 |
Understanding Investment Terminology
To help you familiarize yourself with terminology specific to investing, we have compiled this glossary for your use. It contains commonly used terminology, phrases, and expressions associated with investing.
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Advisor Series
- Advisor Series denotes funds that are available to all investors with an initial sales charge (front-end load) or a deferred sales charge (back-end load).
- Annual Information Form
- Mutual fund companies are legally required to file this form with Canadian Securities regulators to provide detailed information about their funds and their investment restrictions, policies and practices, which does not appear in a simplified prospectus or annual financial statement.
- Asset Mix
- The percentage breakdown between different asset types in a portfolio including cash and equivalents, fixed income and equities.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Balanced Fund
- A mutual fund that invests in varying proportions of equities, bonds and cash to offer potential for both growth and income.
- Bear Market
- A market characterized by an extended period of falling investment prices accompanied by a pessimistic market outlook. Economic recession, high unemployment or rising inflation typically cause bear market conditions.
- Bond
- Issued or guaranteed by a government or business, bonds are long-term investments that are backed by assets of a company. With bonds, investors receive a specified amount of interest and recover the principal amount when the bond matures. Regular bonds, unlike Canada Savings Bonds, can be transferred from one owner to another and can be cashed by someone other than the original buyer.
- Bond Fund
- A mutual fund with a portfolio consisting mainly of bonds, characterized by relatively low investment risk.
- Broker
- The agent who conducts and executes securities, commodities or other property transactions on behalf of buyers and sellers.
- Bull Market
- A market characterized by an extended period of rising investment prices. Economic recovery or growth typically causes bull market conditions.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Canadian Equity Fund
- A mutual fund that invests primarily in Canadian equities and is appropriate for investors seeking long-term growth potential.
- Capital Appreciation
- When assets such as real estate, equities or bonds gain market value.
- Capital Gains Distribution
- How shareholders receive a portion of the profit generated from the sale of a company's securities. Capital gains can be paid out in the form of distributions, which are considered taxable income, or can be reinvested in the fund. Some funds pay annually (equity funds) while others include capital gains in monthly distributions (bond funds).
- Commercial Paper
- A negotiable promissory note with a term of a few days to a year that is not generally secured by company assets.
- Common Shares
- Securities that represent ownership in a company and that carry voting privileges.
- Corporate Bonds
- Securities issued by corporations, which usually pay a higher rate of interest than government bonds because they have inherently higher risk. Corporate bond ratings and yields reflect the financial standing of an individual company and the potential for default.
- Correction
- Most commonly associated with a period of declining investment prices immediately following a period of rising investment prices.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Debenture
- A bond that is backed only by the general credit of the issuer and not secured by any pledge of property.
- Debt Securities
- Obligations to repay borrowed money in a certain time period, with or without interest. Debt securities include bonds, debentures, commercial paper, notes and treasury bills (T-bills).
- Deferred Profit Sharing Plan (DPSP)
- Using the DPSP, employers are able to "share" profits with employees in the forms of stocks, bonds or cash that are given out immediately or deferred until retirement. Using a formula, employers determine the annual contribution amount and the distribution upon retirement.
- Derivative
- A financial instrument that derives its value from the performance of an underlying asset, index or other investment.
- Distributions
- Distributions represent income generated from a mutual fund. Money market funds and fixed income funds generate interest income on a monthly or quarterly basis whereas equity funds typically generate net capital gains an annual basis. Distributions may be paid out to an investor or reinvested back into the investment account.
- Diversification
- A strategic approach to reducing portfolio risk. Diversifying by asset class, style and sector limits the potential impact of volatility on the portfolio because no one asset class, style or sector outperforms every year.
- Dividend
- A dividend is the portion of company's earnings that is given to shareholders on a quarterly basis in the form of cash or stock.
- Dividend Yield
- This is the amount of dividends per share that companies pay out to individuals divided by the price of the stock. For example, if ABC company pays a dividend of $2.00 per year and the stock is currently $40 a share, the dividend yield is 5%.
