Part 1: Personal Risk Assessment
You can evaluate your personal willingness to take investment risks through self-reflection, by analyzing past events such as previous losses suffered and the emotions that stemmed from those losses, by speaking with knowledgeable investment advisors, and by completing one or more risk tolerance assessment questionnaires. These questionnaires use the answers you provide to various questions to score your risk tolerance and provide an asset allocation based the score you achieve. An asset allocation sets the percentage of equities, fixed income (bonds, etc.), and cash into which your portfolio assets are to be divided.
Be aware, though, that these questionnaires may not always accurately define your risk tolerance; you must also use common sense. After completing a questionnaire, if you find it is not a reasonable reflection of your risk tolerance, you may find it beneficial to complete a second questionnaire from a different source.
Note: Before you can purchase mutual funds in Canada, an investment advisor must complete a risk assessment for you.
Then prepare a submission of two or three short paragraphs in total (from three to four sentences in each paragraph), discussing personal willingness to take risk, personal ability to take risk, and unique circumstances that may apply to you. This should be done in addition to completing and submitting the risk tolerance assessment questionnaire assigned in Practice Problem 3 in Lesson 2. Recognizing your risk tolerance is imperative to understanding the types of assets you should invest in and the overall asset allocation of your investment portfolio. Your risk tolerance might change over time or with a change in your personal situation, such as getting married or having a child.
Part 2: Preparing Financial Statements
Sylvia has tracked her expenses for the last six months and provides you with the following estimates for the year:
Mortgage payments, including property taxes and interest
($3,094 is interest)
Car payments, including interest
($958 is interest)
House and car insurance
Gas for auto
Life and disability insurance premiums
Medical and dental expenses
Entertainment and lunches
Sylvia has the following assets:
Cash in the bank
Furnishings and personal assets
Sylvia has the following debt:
Credit card balances owing
Line of credit owing
a. Based on the information provided, prepare a net worth statement and an annual cash flow statement for Sylvia. (10 marks)
b. Sylvia also has plans for saving and investing, and wants to find a way to “pay herself first.” She is willing to make adjustments to her spending habits and would like to see the effect of putting away 10% of her net pay for investing. Draw up a proposed future cash flow budget that will incorporate her ideas.
This section is for Part 3 preparation:
Company Analysis (do not submit for marking; this activity is intended to help you complete Assignments 2 3rd Part)
Select two companies that presently trade on the Toronto Stock Exchange (TSX). You can obtain the two companies from daily stock reports in your newspaper or by looking through TSX-listed companies on the TSX website (www.tsx.com). Try to choose companies from different industry groups.
Check for new information on each of your selected companies at least once a week. Commentaries on companies may appear in the press or financial press, both hard copy and eformat. A great site for finding news stories is Globe Investor. At this site you can obtain stock price and company information. Press releases issued by the companies (which are usually posted on their respective websites) are also good sources of information, as is the website. At the top of the home page, click Issuer Profiles. Then, under Public Companies, click the first letter of the company you are looking for and search through the list for the company.
Keep a written record of share prices and volumes traded on a weekly basis. This information can be obtained from either the TSX or the Globe Investor website. Maintain your record in either MS Excel or MS Word for your own information—while this document does not need to be submitted, it will be helpful when you are answering questions in the upcoming Assignments 2 3rd Part.
Ensure that you can justify any stock purchase or sale you make (i.e., it is consistent with your objectives and investing profile).
The objective of this exercise is not necessarily to maximize the returns you make, but rather to demonstrate your understanding of investment principles and techniques appropriate for meeting your investment goals.
Part 3: Investment Activities
To better manage the stocks of the two companies you selected in above section, it is a good idea to prepare a “top-down” fundamental analysis. The top-down approach refers to analyzing the economy and the industries in which the two companies are involved, as well as the companies themselves.
Table the revenue/sales dollar amounts and net income after-tax dollar amounts for at least a three-year period.
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