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You might be an investor if…you own bonds
by FCNB on 

You might be an investor if…you own bonds

In our conversations with New Brunswickers all over the province, we’ve come across a trend that might surprise you. When we ask people if they are investors, many of them say no when in fact they have a handful of investments to their name.
Why is that? Well, it’s because many of us have an image of what an investor looks like. It’s typically someone in a power suit, reading the Wall Street Journal daily to keep a close eye on the stock market. They have hundreds of thousands of dollars in their bank account and have an advisor at a brokerage firm on speed dial.

Does that sound familiar? Sure.

Does it look like you? Probably not.

The truth is, investing is for everyone. Are you contributing to an RRSP or a tax-free savings account? You’re an investor. Do you have money in a mutual fund? You’re an investor. Do you have a GIC?  You guessed it – you’re an investor!

October is Investor Education Month. That means everyone has an opportunity to learn something new about investing – whether they are seasoned investing veterans or total newcomers.

Today, we want to talk about five things you need to know about bonds :

1. What are bonds?

When you buy a bond, you are lending your money to a government or company (bond issuer) for a fixed period of time (term). In return for lending your money, the bond issuer promises to pay you interest for the term of the loan and to repay the money borrowed (face value) at the end of the bond’s term (the maturity date). 

2. How risky are bonds?

There is no such thing as a risk-free investment, and bonds are no exception. Bonds are subject to interest rate risk. This means as interest rates go up, the value of the bond goes down.  Keep in mind that higher returns mean accepting more risk. The opposite is also true: the lower the risk you are willing to take, the lower the returns you can expect to earn.

3. How can I make money?

There are two ways you can make money with bonds:

  • Holding bonds until their maturity date. You will not only get your initial investment back, but you will also receive interest payments while you hold the bond.
  • Selling a bond for more than you paid. When interest rates go down, the value of a bond would normally go up. By selling the bond in this situation, you may get more than you paid for it.  You will also have the interest payments you received while you held the bond. 

4. How can I lose money?

There are two ways you can lose money with bonds:

  • Selling a bond for less than you paid. When interest rates go up, the value of a bond would normally go down. If you have to sell your bond early for some reason, you could lose money.
  • The bond issuer can’t pay you the interest payments.  If a company is dissolved, their bondholders have a right to a portion of the company’s remaining assets, but they may not get back all the money they originally paid.

5. Are bonds right for me?

The answer to this will depend entirely on you, your current financial goals, and how much risk you’re willing to take on. Talk to your financial advisor to see if bonds are right for you. 

Want to know more? Be sure to check out our Saving and Investing page.

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Your brain is to blame: Common stock-buying mistakes
by Marissa on 

Your brain is to blame: Common stock-buying mistakesYour brain is to blame: Common stock-buying mistakes

Our brains are wired to look for patterns to help us predict the next moment. Think evolution. Pattern recognition allowed Cave Man and Cave Woman to avoid the patch of poison ivy the second time.

Our brains are also wired to hate losing. Research has found that if you find $10 on a sidewalk, you experience a small boost of satisfaction. But if you lose $10, you experience a dramatically higher loss in satisfaction. We hate losing more than we like winning. We are protective of the things we already own and sometimes place more value in these items than they are worth.

Our brains also have a built-in fight-or-flight response to protect us from the proverbial sabre tooth tiger that once roamed in the tall grasses. Designed to protect us from a harmful event or a threat to survival, it produces changes to our body – both physically and physiologically – that may cause us to overreact.

So what does this have to do with investing in stocks and shares of companies? Believe it or not, a lot. The science of neuroeconomics studies the brain scans of investors and their behaviour. The picture developing from neuroeconomics is that smart investors are good at emotional regulation.

Billionaire and philanthropist Warren Buffett didn’t need science to tell him this. “Success in investing doesn’t correlate with IQ…what you need is the temperament to control the urges that get other people into trouble investing.” But even Buffett, considered one of the most successful investors in the world, admitted he once let his brain get in the way of a good investment.

In the 1980s, Buffett was going to buy Wal-Mart shares. He bought some and was going to buy more, but then the price went up a little. He decided to wait to see if the price would fall back to the original $23. It didn’t. “That thumb sucking has cost us in the current area of $10 billion,” he once said.