- Dividend Tax Credit
- The tax incentive used to motivate Canadian investors to purchase shares of taxable Canadian companies. The dividend tax credit is calculated by applying a formula that "grosses up" dividend income by adding 25% to the amount of dividends actually received. A tax credit is then applied to the federal tax due on that amount. The result is reduced taxes owing on the dividend income.
- Dollar Cost Averaging
- With dollar cost averaging, investors contribute a fixed amount on a regular basis. Through this disciplined strategy, investors end up buying more shares when the price is low and fewer shares when the price is high, resulting in a lower cost per unit. This strategy helps investors stay focused on the long term by eliminating the temptation to time the market.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Equities
- Ownership of shares in corporations.
- Equity Fund
- A mutual fund that invests primarily in stocks, usually common stocks.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Fixed Income Fund
- This type of mutual fund invests primarily in fixed income securities such as bonds, mortgages and preferred shares and is suitable for investors who require regular cash flow while preserving capital.
- Fixed-Income Securities
- Investments such as bonds, mortgages and preferred shares that generate a regular amount of income.
- Foreign Content Limit
- The government of Canada limits the amount of foreign assets that may be held in a registered savings plan to 30% of book value.
- Forward Contract
- The commitment to buy or sell a currency or commodity on a specified future date at a specified price through an over-the-counter telephone or computer network.
- Futures Contract
- The commitment to buy or sell a currency or commodity on a specified date at a specified price, with standard terms and conditions. The trade takes place on a futures exchange only.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Guaranteed Investment Certificate (GIC)
- Investments offered by banks, trust companies and other financial institutions, which pay a predetermined rate of interest for a specified term and are usually not redeemable prior to the maturity date.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Hedge
- A strategy used by investors to offset or reduce the risk associated with an investment or group of investments.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Interest Income
- Money earned on investments such as government bonds, corporate bonds, mortgages and short-term securities such as money market funds.
- Index
- A measurement tool that tracks trends and performance of markets or industries. Some more well known indices include the S&P/TSX Composite Total Return Index, which measures the performance of securities listed on the TSE, giving investors a broad measure of performance of the Canadian stock market at any given time.
- International Equity Fund
- A mutual fund that invests in equities held outside of Canada, providing investors with benefits of geographical diversification.
- Investment Portfolio
- A collection of investments belonging to one person, group or mutual fund. With a portfolio approach, investors can better manage risk and return by adopting the discipline necessary to endure short-term fluctuations and to achieve long-term goals.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Leverage
- Borrowing money to purchase investments on margin. Leverage can increase an investor's return, and there are often tax advantages associated with borrowing to invest. Investors use this technique because investment gains or losses are measured against the non-borrowed portion, not the total investment.
- Liquidity
- There are two uses for this term - the ease of converting an investment to cash at a reasonable price and a corporation's cash position i.e. current assets relative to current liabilities.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Management Expense Ratio (MER)
- The measure of the total cost of operating a fund as a percentage of average total assets including management fees as well other expenses such as brokerage fees, audit and legal fees. Published rates of return are calculated after MER deductions.
- Management Fee
- Portfolio advisors or managers receive a fee for supervising and administering portfolio operations. It is usually set as a fixed percentage of the fund's net asset value.
- Market Capitalization
- The current number of shares a company has multiplied by the current market stock price.
- Market Float
- The number or value of corporate shares available for public trading.
- Money Market Fund
- A mutual fund that invests primarily in treasury bills and other low-risk short-term investments. It is appropriate for investors who require access to cash and have a low level of risk tolerance.
- Mutual Fund
- An investment entity, which is managed by a professional money manager who invests according to the objectives of the fund. With a mutual fund, investors have access to professional management, an increased level of diversification and reduced overall investment costs.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Net Asset Value Per Share (NAVPS)
- The value of all the holdings of a mutual fund, minus the fund's liabilities divided by the number of units outstanding, which represents the unit price of a fund.
