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Investment Glossary
Canadian Investment Glossary
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Investment Glossary
Annual report:
A statement of investment results issued by a company to its shareholders at the end of the fiscal year (the company's year-end) containing reports on company operations and formal audited financial investment statements.
Ask (Offer):
The price at which a seller offers his/her security for sale.
Asset:
What a firm or individual owns. On a balance sheet, that which is owned or receivable.
Back-end redemption charge:
Many mutual funds apply a back-end redemption charge on the sale of units, which usually begins at 4 1/2% to 6% in the first year and declines by 1/2% to 1% per year, eventually reaching 0% several years into the future. This charge may apply to the original purchase value or the market value when units are redeemed.
Bank rate:
The minimum rate at which The Bank of Canada makes short-term advances to the chartered banks and other deposit taking institutions.
Bear market:
A stock market whose index of representative stocks, such as the Toronto Stock Exchange 300 Composite Index, is declining in value. A "bearish" investor believes share prices will fall.
Bid:
The price at which a buy offers to pay for a security or property.
Blue chip stocks:
Stocks with good investment qualities. They are usually common shares of well-established companies with good earnings records and regular dividend payments that are known nationally for the quality and wide acceptance of their products and services.
Bond:
A debt instrument issued by governments and corporations. A bond is a promise by the issuer to pay the full amount on maturity plus interest payments at regular intervals.
Broker:
An agent who handles the public's orders to buy and sell securities, commodities, or other property. A commission is charged for this service.
Bull market:
A stock market whose index has been rising in value. A "bullish" investor believes share prices will rise.
Capital gain:
A profit made on the sale of an asset when the market price rises above the purchase price. Profit that is made from the sale of real estate, stocks, bonds, or other capital assets.
Capital loss:
Loss that is incurred from the sale of capital assets at a price below the purchase price.
Cash flow:
Income from all sources. Net income for a stated period plus all deductions that are not paid out in actual cash such as depreciation, deferred income taxes, and amortization.
Common share:
A class of stock that represents ownership or equity in a company. Common shares sometimes carry a voting privilege and entitle the holder to a share in the company's profits, usually issued in the form of dividends.
Cyclical stock:
A stock within a particular industry sector that is particularly sensitive to swings in economic conditions. They usually have strong investment results in a good economy and poor earnings when the economy weakens.
Discount:
The amount by which an investment sells below par value.
Diversification:
Spreading investment risk by buying different issues in different companies in different industries and/or in different countries.
Dividend:
A portion of a company's profit paid out to common and preferred shareholders, the amount having been decided on by the company's board of directors. A dividend may be in the form of cash or in additional stock. A preferred dividend is usually a fixed amount, while a common dividend fluctuates according to the earnings of the company.
Dividend reinvestment:
Some stocks and virtually all mutual fund companies allow dividends to be reinvested to purchase additional shares or units.
Dollar cost averaging:
Buying securities at regular intervals with specific and equal dollar amounts. This investment results in lowering the average price of securities.
Earnings per share:
A company's net earnings less preferred share dividends, divided by the number of common shares outstanding.
Equities:
Those shares issued by a company that represent ownership in the company. Common and preferred shares are usually called equity stock.
Equity funds:
Mutual funds that invest in common and preferred shares.
Estate:
All assets owned by an individual at the time of death. The estate includes all funds, personal effects, interests in business enterprises, titles to property, real estate and chattels, and evidence of ownership, such as stocks, bonds, and mortgages owned, and notes receivable.
Fixed-income funds:
Mutual funds that invest in mortgages, bonds, preferred stock, or a combination of these. Mortgages, bonds, and preferred stock provide a fixed rate of interest or dividends and are known as fixed-income securities.
Front-end load:
The sales commission or acquisition fees charged by the salesperson on the initial purchase are based on the total value of the units purchased. The fees range from 2% to 9% but most often average 4% to 5% on most purchases.
Futures:
Exchange-traded contracts that give the holder the right to buy or sell a certain commodity, currency, or financial investment instrument at a specified price at a specified period of time.