Buffett isn’t the only genius to lose millions in the stock market. Sir Isaac Newton, the man who figured out gravity and the laws of motion, bought shares in the South Sea Company in the 1700s. When its share price began to soar for no apparent reason, investors bought in. To Newton, it didn’t make sense. “I can calculate the motions of the heavenly bodies, but not the madness of people,” he said. So he sold his shares, making a 100% profit. However, the mania continued, and the price of the company’s shares surged. Seeing a missed opportunity, Newton decided to buy the company’s shares again at a much higher price. Shortly afterward, the stock price burst and Newton – the man who determined that for every action in nature, there is an equal and opposite reaction -- lost a fortune. He didn’t abide by his own gravitational finding: everything that goes up must come down.

So how can we reprogram our brain’s primitive, automatic, inborn responses when it comes to investing in the stock market? Here are five traits you can develop to sway your brain from making a bad investment decision.

Be patient

One of Buffett’s secrets to high returns is his patience in the stock market. He is well-known for holding shares in blue-chip companies for the long term. For example, he first bought shares in Coca Cola more than 25 years ago and still owns a considerable stake today. Some experts say investing in stocks requires a minimum five-year timeline. It requires fighting the primordial fight-and-flight instinct when the market becomes volatile and when negative news spooks the stock market. If you focus on the long term, short-term blips mean nothing.

Keep your cool

Being a sound investor requires a calm temperament. When everyone else is freaking out, remain calm. Keep your emotions in check and ignore the noise. If possible, avoid exposure to images that may trigger the fight-or-flight response, like a stock’s line graph over a short period. Pictures of those peaks and valleys will drive your brain’s nerve cells to fire like crazy.

Jump off the emotional rollercoaster

To keep your brain’s emotions in check, develop an investment plan for each stock you invest in. A financial advisor can help you with this. Write what you like about the company, its role in your portfolio, how much of a dip you will endure, expectations about the company’s performance and a list of reasons that would make you sell the shares. Our Investment Planning Workbook will help you. Then stick to the plan.

Avoid being a sore loser

Regret and pride tend to guide decisions over economic facts. Look no further than Newton who regretted selling his shares when its price kept climbing and jumped back in the market to his detriment. It’s the human brain looking back at what could have been and making illogical decisions. Remember, our brains are wired to hate losing.

Look to the long term

Remember our brains are programmed to look for patterns. It perceives anything that repeats itself as a trend. So avoid the impulse to buy a stock because its short-term performance is good. Do your homework. Get the facts and be comfortable with the company you are investing in. Buffett, for example, ignores fads and trends. He studies the quality and value of a stock, sets a long-term goal, develops a plan and sticks to it.

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This Thanksgiving, talk to your parents about their finances
by FCNB on 

This Thanksgiving, talk to your parents about their finances

The table is set, the meal is ready, and the family is all together. This is what many people picture for a pleasant Thanksgiving weekend.

But did you know Thanksgiving is also an opportunity to have important conversations with your loved ones? If you’re spending time with your aging parents this long weekend, it could be a great time to talk to them about their finances and fraud.

How to start the conversation

Broaching the topic isn’t the easiest conversation to have, but unfortunately, many grown children avoid the conversation until it’s too late. A crisis may come up, and no one knows where mom and dad keep their documents. Or mom may develop dementia and she can’t remember where she put her financial papers – or her money.

We recently posted some tips from Ron Long of Wells Fargo Advisors on how to start the conversation with your parents about money. If you want to avoid getting caught off guard, check it out here!

Use the occasion to also warn your aging parents about fraud. As we age, we become more dependent on others, making us more vulnerable to potential financial abuse. Older victims of financial abuse, including investment fraud, are especially at risk; if seniors lose all or part of their life savings they have less time to recover their financial stability.

Financial abuse of seniors could include:

  • a fraudulent investment;
  • an investment that is unsuitable for the senior’s circumstances;
  • theft; or
  • financial exploitation.

Our Recognizing Financial Abuse brochure helps families and caregivers recognize red flags of financial abuse and take the next step to report and stop the abuse. Our Financial Fraud Checklist will help you start a conversation if you are concerned about the financial well-being of your parents or a senior close to you or you suspect they may be suffering financial abuse.