- No Load Fund
- A mutual fund that does not charge a fee for buying or selling units.
- Note
- A debt security that mandates the issuer to pay a specific sum of money, either on demand or on a fixed future date, with or without interest.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Option
- The right or obligation to buy or sell a specific quantity of a security at a specific price within a predetermined time period.
- Over-The-Counter Trading
- Trading in stocks or options through a computer or telephone network rather than through a public stock exchange.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Pre-Authorized Investment Plan
- A plan where investors can choose to have a specified sum automatically withdrawn from their bank account and invested on a weekly, bi-weekly, semi-monthly, monthly or quarterly basis in a specified investment.
- Preferred Share
- An ownership security that offers a specified, fixed annual dividend, which is paid out before common stock dividends. Preferred shareholders do not have voting rights but can exercise a greater claim than common shareholders on company assets in the event of liquidation.
- Price to Earnings Ratio
- A common measurement of stock valuation that is calculated by dividing the current price of a company's common shares by the last 12 months earnings per share. PE Ratios provide a rudimentary understanding of how a stock is trading relative to the general market and to other companies within the same industry.
- Price to Sales Ratio (PSR)
- Investors can use the PSR to determine how much they are paying for every dollar of sales that a company generates by calculating total market value of a company's shares divided by the total company sales for the last 12 months.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Registered Education Savings Plan (RESP)
- RESPs allow investors to contribute money and to grow savings tax-free until the chosen beneficiary applies that money to full-time educational pursuits at a college, university or any other eligible post-secondary educational institution. Investors can contribute up to $4,000 per year, per beneficiary.
- Registered Retirement Income Fund (RRIF)
- Investors can choose this RRSP maturity option to ensure income for retirement. With a RRIF, investors receive income from the accumulated proceeds of an RRSP and are only taxed on RRIF income as opposed to the complete RRSP savings amount.
- Registered Retirement Savings Plan (RRSP)
- Investors below the age of 71 can contribute to this tax-deferred retirement plan in accordance with government-stipulated annual limits. RRSP contributions are tax deductible and can compound on a tax-free basis.
- Risk Premium
- The demand for higher rates of return in exchange for bearing more risk.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Sector Funds
- Mutual funds that invest in equities from one sector of the market such as pharmaceutical, biotechnology or precious metals.
- Securities
- Investing in securities with high risk and uncertainty as a result of a lack of definitive information that offer the potential for higher growth.
- Series A
- Series A denotes no-load RBC Funds that are available to all investors.
- Series F
- Series F denotes RBC Funds that have lower fees than Series A units and are only available to investors who have fee-based accounts with dealers.
- Shares
- Units of ownership in a corporation, mutual fund or limited partnership.
- Smaller Capitalization (Small Cap) Companies
- Generally, corporations with a total market capitalization in the bottom 25% of all stocks that offer the potential for significant growth.
- Speculation
- Investing in securities with high risk and uncertainty as a result of a lack of definitive information that offer the potential for a higher growth.
- Standard Deviation (SD)
- SD is a statistical measure of the historic volatility of an investment that investors commonly use to determine the volatility of the portfolio in achieving its average return.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Toronto Stock Exchange (TSX)
- The TSX is Canada's largest stock exchange, which acts as an organized market place for buyers and sellers.
- Treasury Bills (T-bills)
- Issued at a discount, T-bills are short-term debt securities issued or guaranteed by federal, provincial or other governments that mature at par. The return is calculated based on the difference between the price paid and the par value.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Units
- Issued by a mutual fund trust to represent investment in a mutual fund.
Back to top
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
- Volatility
- The degree to which the price of an investment moves up and down. Stocks with prices that fluctuate quickly in a short time frame are considered to have high volatility while stocks with virtually stable prices are considered to have low volatility.
|
|
|
