or adviser in your area.

Q: Why should I consider investing in dividend paying securities, instead of growth only oriented securities?

- GRfromEdm

A: It depends on your specific investment goals and your risk level - keep these in mind as you make all your investing decisions. If it’s a question you aren’t able to answer on your own, consider getting the advice of a registered financial adviser. They will go through a process called Know Your Client (KYC) to best determine what investment strategy makes sense for you.

Q: What is short selling?

- more than one investor

A: “Short selling” is the buying and selling of stocks with the assumption that the share price will decrease. For a more detailed explanation, see what Investopedia has to say.

Q: What is market timing

- @StephanieWarthe

A: Market timing is attempting to buy when the markets will rise, and sell, or short sell when they are going to fall.

Q: What are the pros and cons of borrowing money to invest?

- @jess4002

A: This is a question that would be best directed to a Financial Planner. You’ll want to know what makes sense for you and your financial goals. To find a financial planner in your area, visit the website of the Financial Planning Standards Council.

Q: What is the benefit of investing in Canada Savings Bonds vs. a normal GIC?

- @bluevektor

A: Savings bonds and GICs (Guaranteed investment certificates) both fall under the investment category of “cash and cash equivalents” meaning that you generally have quick access to your invested money should you need to withdraw it. You would need to look at the specific terms of the particular savings bond you were looking at and compare it with a specific GIC. Consider the differences that might exist as far as the length of term, interest rate, fees or restrictions on early withdrawal, and risk level. For more information, read through the Cash and Cash Equivalents section of Investments at a Glance (PDF) and consult with your financial planner or adviser.

Q: How can I invest in gold?

- @jess4002

A: The ASC does not regulate commodities such as gold, but your financial planner or adviser should be able to tell you how to do this. Typically, you can buy the actual metal or investments related to it.

Q: What are the benefits of investing? Why should I invest?

- @fluffylambs

A: Investing simply means putting your money to work so it can make more money. For many Canadians, investing is not only prudent - it’s a necessity. Increasingly, the responsibility for retirement planning is shifting from employers to the individual. For many Canadians, saving for retirement is one of the largest financial goals they will have. Informed investing with a clear plan is one of the ways to work towards this financial goal and others.

Q: How many stocks do we need for a properly diversified portfolio?

- GRfromEdm

A: Having too much of one or too little of many is one the most common investing mistakes. Find out why by reading our The Top Ten Investing Mistakes factsheet (PDF).

Q: Gold and precious metals - is it recommended that they be a portion of ones investment portfolio?

- GRfromEdm

A: The ASC does not regulate commodities, but your financial planner or adviser can give you some advice on your portfolio mix.

Q: What investment strategy would you recommend for short-term (around one year) time periods on several thousand dollars? Is it worth investing money in anything for such a short time - is it possible to make a good return?

- Stephanie

A: These are good questions and the answers will depend on your age, personal circumstances and financial situation. Consider meeting with a registered financial adviser and they will go through a process called Know Your Client (KYC) to best determine what investment strategy makes sense for you. Check out the “Know where you’re going” section in Investing Basics: Getting Started (PDF).

Q: What factors should I take into account when determining what type of products to invest my money in?

- @fluffylambs

A: Before you invest, make sure you understand how various products or investments work, including any fees and whether they fit with your goals and risk tolerance. Consider meeting with a registered financial adviser who can help explain these to you. You should also do a background check on the company or person offering you the investment products- are they registered to do so and has the ASC taken any enforcement action against them?

Q: How do I research whether an investment company is legitimate?

- rookie investor

A: You can check out the background of a company offering you an investment opportunity by following these How Do I? steps.

Q: Is it worth investing in GICs right now, or is the rate of return too low? How can I find the best GICs to invest in?

- Stephanie

A: With the help of a registered financial adviser, you can best determine if GICs (and which GICs) are the right investment for you. For more information on GICs and other cash and cash equivalents, see pages two and three in Investments at a glance (PDF).

Q: Is it better to plan and purchase your investments through a bank, a personal financial advisor, or another type of investing institution? What are the pros and cons you typically see with each?

- a few investors

Q: What does one look for/ask questions when being approached to participate in Gifting or Networking Clubs?

- GRfromEdm

A: Participating in a group such as an investment club can give you a feeling of camaraderie, but can also lead to a false sense of security. Read more about the ins and outs of investment clubs.

Q: Power of Compounding - what is the Rule of 72 and how can it help me to financial freedom?