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Is an RRSP right for me?
by Marissa on 

Is an RRSP right for me?  7 Things to consider before you decide.

“Invest in an RRSP ASAP!” Since becoming an adult, I keep hearing this piece of financial advice.

Yes, the Registered Retirement Savings Plan  (RRSP) is a great tool to help Canadians achieve their retirement savings goals, but it is not always the right, or the only, tool for everyone.  When investing – one size does NOT fit all!

Here are seven things to consider, and discuss with your financial advisor, before you decide where to put your retirement savings efforts.   Whatever your situation, talk to your advisor about creating a financial plan using all the available tools that best fit your needs.

#1: You have high interest debt: If you contribute to an RRSP you’ll pay less tax, but if you pay off your debt you’ll pay less interest.  If you’re trying to decide if you should focus on investing or paying down debt, here are a few things to consider
  • The fees involved – find out if there are any fees or penalties for paying off the debt early. 
  • Your age – if you’re closer to retirement you may want to concentrate on going into retirement debt free.  If you’re well into your career and in a higher tax bracket, you may want to concentrate on lowering the tax you pay.
  • The type and amount of debt – if you have a lot of high interest debt (like credit cards or pay day loans), it is a good idea to paying down and eliminating these debts as quickly as possible.

#2: You want to build an emergency savings: Sure, you can take money out of your RRSP at any time. And, while not ideal, if it comes down to using RRSPs to cover an unexpected expense versus taking out a high interest loan (such as a payday loan), using your savings in your RRSPs may very well be the best choice.  But using your RRSP savings as an emergency account regularly will cost you.  Funds withdrawn from an RRSP are considered taxable income, which may bump you up into a higher tax bracket. You may also have to pay a fee  (pdf) for cashing out the investment held in your RRRSP. You should only withdraw from your RRSP for retirement, the purchase of your first home (Home Buyers Plan), or full-time tuition (Lifelong Learning Plan). 

Consider a Tax Free Savings Account (TFSA) or a high-interest savings account for building up an emergency savings or saving for other items like a trip, new vehicle, wedding, etc.  When you put money into a TFSA or savings account you can withdraw the money without increasing your annual tax bill.  Learn more about RRSPs and TFSAs.

#3 You are a student or just beginning your career:  Contributing to an RRSP reduces the tax you pay.  When you’re earning less, you’re in a lower tax bracket, so contributing to reduce taxes doesn’t make as much sense as it would for someone in a higher tax bracket.  To maximize the tax benefits of your RRSP, contribute when you are earning a higher income and paying higher taxes, and withdraw when you are earning less (in retirement) and paying lower taxes.   

If you choose to invest in RRSP at the beginning of your career you don’t have to deduct your RRSP contribution in the year you invest it.  Consider waiting to claim this deduction until you are in a higher tax bracket and can realize more benefits from the tax savings.

#4 You’re trying to maximize your government benefits and credits: When you withdraw funds from your RRSP it is treated as taxable income.  If your income gets too high, you might lose some government income-tested benefits and credits such as: Old Age Security (OAS) benefits (like the Guaranteed Income Supplement), or Employment Insurance (EI) benefits. 

These benefits will not be reduced as a result of the amount you withdraw from your TFSA.  Working with a financial advisor you can discuss the best options and combinations of saving and investing vehicles to contribute to now, and how to best use them later, so you can maximize your benefits in retirement.

#5 You are buying a home:  RRSPs are a popular savings tool among home buyers thanks to the Canada Revenue Agency’s Home Buyers Plan. The plan lets you access up to $25,000* of RRSP funds without penalty. However, it is only available to first-time buyers and must be paid back within 15 years*. If you aren’t a first-time buyer or are looking for a product that offers more flexibility when buying a home, consider using a TFSA to save for your down payment.

#6: Your employer offers a pension plan: Don’t pass up free money!  If your employer matches contributions to a workplace pension plan, be sure to max out this benefit. Also, if you have a pension plan through your employer, you may end up being bumped into a higher tax bracket when you start withdrawing from your RRSP. Consider holding your savings or investments in a TFSA instead.

