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Dictionary of Investment Terms
Advisory services
A relationship with an investment professional which allows the investor
to receive information and advice concerning specific investment opportunities.
Ultimate investment decisions are made by the individual. BACK TO TOP
Annuitant
The individual in whose name an annuity is registered and who receives
the payments. BACK TO TOP
Annuity
A financial contract that provides an individual with income payments
of a specified amount at regular intervals for life, or for a specific
period of time. The principal remains tax-sheltered until it is paid
out as income. Annuities may be purchased with either registered or
non-registered assets. In the latter instance, only the interest component
is taxable. BACK TO TOP
Asset
Anything of monetary value owned by an individual or a business. A potential
source of collateral for a loan. BACK TO TOP
Asset mix
The relative proportions of cash, debt and equity instruments in a portfolio.
BACK TO TOP
Balance sheet
A formal statement indicating the financial position of an individual
or business at a specific point in time. Assets are usually listed on
the left side, and liabilities on the right. Net worth, or the difference
between total assets and total liabilities, is indicated at the bottom.
BACK TO TOP
Bankers' acceptance
A short-term debt instrument issued by a corporation, but guaranteed
by a bank, and sold on a discounted basis. BACK TO TOP
Beneficiary
The person designated to receive tangible assets such as the proceeds
or benefits from an estate or insurance policy. BACK TO TOP
Blue chip stock
Active, leading, well-known common stocks with a long record of profit
growth and dividend payment, and a reputation for quality management,
products and services. BACK TO TOP
Bond
A certificate of a debt on which the issuer (usually a government or
large corporation) pays a specific amount of interest for a specified
length of time and promises to repay the loan to the holder at its maturity.
Specific assets are pledged by the issuer as security for the bond.
BACK TO TOP
Book value
The original purchase price of a current investment or holding. Branch-to-branch
service Also known as multi-branch banking, this service allows customers
to access their funds and complete financial transactions at any branch
of their bank across Canada. BACK TO TOP
Budget
A formal estimate of future income and expenses used for financial planning.
BACK TO TOP
Bullion
Gold, silver and other precious metals in the form of ingots and bars,
rather than coins with a monetary value stamped on them. BACK TO TOP
Canada Savings Bonds (CSBs)
A savings bond sold to the public in the fall and spring of each year.
There are two types: those that pay interest each year (regular interest
bonds) and those that accumulate interest and pay it when the bond matures
(compound interest bonds). CSBs may be either registered or non-registered.
BACK TO TOP
Capital appreciation (gain or loss)
The gain (or loss) realized on an equity investment when the asset is
sold for more (less) than it was originally purchased. BACK TO TOP
Capital risk
The risk that an investor may be unable to recover the full value of
the original investment when selling it. Most often related to equity
investments. BACK TO TOP
Cash flow
The movement of cash into, through, and out of a particular entity,
i.e. an individual's deposit account. BACK TO TOP
Cash instruments
Low-risk interest-bearing investments that are highly liquid in nature.
Includes instruments such as deposit accounts, government treasury bills,
bankers' acceptances and commercial paper. BACK TO TOP
Certificate
The actual document which is evidence of ownership of a stock or bond.
BACK TO TOP
Codicil
A legal instrument made subsequently to a will, modifying it. It legally
becomes a part of the original will it is amending. BACK TO TOP
Commission
The fee charged by an investment dealer or broker for buying or selling
securities on behalf of a client. BACK TO TOP
Commodities
In investment terms, raw materials or semi-finished goods such as wheat,
coffee, pork bellies, copper, etc. BACK TO TOP
Commodity market or commodity exchange
A market where commodities and futures contracts for commodities are
bought and sold. BACK TO TOP
Common stock
Securities which represent ownership in a corporation and carry voting
privileges. BACK TO TOP
Compound interest
Interest earned on both the principal and the interest it has previously
earned. BACK TO TOP
Coupon
A portion of a bond certificate entitling the holder to an interest
payment of a specified amount when clipped and presented at a bank on
or after its due date. BACK TO TOP
Dealer or investment dealer
(see discount broker, full-service broker,
stockbroker)
Debt instruments
Investments in which an investor loans money to a government, corporation
or financial institution for a pre-determined period of time in exchange
for earning a specified rate of interest on the investment. At maturity,
the principal (or capital) is returned to the investor along with any
unpaid interest owing. BACK TO TOP
Deduction limit
Federally legislated, the maximum allowable amount you can contribute
each year to an RSP and claim as an income tax deduction. BACK TO TOP
Deferred Profit Sharing Plan (DPSP)
A tax-sheltered plan used by employers to build a retirement fund for
employees based on a share of the company's profits. Funds can be transferred
to an RSP, or used to buy a RIF or an annuity. BACK TO TOP
Defined Benefit Plan
A company-sponsored pension plan that guarantees a certain level of
pension income at retirement, calculated according to a pre-determined
formula. BACK TO TOP
Defined Contribution Plan
A company-sponsored pension plan, also known as a money purchase plan,
that defines the contributions to be made by the employee and the employer.
