Annual Percentage Yield Archives - Ira SmithTrustee & Receiver Inc.

Investment fund introduction

We have handled many insolvency cases of people and companies where an investment fund with negative returns, combined with a highly leveraged balance sheet, was a major reason for financial problems. This week we’re continuing our series on confusing financial terms that can cost you more than you bargained for. As trustees we see people in financial distress from a variety of reasons, but there seems to be a commonality – most people find financial lingo confusing.

This confusion magnifies when it relates to an investment fund they have bought, but don’t really understand. We have handled many cases where people having read articles about the tax and investment benefits of leverage, borrowing for investment purposes, do so by borrowing against the family home to invest in financial products they don’t understand!

Sometimes, if they have invested too heavily, not only is their investment at risk, but so is their family home! This series of blogs should clarify many confusing financial terms and with this knowledge help you to make more informed financial decisions. We’ve previously discussed Balloon Payments and APY – Annual Percentage Yield. Our current topic is expense ratios.

What is an investment fund expense ratio?

An expense ratio is a percentage of your investment fund or ETF that’s charged annually to cover its operating costs. These operating costs may include administrative charges, management fees, custody costs, legal expenses, marketing and transfer agent fees among others.

How can I find out what the expense ratio is on an investment fund that I’m interested in investing in?

Every investment fund has a prospectus (a legal document providing details about an investment offering for sale to the public) containing the expense ratio. The prospectus is sent to shareholders every year and shared with potential investors. And, since we live in the information age, a fund’s expense ratio can also be found on financial websites and in newspapers (both online and in print).

How can an expense ratio negatively impact my investment funds?

The expense ratio directly reduces an investment fund’s returns to its shareholders, which reduces the value of your investment. The lower your costs are the greater your investment’s return will be. Every dollar you pay in operating costs is one dollar less that’s earning money for you. Even small differences in fees can impact on your investment over time.

What if my investment fund heads south and I can no longer service my debts?

Making the right financial decisions is crucial to your financial health. Unfortunately many Canadians are now struggling with debt that seems insurmountable. The Ira Smith Team is here to tell you that we’re here to help, regardless of how dire your situation seems now. Make the right decision and give us a call today. Starting Over, Starting Now we can get you back on the road to financial health. Watch for future blogs when we’ll be discussing other confusing financial terms that can impact you financially.

The #1 secret we have learned through financial debt counselling

When performing financial debt counselling, we discovered many people are confused by financial lingo. As a result people have been negatively affected financially.

As a result we started a series on confusing financial terms. We began with Balloon Payments Can Cost You More Than You Bargained For. Today we’re going to be discussing APY – Annual Percentage Yield. Interest rates play an important role in borrowing and investing. Understanding your APY can will give you a clear picture of what you owe or could maybe gain.

What is APY?

APY is the true annual rate of return taking into account the effect of compounding interest. If you have a credit card and carry a balance each month you’ll be paying interest on top of the previous principal and interest. The interest each month (in effect it’s interest on interest) calculates on a daily basis. It is an important aspect of financial debt counselling.

Why is APY important?

APY is a great tool for evaluating the true interest rate paid on a loan or the return on an investment. It takes compounding into consideration and thus is actually higher than the stated annual interest rate.

If you owe money on a credit card, your APY will almost always wind up being higher than your card’s listed APR (Annual Percentage Rate). Interest charges added to your balance for every month you fail to pay it off in full is the reason. This means that over time you’ll be paying interest not only on the principal amount you owe, but on the interest as well.

In our financial debt counselling sessions, we always expose the APY secret. We will now expose it for you. Say your credit card has a stated APR of 19.99%. If you carry a credit card balance from month to month, an APR of 19.99% compounded daily equals an APY of 22.1214%.

Are you unable to make your monthly payments? Were you not aware of APY?

The reality is that you could be paying a much higher amount than you bargained for. It also may be a much higher amount than you can afford. Most people we counsel are not aware of or didn’t understand APY. In our financial debt counselling sessions, this is everyone’s “AHA” moment.

If you’re dealing with insurmountable debt for any reason contact Ira Smith Trustee & Receiver Inc. today. We’re a full service insolvency and financial restructuring practice serving companies and individuals throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now. Give us a call today.

We can help. Maybe all you need is some financial debt counselling. Perhaps you need to explore one of the many bankruptcy alternatives. Either way we can devised a plan that allows you to carry on a debt free, stress free life.

Watch for future blogs when we’ll be discussing other confusing terms that can impact you financially.