- GRfromEdm

A: The rule of 72 is simply finding out how long it will take for your investment to double in value. For instance, if you are looking at an 8% interest rate that is compounded annually, then divide 72 by 8 (72/ 8 =9). In this example your principal amount would theoretically double in 9 years. This principle of compounding shows how a small amount of money invested early on in life can grow to more money than the investment of someone who starts investing later in life.

Q: Mutual funds as an investment, open ended and closed ended. What are the advantages/disadvantages of each group?

- GRfromEdm

A: Closed-end funds typically issue a finite number of units or shares, which may trade on a stock exchange. It may be difficult to buy or sell some closed-end funds if they are not listed on an exchange or they have a low volume of trading activity. You’ll usually pay a commission when you buy and sell a closed-end fund on an exchange. Open-end funds don’t typically have limits on time frames or numbers of shares issued.

Q: What is the easiest way to determine the riskiness of an investment?

- @fluffylambs

A: There are many different kinds of investments, each with their own level of risk. In general the higher the potential return, the greater the risk. Keep in mind that what might seem risky to you, may not seem risky to someone else. Read the charts in our Investments at a Glance (PDF) brochure for a quick overview of the general risk levels of different types of investments..

Q: How or where can I report suspicious investments?

- @fluffylambs

A: If you have serious concerns about how your investments or securities have been handled, a company you have invested in, or you believe a company or individual has breached securities law, you can make a formal complaint with the ASC. Find out how.

Q1: In today's current economy, what is the average rate of return that I should expect?
Q2: What is considered a good rate of return on your investments (stocks, funds, etc.)?

- Two Alberta investors

A: Most people aim for a rate of return that is greater than inflation - otherwise you experience “inflation risk” where the value of your income decreases as inflation shrinks the purchasing power of a currency. As the level of return for an investment is related to the level of risk for that investment, you will need to determine what level of risk you are willing to take for the return you want. Your tolerance for risk may depend on:

what is more important to you—keeping your money safe or seeking higher growth
when you need your money
how you react to the ups and down of the markets
if you have any debts
if you have any other sources of income to fall back on.

Q: What is hedging and when should it be used?

- Stephanie

A: Hedging is a strategy that is sometimes used to offset a perceived investment risk. For example, an investor might “short” a stock when he or she believes the price of the stock will decline. By selling a stock short the investor is banking that the price will fall so he or she borrows shares, sells them short, and if the price does fall he or she buys them back at a cheaper price, returns them to their owner and the difference is that investor’s profit.

Q: Will companies ever go back to historic mark to market accounting instead of current mark to model? My stocks should be mark2mod.

- @goinkforward

A: As noted in the International Financial Reporting Standards Conceptual Framework, there are a number of different measurement bases that are used to different degrees and in varying circumstances for financial statement reporting. These include historical cost, current cost, realisable (settlement) value and present value. There has been a trend towards greater use of fair value type measures and disclosures for financial reporting. For more information, consult with an accounting advisor.

Q: What are strip bonds?

- Lyn

A: These are also called zero coupon bonds. An investment firm purchases a block of high-quality bonds and “strips” or separates the individual future-dated interest coupons from the rest of the bond and then sells each part separately. The firm usually sells each coupon as well as the principal bond separately at discounts to the face value. Purchasers receive no interest payments but they provide a certain compounded rate of return when they mature.

Q: Quantitative easing in USA, EU, Japan, UK devalues money. Does Canada do quantitative Easing? If not our $ should be up big.

- @goinkforward

A: The value of the Canadian dollar can be affected by many things, including the setting of monetary policy and the price of oil. Your question is likely one for the Bank of Canada to answer as they set the bank rate.

Q: Are day to day movements in the stock markets controlled by "Mom & Pop investors" or more by large institutional trading?

- @goinkforward

A: Institutional investors generally control the markets. Retail traders only account for a small percentage of total daily volume.

Q1: What are the various alternatives for someone interested in investing in real estate?
Q2: What are the pros and cons of investing in real estate?

- a couple of investors

A: It’s important to distinguish the difference between investing in real estate as an investment or for personal occupation (generally not considered to be a sale of a security under the Securities Act in Alberta) and investing in real estate that is a security.

For instance, if a buyer purchases a piece of real estate for a set price to take ownership on a set date, that is likely a real estate transaction. However, if the seller retains ownership of the property and a buyer purchases an interest in the property, or its owner expects a return on his or her investment and neither plays a role in the management of it nor occupies the property as tenant, then the transaction may be the sale of a security.

Find out what red flags to watch for with real estate investment opportunities.