It does not, however, define the amount of pension income to be received
at retirement. The accumulated value of the plan is used to purchase
either a life annuity, or if the pension plan permits, a Life Income
Fund (LIF). BACK TO TOP
Discount broker
Like the full-service broker, the discount broker executes orders to
buy and sell securities. Commission rates are often significantly lower
than those charged by a full-service broker. A discount broker does
not provide research services or advice to clients. BACK TO TOP
Discretionary portfolio management
An investment service in which an investor's portfolio is administered
entirely by a professional manager and for which an annual fee is charged.
The portfolio manager assumes responsibility for all investment decisions,
executes transactions on behalf of the client, and reports back to the
client on a regular basis. BACK TO TOP
Diversification
An investment strategy practised by both individual investors and mutual
fund managers designed to minimize the risk of market fluctuations by
investing in a variety of investment instruments in a variety of markets.
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Dividend
A portion of the company's profit that is distributed to shareholders
in proportion to the number of shares they hold. BACK TO TOP
Earned income
Income eligible for consideration when calculating your annual RSP deduction
limit. BACK TO TOP
Effective yield
Return on investment after adjusting for factors such as inflation,
brokerage fees, or management/administration fees. Equity The ownership
interest in any tangible asset including a company (in the form of common
or preferred shares); mutual funds (in the form of units); and real
estate, precious metals, artwork, etc. BACK TO TOP
Equity investments
Investments in which the investor is considered an "owner" in the asset.
Usually considered higher risk than cash or debt instruments, the rate
of return on an equity investment is never guaranteed. BACK TO TOP
Estate
All assets owned by an individual at the time of death. BACK TO TOP
Executor/Executrix
The person or corporation appointed by an individual and named in the
will to administer the estate. BACK TO TOP
Expenses
The costs incurred to purchase specific goods or services. BACK TO TOP
Financial planning
The process of assessing your financial situation, determining your
objectives and formulating a plan to achieve them. BACK TO TOP
Foreign content restrictions
Limitations on the amount of foreign investments you can hold in your
RSP or RIF, currently restricted to 20% of the total book value of your
plan. BACK TO TOP
Full-service broker
A broker who provides a wide range of services to investors including
the execution of trades, advice on which securities to buy or sell,
advice on financial planning and tax shelters and on new issues of stocks.
Commissions are generally higher than those charged by discount brokers.
Often referred to as a "stockbroker", the term is gradually being redefined
to reflect the wider range of services provided. BACK TO TOP
Futures contracts
An agreement to buy or sell a specific amount of a specific commodity
or financial instrument at a stipulated price on a particular date in
the future. BACK TO TOP
Futures market
A commodity exchange where futures contracts are traded. Different exchanges
specialize in specific types of commodities. BACK TO TOP
Guaranteed Investment Certificate (GIC)
A debt security issued by a bank or trust company for a fixed sum of
money, maturing after a fixed length of time and paying a fixed rate
of interest, usually higher than that paid on a premium savings account.
GICs are redeemable only at maturity. BACK TO TOP
Historical yield
Statistics published by a mutual fund company identifying the rates
of return of specific funds in previous years. Designed only to provide
investors with information on the historical performance of funds, historical
yield is not an indication of future performance. BACK TO TOP
Income
Total revenue and/or funds received from all sources. BACK TO TOP
Income-splitting
A strategy which enables couples to reduce the income tax they pay at
retirement. Instead of one person drawing a larger amount from a single
RSP, both spouses draw smaller amounts from their respective plans.
BACK TO TOP
Indexing
Payments or benefits which are periodically adjusted to reflect the
effects of inflation. BACK TO TOP
Interest
Payments made by a borrower to an investor for the use of his or her
money. BACK TO TOP
Interest rate
The rate of return a lender receives for permitting a borrower to use
money for a specified term. The interest rate is usually expressed as
an annual percentage. BACK TO TOP
Intestate
The condition of dying without leaving a valid will. BACK TO TOP
Investment advisor
(see full-service broker) BACK TO TOP
Investment certificate
A deposit issued by a bank or trust company that pays a fixed rate of
interest. BACK TO TOP
Investment dealer
(see discount broker, full-service broker) BACK TO TOP
Investor
One whose principal concern in making an investment is to maximize return
while minimizing risk, in contrast to the speculator who is prepared
to accept greater risk in the hopes of making better-than-average profits.
BACK TO TOP
Issuer
A legal entity including corporations, municipalities, governments and
investment trusts with the power to issue and distribute a security.
