Annual Return: The simple rate of return earned by an investment for each year.
Asset Class: Broad categories of investments grouped by basic type consisting of:
• Stocks (also referred to as Equity or Growth investments)
• Bonds (also referred to as Income or Fixed Income investments)
• Short-term Securities (also referred to as Money Market or Savings investments)
Asset Mix: The percentage of your investment held in each asset class. One of the most important decisions you must make is determining your asset mix (e.g., 60% stocks, 40% bonds).
Average Annual Compound Return: The annual rates of return, including reinvestment of distributions, averaged over a specified time span.
Bank Rate: The Bank Rate is set by the Bank of Canada and is the minimum rate at which they will make short-term advances (loans) to chartered banks and other institutions that take deposits.
Bear Market: A term used to describe a declining market.
Blue Chip: A large, well capitalized and actively traded stock. Generally one of the largest stocks in a market with a good history of dividend payments.
Bull Market: A term used to describe a rising market.
Call Option: An investment product that gives you the right to purchase shares at a pre-determined price for a limited period of time.
Capital: Forms of wealth. For your purposes, capital means financial assets such as investments in securities, a home, other assets or cash.
Capital Markets: Generally, the market places where money is raised and securities are traded. Stocks, bonds and money markets are each a part of the capital markets.
Convertible Bond: A bond that may be exchanged, usually for the common stock of the same company, as stipulated by the conversion rights.
Correction: A decline in stock or bond prices after a time of market strength.
Cyclical Companies: Companies that are inclined to follow the overall economic cycles.
Deflationary: A circumstance where the general price of goods and services is declining.
Diversification: Spreading your investments amongst different asset classes, individual companies, industries or even different sectors of the economy. The old saying “Don’t put all your eggs in one basket” is an example of diversification.
Duration: A measurement of the price volatility of bonds. Those with longer duration are more sensitive to interest rate changes than bonds with short duration, and therefore are more volatile.
Equity: Ownership of an asset. You can have sole ownership such as the equity in your house, but generally it refers to shared ownership of a company via stocks.
Fixed Income: Debt securities such as bonds, debentures and mortgages. With fixed income assets, you are lending your money to a borrower in return for a steady payment of interest and a promise to repay the amount owing at a future date (also called “maturity date”).
Fixed Income Security: A preferred stock or debt instrument that has a stipulated interest or dividend rate. It is also used in reference to overall investment policy.
GIC: Guaranteed Investment Certificate.
Hedge: Used to describe protective maneuvering by an investment manager to reduce the risk of loss from a specified event.
Index: A statistical tool which provides a performance standard against which the performance of other similar investments can be compared.
Inverted Yield Curve: Short-term interest rates are higher than long-term rates. This occurs when demand for short-term credit is escalating, thus driving up short-term rates. This is usually a sign of increased inflation, accompanied by low levels of confidence in the economy.
Investment Portfolio: Your financial assets including stocks, bonds, short-term securities and cash.
Liquidity: The ability to convert an asset easily into cash.
Load: The sales charge, or commission on a particular mutual fund.
Money Market: The part of the capital market where short-term debt securities are traded. Also used to refer to short-term securities in general such as Treasury Bills.
Net Asset Value per Share: The market value of the securities and assets held by the fund, less its current liabilities divided by the number of total shares.
No Load: A Fund that does not have a commission or a sales charge.
Preferred Shares: Shares that carry a fixed dividend rate which the company is obligated to pay before it distributes dividends to common shareholders. On the termination of the company, these shares rank in front of common stock and after debenture holders.
Rally: A brisk rise in the general price level of securities.
Rate-of-Return: The increase in value of an investment. There are several variations on the way a rate-of-return can be presented. Total rate-of-return is the return from any income received plus any price or capital appreciation or depreciation. Cumulative rate of return is the return earned over a period of time (three months, three years, 10 years, etc.). Annualized rate-of-return is the method of presenting the cumulative return from any period of time on an average annual basis.
Short-term: Generally refers to an investment made for one year or less. In the case of bonds, it refers to a period of between one and five years.
Tax-Loss Carry-Forward: Any losses incurred on a security transaction may be carried forward indefinitely. They can then be used to offset any future capital gains.
Total Return Index: Measures the performance of a stated index and assumes reinvestment of all dividends and distributions over a period of time.
Treasury Bills: (T-Bill) Short-term debt securities (with various maturities all under one year) issued by the government and which are the safest and most easily sold (or liquid) securities you can buy.
Unit holders: The investors in the pooled fund who beneficially own the assets of the fund.
Yield: The percentage return on an investment from any dividend or interest income.
Yield Curve: A curve that plots the yield on bonds of various maturities.