Q: Should I have any US stocks? Things seem to go up and down. Last year I lost some money in Oil. Forecast for natural gas prices?

- @pennyroyal00

A: The ASC isn’t able to provide advice on what stocks to pick. While it is good to be aware of what is going on in current news, be wary of jumping on investments because they seem trendy at the moment. It’s always important to have a clear idea of what your investment goals are and the level of risk you can or can not afford to take before you make any investment decision.

Q1: Who is a TFSA best suited for?
Q2: Would you recommend investing in an RSP or TFSA first? (given a middle class income)?

- several investors

A: For information on whether a TFSA or RRSP is suitable for you, please visit the Canada Revenue Agency website and consider seeking the advice of a registered financial adviser. For information on how to choose a financial adviser, read How Do I?

Q: What is the difference between and RRSP and a TFSA?

- @fluffylambs

A: Please see the Canada Revenue Agency website (www.cra-arc.gc.ca) for information on RRSPs and TFSAs.

Q: Does a high P/E ratio mean a stock is overvalued?

- Stephanie

A: The P/E (Price/Earnings) ratio is the price per earnings ratio of a stock. A high P/E ratio means investors pay more for each unit of net income.

The P/E ratio, or price/earnings ratio is the price per earnings of a stock of a company. A high P/E ratio means investors pay more for each unit of income of a company. While a financial ratio is used in the valuation of a company, it is not the only factor used to determine the value of a stock. To learn more about this, go to www.investopedia.com.

Q: How does a company determine whether or not their dividends can be used to purchase additional shares (DRIP)?

- GRfromEdm

A: If a company has a DRIP (dividend reinvestment plan), then dividends may be used to purchase additional shares. Not all DRIPs are identical, but any company that has a DRIP will be able to provide the specifics of their DRIP.

If you are wondering why a company may use a DRIP, some use it to reduce the amount of cash a company has to pay out when paying dividends, leaving a greater amount for reinvestment in corporate projects. DRIPs can be customized by the company, but typically do not have associated trading commissions and sometimes even offer reinvestment at a small discount to the market price.

Q: Who controls the issue of new money in Canada? Do we have a graph of available money supply?

- @goinkforward

A: The Bank of Canada is the country's sole bank note-issuing authority and is responsible for designing, producing, and distributing Canada's bank notes. Visit their website to find out more.

Q: I have just put some money into a mutual fund, but I'm still confused as to how I will actually make money off of it. Assuming the fund does well, do I have to manually pull money out of the fund?

- Stephanie

A: As with stocks you may see the value of a mutual fund appreciate but it isn’t truly a gain until you sell all or some of the units of the fund you purchased.

Q1: What are some good online resources to help investors pick out and track potential mutual funds and stock returns?
Q2: How do I keep track of my investments?

- from two different investors

A: There are plenty online resources and investment software packages out there to choose from that can help investors track their investments. We cannot recommend any particular site, but suggest you carefully look into any terms and conditions, as well as potential costs involved with such services. Try to find a service that is offered by a reputable organization or company and ensure that any personal information you submit would be treated securely.

Q: What determines whether or not a company pays dividends?

- GRfromEdm

A: A company decides how it is going to use earnings, including whether or not they pay dividends. Dividend declarations are typically subject to approval by a company’s board of directors.

Q: What is required to move my investments into a family trust?

- mismew

A: An estate lawyer would be the best source to answer this question for you

Q: How often should an individual revisit or reconsider their overall investment strategy?

- @fluffylambs

A: Investors should regularly review investments and reconcile goals with risk tolerance and time horizon. This is especially important when there is a material change in your circumstances (e.g. birth, death, inheritance, positive or negative career change). If you use the services of a financial adviser, be sure to notify him or her of any personal or financial information changes. Watch Scenario #3 in Who’s Taking Care of Your Money? to find out more.

Q: What are some of the biggest mistakes to avoid when making an investment plan?

- Stephanie

A: To see some of the most common investment mistakes that even the most experienced investors make, check out The Top Ten Investing Mistakes (PDF).

Q: What red flags should a potential investor be aware of?

- @fluffylambs

A: We’d all like to find a great investment that guarantees financial security, but unfortunately some offers are just too good to be true. Use our Red Flags of Investing Fraud tool to learn what to be wary of.

Q: How can I find out if a company is in compliance with securities laws and disclosure requirements before investing?

- @fluffylambs

A: The ASC maintains a Reporting Issuer list that identifies:

reporting issuers in Alberta (which are usually issuers whose securities are traded on an exchange recognized by the ASC);
Alberta reporting issuers that have been noted in default of certain requirements of Alberta securities laws; and
Alberta reporting issuers whose securities are the subject of a cease trade order by the ASC.

