Pop Quiz! How Much Do You Really Know About Investing?

Who doesn’t love a quiz? And especially an investment one, where no matter how you do, you’ll always learn something that you can use. Indeed, building your investing confidence over time can help guide you through market events and create a personalized portfolio tailored to your needs.

Put your financial knowledge to the test and see what else there is to learn.

1. Saving isn’t easy – if it were, we’d all have flush bank accounts. Which approach offers a good way to save over time?

A. Use a Pre-authorized Contribution Plan.
B. Put your loose change into a jar.
C. Match your savings to the calendar date (e.g. put away $5 on the fifth of the month, $21 on the 21st day, etc.)
D. All of the above.

2. Want to start saving for your first home? There are investment accounts that can help. But which one should you consider?

A. Tax-Free Savings Account (TFSA)
B. First Home Savings Account (FHSA)
C. Registered Retirement Savings Account (RRSP)
D. All of the above

3. What is the annual TFSA contribution limit for 2024?

A. $92,500
B. $7,000
C. $5,500
D. $88,000

4. There are several types of orders in investing – an instruction given by an investor to their brokerage to buy and sell an asset on their behalf. What, then, is a limit order?

A. It prevents you from buying more shares of a company than you intended.
B. It allows you place an order to buy or sell at a specified price or better
C. It restricts how long you want to hold the stock in your portfolio.
D. It costs more to implement because the brokerage is trying to find the best price.

5. You may have heard the terms bull and bear in investing, but the finance world is full of other animal-related words, too. What creature is used when referring to a privately held company that has a valuation of $1 billion or higher?

A. Dove
B. Unicorn
C. Black swan
D. Ostrich

6. Ship ahoy! What does anchoring mean in behavioural finance?

A. It’s an investor’s tendency to rely too heavily on a specific piece of information when making decisions, regardless of its relevance.
B. The moment an investor decides to stick with a stock for the long term.
C. The sinking feeling people get when they see the price of their stocks fall.
D. When investors fasten their fortunes to a specific company, leading to a lack of diversification.

7. What does “market capitalization” refer to?

A. The total value of a company’s outstanding shares.
B. The number of stocks traded daily on the market.
C. Describes the strategy a company’s management team has developed to capture market share from a competitor.
D. The total revenue earned by a company over a period of time.

8. What are some of the different ways to invest in gold?

A. Own gold bars directly.
B. Invest in ETFs or mutual funds that provide exposure to gold bullion and/or gold equities.
C. Invest in a gold-focused royalty and streaming company.
D. All of the above.

9. How are capital gains taxed inside a Registered Retirement Savings Plan?

A. They are subject to tax at your marginal rate.
B. Half of all capital gains earned in the account are subject to tax.
C. Half of all capital gains lost to taxation upon withdrawal.
D. Capital gains are not subject to tax inside an RRSP.

10. True or false. Only large institutional investors like pension plans can afford to access in-depth research like analyst reports.

A. True
B. False

11. Dividends are payments made by a business to shareholders. What does it mean to set up a DRIP?

A. Splitting up a company’s dividend so you can receive it on a daily basis.
B. Reinvesting the dividends you receive to buy more shares of that company.
C. Transferring the dividends to a family member.
D. Directing the dividend payments to your savings account to fund day-to-day needs.

12. Investors aren’t limited to making money when stocks rise – they can also earn a return when equities fall. What is that approach called?

A. Catching a falling knife
B. Bear betting
C. Short selling
D. Going against the grain

13. What impact can an increase or decrease of the Bank of Canada’s overnight lending rate have on your portfolio?

A. There’s no impact at all. Interest rate changes affect borrowing costs like mortgages but not your portfolio.
B. Changes to rates only affect short-term investments like savings accounts and Guaranteed Investment Certificates.
C. Adjustments by the Bank of Canada happen in 25 basis point increments, which isn’t enough to impact your portfolio.
D. All investments, including stocks and bonds, are sensitive to interest rate changes.