#7: You are moving outside Canada: Depending on where you move, you may not be able to bring your RRSP with you. In most cases, Canadian expats have two options: withdraw the funds and pay a large tax bill or leave the funds in the RRSP.  If you choose to leave your RRSP behind, the tax laws of your new country may impact how the earnings are taxed and whether or not you can make additional contributions.  Before moving, consider contributing to a TFSA so you can withdraw your savings and investments without penalty and take them with you. After your move, explore local retirement savings options. Before investing, be sure to check with the local government or securities regulator to see what credentials are required to sell or give advice about investing and financial products.   

* As of September 2017

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The term ‘advisor’ used here generally refers to a financial professional and does not indicate a category of registration or type of licence. The registration category and type of licence is more important than a title. Visit to check now!

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How one of our employees avoided being scammed on Kijiji
by Marissa on 

For 35 years and many moves, Étienne carted several pieces of antique furniture with him wherever he went – a buffet, a hutch, a table, a corner table and a filing cabinet.

Preparing for another residential move, FCNB’s Director of Financial Institutions decided it was time to part with these pieces. So he did what many of us do: he posted an ad on Kijiji. He was selling all five pieces for $500. Within 15 minutes of posting, he got a response...

“It was like casting a line and a fish hitting right away,” he says.

The email reply came from a man named Dave. He  saw the ad and was going to alert his father, who was an antiques collector.

“This initial email was interesting,” he said. “Looking back, it was an attempt to legitimize the scam even more.”

Soon after, Étienne received an email from Smith Denis – not Denis Smith. The writing was not gramatically correct, which might have been Étienne’s first clue.

“Thank you for your anticipated cooperation and make sure you end the item listing immediately. I will be sending the payment soonest and i will email you when am done with it. More so you will be notify by PayPal in your email address after make the payment,so just make sure you check your email to confirm payment when it is completed.”

Still, Étienne thought he had a legitimate buyer in the man who went onto claim he was a marine biologist working in California. The buyer explained he would arrange a shipper to pick up the items at Étienne’s house. But first, the buyer was going to send him a total of $973 US through PayPal and instructed Étienne to check his email for a confirmation of payment from PayPal.

That’s when Étienne’s spidey senses began tingling. The buyer was sending him an overpayment of $473. He instructed Étienne to wire the extra $400 to his shipper through a MoneyGram. Étienne could keep the remaining amount for his troubles in arranging the shipper.

“As soon as he asked me to send money to a third party, I knew something was up,” Étienne said.

Kijiji is aware of this overpayment scam. Here’s how it typically works:
  • The scammer sends an email agreeing to buy your item.
  • The scammer then instructs you to check your email for a confirmation of payment from PayPal.
  • The scammer’s payment includes an overpayment – money over and above the asking price – to pay for a shipper to retrieve the purchased items.
  • The scammer instructs you to send the overpayment to the shipper or agent via Western Union, MoneyGram or a bank tranfer. He provides the shipper’s contact info.
  • The scammer says the shipper will come retrieve the purchased item once it has received payment.
  • Turns out, the confirmation of payment email from PayPal is a spoof. While it appears legitimate, a closer look reveals it’s not.The payment has not been deposited into your account. Meanwhile, you have just wired money from your bank account to a “shipper.”

Étienne called the buyer’s bluff. Suddenly, the string of emails came to a stop.

“There was no response,” he says. “He just went away.”

This story could have played out badly, but it has a happy ending. Without a legitimate buyer, Étienne still had his antiques. Not long after, he ran into an old acquaintance, who now retired, was volunteering with Enviro Plus in Moncton.

The non-profit hires the homeless and the unemployed to clean, fix, repurpose and sell furniture, keeping it from filling landfills. Its provides a 16-week training, giving people new skills and a second chance to find steady work.

Étienne donated his antique furniture.

“So the $500 I would have made personally is now going to help other people.”

  • Watch for these red flags when using online classifieds to sell or buy items:
  • Beware of buyers who send more money than your asking price. If you receive a cheque or money order that is more than the agreed amount of money, refuse the payment.
  • Never send money to a third party.
  • Instead of a cheque or money order, request a certified cheque, or better yet, an electronic payment such as an email money transfer. This way, the funds are deposited into your account and are guaranteed right away.
  • Meet in-person with the buyer or seller to thorough inspect the product and then exchange funds. Meet in a public place.

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