Q: Diversification is the way to go - with diversification our risk is reduced. Should we invest in all asset classes?

- GRfromEdm

A: Not all investments perform at the same level at the same time and diversification can reduce the volatility of your overall rate of return. Having a variety of investments can help offset the impact that poorly performing investments may have, while taking advantage of the earning potential of others. Investing in different asset classes can be part of a diversification strategy. For a more in-depth discussion of diversification and various asset classes, consider taking our ASC Basics of Investing class.

Q: How do I build an investment portfolio?

- @jess4002

A: Whether you are planning your financial future for the first time, or reviewing your present plan, it is important to establish clear objectives for your investments. A registered financial adviser can help you set financial goals, choose investments and track your progress.

For information on choosing and working with a financial adviser, read through Questions to Ask When Choosing a Financial Adviser (PDF) and Working with a Financial Adviser (PDF).

Q: If a real estate unit is offered on the basis of an "undivided interest" does the investor have any liability over and above the amount of money they have invested?

- Riverboy

A: The ASC does not answer questions involving assessments of your contractual legal rights and obligations as this would constitute providing legal advice. You should discuss these types of issues with the issuer of the unit and/or your adviser, and obtain independent legal advice from a lawyer.

Q: What are annuities and how do they work?

- Stephanie

A: Annuities are essentially contracts that are usually sold by life insurance companies, typically guaranteeing an income either to the purchaser (the “annuitant”) or their beneficiary (in the event the annuitant predeceases the beneficiary). With annuities, there are different types of income streams such as a lump sum payment or a stream of payments. Refer to the website of the Department of Finance Canada for more information.

Q: What’s a Money Market account/fund?

- a couple of investors

A: A Money Market account or fund is a mutual fund that invests in short-term fixed income debt securities, including commercial paper (representing a short-term loan to a corporation) and treasury bills (T-bills), all generally referred to as money-market instruments. Money market funds are usually issued at a fixed price. The return you receive will vary depending on the investments the fund holds. For more information have a look through our Investments at a Glance brochure (PDF).

Q: What are some of the key financial metrics or ratios to look at when selecting a mutual fund and/or stock?

- Stephanie

A: Here are some things to consider when investing in a mutual fund:

what is the fund’s goal?
how risky is the fund?
how has it performed? (note that past performance does not guarantee future returns)
what are the costs?
who manages the fund?
how will you be taxed?

For more information check out Understanding Mutual Funds (PDF).

Q: Do stocks have any advantages compared to mutual funds?

- Stephanie

A: When you buy a stock, you are investing in a company. When you invest in mutual funds, you are pooling your money with other investors to invest in a variety of investments. You need to determine, based on your investment goals and level of risk, what makes sense for you.

For more information, learn more about risk tolerance and read through the Understanding Mutual Funds (PDF) brochure.

Q: Does any real estate development or financing fall under the jurisdiction of the ASC?

- @lethbridgeRob

A: Generally, a sale of a piece of real estate as an investment or for personal occupation is not considered to be a sale of a security under the Securities Act (Alberta).

For instance, if a buyer purchases a piece of real estate for a set price to take ownership on a set date, that is likely a real estate transaction. However, if the seller retains ownership of the property and a buyer purchases an interest in the property, or its owner expects a return on his or her investment and neither plays a role in the management of it nor occupies the property as tenant, then the transaction may be the sale of a security.

You can read more on our page about real estate investment opportunities.

Q: What is a broker?

- @jess4002

A: A “broker” is a commonly used term for someone who arranges a transaction between a buyer of a security, and a seller of a security, and usually receives a commission for doing so. Technically, the term for such a person is either “dealing representative” or “advising representative”, depending upon the services the person provides – see National Instrument 31-103 for more details. Generally, such activity is prohibited unless the person is registered to do so.

You can confirm registration with the ASC and get a report on your adviser with the Investment Industry Regulatory Organization of Canada.

Q: I have recently been approached by email to invest in an incredible deal on a low priced stock. What information can you provide? Is this a potential scheme?

- GRfromEdm

A: “Cold calling”, where people are approached by strangers via a phone call, text message or email is often a red flag. These types of offers should be treated with caution and there are a number of questions you should be asking yourself such as: Why are they contacting ME? Why would they want to do ME a favour? How did they get MY contact information? (Note: your contact information may have been purchased or passed along to a salesperson). If this is such a great deal why do they have to make numerous phone calls to people they don’t know?

