How the economy works
Supply & demand
What happens to price when more people want something?
Key ideas
- More buyers push the demand curve right
- Price rises until supply and demand meet again
- Producers make more only because the price is higher
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For educational purposes only. Simplified illustrations to help you understand how things work. Not financial, investment or tax advice, and not a recommendation.
How the economy worksPrices, cycles and interest ratesInvesting fundamentalsRisk, return and diversificationBonds & interest ratesWhy bond prices moveYou & your moneyLife stages, risk and behaviour
How the economy works
The business cycle
The economy's five phases, and how central banks and governments respond.
Key ideas
- Economies move in waves around a long-term trend
- Central banks cut rates in downturns and raise them in booms
- Governments spend more when the economy is weak
How the economy works
Interest rate ripple
One rate move, felt differently across savings, bonds, stocks and more.
Key ideas
- Savers earn more when rates rise
- Existing bonds lose value when rates rise
- Borrowing costs move in the same direction as rates
How the economy works
Sector rotation
Which parts of the stock market have historically tended to lead in each phase?
Key ideas
- Different sectors have tended to lead at different phases
- Defensive sectors have often held up better in downturns
- Markets tend to move ahead of the economy
Investing fundamentals
How a rational investor chooses
Two investments, one simple rule: more return for the same risk.
Key ideas
- Same risk? Take the higher return
- Same return? Take the lower risk
- Otherwise it's a trade-off that depends on you
Investing fundamentals
The core risk of each investment
Every type of investment has one risk built into how it works.
Key ideas
- Bonds: interest rate risk
- Stocks: market risk
- Foreign holdings: currency risk
Investing fundamentals
Diversification
Add holdings and watch the range of outcomes narrow, both ways.
Key ideas
- More holdings narrow the range of outcomes
- It cuts big losses and big gains together
- Holdings that move together diversify less
Investing fundamentals
Fund structures
Trust or corporation? Open-ended or closed-end? Two separate questions.
Key ideas
- Trusts pass income to investors, who pay the tax
- Open-ended funds are bought from the fund at its daily value
- Closed-end funds trade on a stock exchange
Bonds & interest rates
What moves when interest rates move
Flip interest rates up or down and see what happens to what you already own.
Key ideas
- Price and yield move in opposite directions
- A bond's coupon never changes
- GICs you already hold don't change at all
Bonds & interest rates
Duration: same move, different bond
Two bonds, one interest rate change. Why does one swing twice as much?
Key ideas
- Duration is the multiplier on every rate move
- Double the duration, roughly double the swing
- It works in both directions
Bonds & interest rates
Maturity × coupon
What makes a bond more or less sensitive to interest rates?
Key ideas
- Longer maturity means more sensitivity
- A higher coupon means less sensitivity
- Short-term, high-coupon bonds react least
You & your money
Money through the life stages
Slide through a lifetime and see how the focus shifts from growth to protection.
Key ideas
- Growth tends to matter most early on
- Protection grows as more people rely on you
- Later, it's about income and passing wealth on
You & your money
What makes up your risk profile
Time, capacity and tolerance. Three questions, and the lowest answer wins.
Key ideas
- Time horizon: when you need the money
- Capacity: whether you can afford a loss
- Tolerance: whether you can live with the swings
You & your money
The biases behind money decisions
Eight common thinking and feeling traps. Which ones sound like you?
Key ideas
- Thinking traps improve with better information
- Feeling traps need rules and routines
- Knowing your strongest pull is half the battle
You & your money
Segregated funds: the guarantee
Market investments with an insurance guarantee. See when it kicks in, and when it doesn't.
Key ideas
- Guarantees pay only at maturity or death
- Cash out early and you get the market value
- The guarantees come with higher fees