Answer Key

Answer 1: D. All these options can help you save. Matching your savings to the calendar would help you save $465 over 30 days, but setting up a Pre-authorized Contribution Plan (PAC) can help make saving easy. A PAC allows you to automatically transfer money into your investment account. You can pick a number that works for you and choose how often you want your money to go from your bank account into your investment account, where your money is ready to be invested when you are.

Answer 2: D. You can use all these accounts to save for a down payment. The FHSA, which launched in April 2023, was specifically created to help first-time homebuyers with their down payment, but you can also make tax-free withdrawals from your TFSA and your RRSP via the Home Buyers’ Plan, the latter of which allows you to borrow up to $60,000 from your retirement savings (you do have to put it back within a 15-year period).

Answer 3: B. If you’re eligible to open a TSFA in 2024, you’ll have $7,000 in contribution room for 2024. TFSA contribution room begins to accumulate in the year you turn 18, whether you’ve opened an account or not. If you were 18 or older in 2009 and a Canadian resident, and have never contributed to a TFSA, you could contribute up to $95,000 in 2024.

Answer 4: B. Limit orders will only execute a trade if shares of the company you’re buying trade at or below the price you specified (or selling at or higher price than you specified). There is no additional cost to setting a limit order, but you could miss out on opportunities if the price moves too quickly, or doesn’t hit the price you set.

Answer 5: B. All these animals are used in investing, but only the one-horned, rainbow-haired horse is used to describe a startup that’s worth at least $1 billion. These businesses are called unicorns because, like the mythical creatures, they are incredibly rare.

Answer 6: A. Anchoring is a common behavioural finance issue that causes investors to make decisions that go against their best interests. For instance, if you buy a stock for $100, that number can become a fixation. When heavily anchored on the cost base of an investment, you may focus too much on whether your investment is up or down, paying less attention to other factors which are likely to be better indicators of an investment’s value and potential.

Answer 7: A. Market cap reflects the total dollar value of a company’s stock. Generally, large-cap stocks (say, those worth $10 billion and up) tend to be more stable, mature investments than small and mid-cap companies – but there are exceptions.

Answer 8: D. There are many ways to invest in gold. While you can buy gold bars at Costco, one of the more common ways is by investing directly in the common shares of a gold-focused explorer, developer or producer or by gaining exposure to the companies involved in the industry through an ETF. Some ETFs also hold the metal itself, allowing the holders of these funds to invest in gold’s price movements more directly. Another option could be to buy/sell gold certificates.

Answer 9: D. Capital gains – the term used to describe the increase in value of an investment from the day you buy it to the day you sell (assuming it’s gone up) – are subject to taxes. Within an RRSP –– you do not pay any tax on your gains but you’ll be subject to tax when you make a withdrawal, which is taxed as regular income.

Answer 10: B. False. You don’t need to be managing billions of dollars to access quality research. If you’re using RBC Direct Investing, you can access analyst reports and more through the research tab.

Answer 11: B. DRIP stands for dividend reinvestment plan, which is program that allows you to automatically reinvest the proceeds from a dividend back into more shares of the business. It can be an easy way to buy more stock, leading to hopefully more compound growth.

Answer 12: C. Short selling is a strategy – albeit a more complex one – that can allow you to profit from a falling stock price. It involves borrowing a security from a broker that you then sell. You would buy back that stock later at a hopefully lower price and then return it the broker. Whether you trade this way or not, we recommend watching The Big Short – an Academy Award-nominated movie about short selling and the Great Recession.

Answer 13: D. An increase or decrease in the Bank of Canada’s overnight rate can significantly impact investments in a portfolio. For example, if rates fall, bond yields on new issuances will typically decline, but bond prices on older products will usually rise as people will pay more for a security with a higher yield. Stocks tend to do better in a falling-rate environment because new bond yields may offer less return than equities, but also, companies can now borrow at lower rates, which makes it less expensive to invest in growth. The opposite tends to occur – stock prices fall, the appeal of bonds climbs – when rates increase.