Find out more about cold calls by reading our Cold Calls Prevention Checklist (PDF) and Investment Fraud on the Internet handout (PDF).

Q: Is there a maximum amount that can be charged for fees or commissions related to buying or selling an investment?

- @fluffylambs

A: Fees are set between the firm offering the investment and the client (you, the investor). There are no mandated maximums or minimums. It is always a good idea to discuss fees with your adviser before signing any paperwork. You may find it helpful to read through our Questions to Ask factsheet (PDF).

Q: If I commit to invest in a product in a high pressure sales setting, do I have any recourse if I change my mind?

- @fluffylambs

A: It depends. There are many variables affecting whether you can rescind an offer to purchase. If you find yourself in this situation, please contact our Public Inquiries at 1-877-355-4488 or inquiries@asc.ca to find out more.

Q: What is insider trading?

- From several different Albertan investors

A: It’s important to note that there is a difference between insider trading and illegal insider training.

Illegal insider trading involves buying or selling a security of a “reporting issuer” (for example, a company whose securities are traded on an exchange) with knowledge of material information about the company that hasn’t been publicly announced (undisclosed material information).

Material information refers to information that would reasonably be expected to affect the market price or value of a security of that company, and can include everything from financial results to executive appointments to operational events.

If you are in a ‘special relationship’ with a public company, it is against securities laws to:

trade in securities of that company with undisclosed material.
in general, tell someone else the undisclosed material information (this is called “tipping”).
trade in securities of that company with undisclosed material information that was received through someone “tipping” you.
recommend that someone else trade in securities of that company if you have undisclosed material information.

For information about insider trading - including the definition of an insider – check out NI 55-104, Insider Reports and the CSA 2010 Enforcement Report (PDF).

Q: How is the ASC funded?

- @lethbridgeRob

A: The ASC is funded by the combination of revenues received under Alberta securities laws from market participants (e.g. fees) and its own investment income.

Q: What are the three qualities to look for or check when being presented with an investment opportunity?

- Alex

A: Here are three areas to look at when considering an opportunity:

Check registration to find out if an individual or company offering you an investment is registered.
Check enforcement history to see if there is any disciplinary history for an individual or company offering you an investment.
Check the level of risk of the investment to see if it matches with the level of risk you are willing to take based on your investment goals, level of knowledge and stage of life.

For more on how to be an informed investor, read through For Investors.

Q: Does the ASC have authority only within Alberta?

- @lethbridgeRob

A: Anyone participating in the Alberta capital market, including anyone located in Alberta who trades in securities or anyone who trades in securities with residents of Alberta, comes under the authority of the ASC.

Q: How can I be sure my advisor (sic) is telling me EVERYTHING I should know when choosing an investment product?

- Rick

A: When you outline your investment goals with your adviser, they can help you determine the level of risk you are comfortable with (part of a requirement called “Know Your Client”). Based on this, they can help you build a plan, choose suitable investments, track your progress and adjust your plan when needed. Once your plan is in place you can expect your adviser to:

make clear and specific recommendations (including recommendations on investment products)
explain the reasons for the recommendations
point out the strengths and weaknesses
outline the risk involved

For additional information, check out our online course, Who’s Taking Care of Your Money?

Q: What questions should I ask before selecting an investment advisor (sic)?

- @jess4002

A: Choosing a financial adviser is a big decision. Here are some questions to get you started:

Are you registered? (anyone selling investments is required to be registered – you can confirm registration on our website)
What is your background and who are your typical clients? (e.g. credentials, references)
What kinds of products and services do you offer?
How are you paid? (ask about fees)
What level of service can I expect from you?
How will you help me reach my investing goals?

For more information, check out our brochures on choosing and working with financial advisers.

Q: A friend recently invited me to a seminar promoting a new investment opportunity. Should I go?

- BobfromBalzac

A: We aren’t able to give you specific advice on whether you should go to the seminar or not. We do, however, strongly encourage you to do some research on the company selling the investment before you make your decision. Don’t assume that your friend has done any background checks themselves – they likely haven’t. You may also want to read our blog about seminars.

Q: I’ve heard a lot about ponzi schemes in the news. Do you have any information on this that I can look through?

- InvestorfromPenhold

A: Check out our Investment Fraud Factsheet (PDF) that you can print off or view online via Helpful Brochures and Reading Material.

Don’t see what you’re looking for? Ask us on Twitter or through our online form as part of our contest. You can also visit FAQs and For Investors for additional information on investing.