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Life Income Fund (LIF)
A retirement income option created for Locked-In RSPs and other registered
pension plan savings to provide retirement income. BACK TO TOP
Lifetime carry-forward option
A provision that allows you to carry forward unused RSP contribution
room to future years and make up for years in which you did not contribute
the maximum. BACK TO TOP
Lifetime over-contribution limit
A non-tax-deductible contribution to an RSP which exceeds the maximum
annual allowable limit set by government. Current legislation allows
for a lifetime maximum over-contribution of $2,000. BACK TO TOP
Liquidity
The degree of ease with which an investor can gain short-term access
to funds held in an investment vehicle. BACK TO TOP
Liquidity risk
The ease with which an investor can convert an investment to cash without
negative impact on either capital or return. BACK TO TOP
Locked-In Retirement Account (LIRA)
An account created from pension credits held with a former employer
and transferred when the employee leaves the organization. These funds
can be used to purchase a Life Income Fund (LIF), a Life Retirement
Income Fund (LRIF) in Alberta, Saskatchewan and Manitoba only, or a
life annuity. BACK TO TOP
Margin account
A brokerage account which permits investors to buy securities with money
borrowed from the broker. The brokerage firm has the right to demand
settlement of the account at any time and, if it deems necessary, can
sell other securities held in the investor's account to repay the balance.
BACK TO TOP
Maturity
The date on which a loan, bond or debenture becomes due and on which
the principal is repayable. BACK TO TOP
Money market instruments
A collective term that refers to the full range of interest-bearing,
short-term investments with maturities of less than one year. BACK TO TOP
Mutual fund
A fund operated by a professional investment firm that raises money
from shareholders and invests it in a variety of stocks, bonds, money
market instruments, futures or commodities that meet the investment
objectives of the fund. Mutual funds allow investors to benefit from
professional management and asset diversification, for which a fee is
charged. BACK TO TOP
Net worth
The difference between an individual's total assets (what they own)
and their total liabilities (what they owe). BACK TO TOP
Non-registered investments
Non-tax-sheltered investments, or those on which earnings are recognized
as income in the year they are earned and taxed according to Revenue
Canada regulations. BACK TO TOP
Option
The right to buy or sell a specific security or property at a specified
price within a specified period of time. BACK TO TOP
Par value
The stated face value of a bond or stock (as assigned by the company's
charter) expressed as a dollar amount per share. BACK TO TOP
Pension adjustment (PA)
The amount contributed annually to a registered pension plan, either
by an employer or employee. BACK TO TOP
Portability
In pension plans, the ability to take the benefits promised by a company's
pension plan when changing jobs and move them to another company plan,
or to another approved plan such as a Locked-in Retirement Account.
In mortgages, the ability to transfer the terms and conditions of an
existing mortgage to a new home when moving. BACK TO TOP
Portfolio
Holdings of securities or investments by an individual or institution.
BACK TO TOP
Portfolio manager
A professional investment counsellor who personally manages a client's
portfolio, making the investment decisions on behalf of the client (see
also discretionary portfolio management). BACK TO TOP
Posted rate
Publicly announced rate of interest guaranteed by a financial institution
and paid on personal bank accounts and on specific debt instruments
such as term deposits and GICs. BACK TO TOP
Power of attorney
A legal designation which permits an individual (the attorney) to act
on behalf of another individual (the principal) and to conduct the principal's
financial affairs while he or she is still alive. BACK TO TOP
Preferred stock
A class of share capital that entitles its owners to certain preferences
over common stock such as a fixed rate of dividend or the return of
the stock's par value in a liquidation. BACK TO TOP
Prescribed annuity
Purchased with non-registered assets, a prescribed annuity provides
the annuitant with a regular stream of pre-specified income payments
throughout the term of the annuity. Because income tax would have been
previously assessed on the original principal, only the interest portion
of the payments are taxable. BACK TO TOP
Probatable assets
Assets which form part of a deceased's estate as named in the will including
personal investments, RSPs, RIFs, insurance and real estate. BACK TO TOP
Prospectus
A legal document constituting a formal written offer to sell securities.
The prospectus includes relevant information and facts concerning the
security, enabling investors to make informed decisions. BACK TO TOP
Rate of return risk
Risk that returns may not meet an investor's expectations. Most often
relates to equity investments where the return is never guaranteed and
can only be measured once the investment is sold. BACK TO TOP
Real rate of return
The adjusted after-inflation return, calculated by subtracting the current
rate of inflation from the rate of return earned on a specific investment.
BACK TO TOP
Registered Education Savings Program (RESP)
A registered investment vehicle that allows an individual to save for
a child's (or children's) higher education on a tax-sheltered basis.
BACK TO TOP
Registered investments
Investments recognized by Revenue Canada which allow individuals to
defer paying income tax on principal and earnings until the income is
removed from the account. A general term that includes plans such as
Registered Retirement Savings Plans (RSPs), Locked-in Retirement Accounts
(LIRAs), Registered Retirement Income Funds (RIFs), Registered Educational
Savings Plans (RESPs) and annuities purchased with the proceeds of an
RSP. BACK TO TOP
Registered pension plan
A private pension plan, usually established by an employer on behalf
of its employees, and recognized by Revenue Canada. There are two basic
types of pension plans -- Defined Contribution Pension Plans and Defined
Benefit Pension Plans (also referred to as a money purchase plan). BACK TO TOP
Registered Retirement Income Fund (RIF)
A type of registered plan that allows an individual to withdraw a stream
of income from the savings or investments previously held in an RSP.
The principal remains tax-sheltered until withdrawn from the plan as
income. BACK TO TOP
Registered Retirement Savings Plan (RSP)
A formal investment plan which allows an individual to accumulate savings
and earnings for retirement on a tax-sheltered basis. BACK TO TOP
Safe deposit box
A personal storage box located in a bank that can be rented on an annual
basis to keep valuables and important papers. BACK TO TOP
Securities
Representing the full range of investment opportunities, a security
can refer to an instrument which allows the holder to claim an ownership
position in a corporation (a stock); a creditor relationship with a
corporation, a government or its agency (a bond); or other rights to
ownership as stipulated in specific contract (a futures contract). BACK TO TOP
Securities Commission
A provincial body responsible for the administration of a province's
securities legislation and entrusted with the regulation of public securities
trading. Provincial securities commissions ensure that potential investors
receive pertinent financial information and other data to permit informed
decision-making, and establish safeguards against fraudulent trading
activities. BACK TO TOP
Self-directed RIF
A RIF held with a brokerage firm which permits you to choose from the
full scope of RIF-eligible investments. BACK TO TOP
Self-directed RSP
An RSP held with a brokerage firm which permits you to choose from the
full range of RSP-eligible investments. BACK TO TOP
Share
Ownership of a part of the capital stock of a corporation as represented
by the possession of share certificates registered in the name of the
shareholder. BACK TO TOP
Shareholder
The owner of one or more shares or stocks in a corporation. BACK TO TOP
Speculator
One who is prepared to accept calculated risks in the marketplace in
anticipation of higher returns. BACK TO TOP
Spousal RIF
A RIF set up from the proceeds of a spousal RSP. There may be tax consequences
to the contributor if withdrawals in excess of the minimum annual RIF
payment are taken in the year, or subsequent two years, after the plan
is converted. BACK TO TOP
Spousal RSP
An RSP to which one spouse (usually the one with the higher earnings)
makes contributions on behalf of the other spouse (usually the one with
the lower earnings) and receives a tax deduction on the contribution.
BACK TO TOP
Stockbroker
One who acts as an agent in the buying and selling of securities and
charges a commission for these services (see also full-service broker,
discount broker). BACK TO TOP
Survivor benefits
Benefits to which a surviving spouse is entitled with regards to pensions,
health care benefits, etc. BACK TO TOP
Term deposit
Very similar in nature to a Guaranteed Investment Certificate (GIC),
term deposits generally pay a slightly lower interest rate as they may
be redeemed at any time. BACK TO TOP
Testator/Testatrix
A person who makes a will. BACK TO TOP
Treasury bills (T-Bills)
Short-term interest-bearing money market instruments issued weekly by
the federal government and sold in maturities ranging from 30 days to
one year. BACK TO TOP
Trustee
The person or persons who take legal title to a trust property and who
are required to follow the terms of the trust. The trustee may be a
trust company and/or an individual. BACK TO TOP
Undeducted contribution
The difference between the amount of tax deduction taken in a specific
year and the (greater) amount of the individual's actual RSP contribution.
May be claimed as an expense on future tax returns. BACK TO TOP
Unused deduction room
The difference between your annual allowable RSP deduction limit and
the actual (lesser) amount of your contribution. May be made up in future
years in additional RSP contributions. BACK TO TOP
Vested
The point at which you earn the right to keep an employer's contribution
made to a company pension plan on your behalf. BACK TO TOP
Will
A written document conforming to strict provincial rules which gives
instructions to the executors appointed under it concerning the distribution
of the property and assets of a deceased person. BACK TO TOP
Withholding Tax
The amount of money a financial institution is legally obliged to withhold
at source and remit to Revenue Canada on funds withdrawn from an RSP,
or on RIF income payments which exceed the minimum annual income payment
amount. BACK TO TOP
Yield
Return on an investment, reflected in historical terms. Yield is not
guaranteed. BACK TO TOP
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