GIC:
Guaranteed investment certificate, a deposit certificate usually issued by a trust company or other financial investment institution and covering a specific period. An interest-paying investment in which the investor commits for a specified term for a specified rate of interest, usually anywhere from 30 days to 5 years.
Gross Domestic Product (GDP):
The measurement of a country's total output of goods and services.
Growth stock:
A company whose earnings are expected to grow faster than the average rise in similar businesses and prosperity as a whole.
Guaranteed income funds:
Mutual funds that invest in and earn interest on term financial investment deposits and guaranteed investment certificates.
Interest:
The payments that a borrower is obligated to pay to the lender for the use of a fixed sum of money.
Issuer:
A corporation of municipality that raises cash through the public sale of bonds or stock.
Leverage:
Increasing the return on an investment through borrowing or special contract terms. Using borrowed funds to maximize the rate of return on investment. Keep in mind, however, that losses can mount very quickly if your investment starts losing money.
Limit order:
An order to buy or sell securities at a price stipulated by the client, whereby the order can only be executed at the specified price or a better one.
Listed stock:
The stock of a company that is traded on a stock exchange.
Liquidity:
The ease with which an asset can be sold and converted to the most liquid of assets - cash - without substantial change in price. It is one of the most important characteristics of a good market.
Load:
A sales charge on each share or unit of a mutual fund. It covers the sales commissions paid to the broker or distribution company plus other administration and selling expenses. The load may range from 1% to 9%. There are also "no-load" funds.
Management company:
The business entity that establishes and manages the mutual fund(s); each a separate entity with its own board of directors or trustee(s).
Management expense ratio:
An accounting of all costs of operating a fund, expressed as a percentage of the net assets of the fund.
Management fee:
The sum paid to the investment company for investment management and administrative services; typically expressed as a percentage of assets.
Marginal tax rate:
The amount of tax imposed on the next dollar of income earned by the taxpayer. In Canada's progressive system of combined federal and provincial taxes the rate increases as earnings rise.
Market order:
An order to buy or sell securities immediately at the best possible price.
Money market:
Part of the capital market established for short-term borrowing and lending of funds. Money market dealers conduct business over the telephone and trade securities such as short-term (three years or less) government bonds, government treasury bills and commercial paper.
Money market fund:
Fixed-income mutual funds that invest in short-term securities (maturing within one year).
Mutual fund:
A pooled group of investment assets that provides diversified holdings and professional management to investors. The total value of the investment is subdivided in equal shares and distributed among fund holders in proportion to their dollar investment. An open-ended investment company, which combines the money of many people whose investment goals are similar and invests this money in wide variety of securities.
Mutual fund switching privileges:
Allow an investor to switch out of and into a different fund(s) within the same family of funds at very low or no commission.
Net asset value per share (NAVPS):
Used in reference to mutual fund shares, net asset value is the total market value of all securities owned by the fund less its liabilities divided by the number of units outstanding.
Net earnings:
The profits after all expenses and taxes are deducted.
New issue:
A stock or bond sold by a corporation for the first time. Proceeds may be used to retire outstanding securities of the company, for new plant or equipment, or for additional working capital. New debt issues are also offered by government bodies.
Open order:
An order to buy or sell a security at a specific price which is valid until filled by the trader or cancelled by the client.
Option:
A device used to speculate or hedge in securities markets. Buying a "call" option gives an investor the right to buy 100 shares of a stock at a certain price within a specific time; buying a "put" option allows an investor to sell a stock under the same conditions.
Over-the-counter:
This is the market for securities not listed on one of the exchanges.
Penny stock:
Low-priced, often speculative issues selling at less than $1 per share.
Portfolio:
A group of securities held or owned for investment purposes by an individual or institutional investor. An investor's portfolio may contain common and preferred shares, bonds, options, and other types of securities.
Portfolio manager:
A financial investment specialist hired by the management company to invest money in various securities.
Power of attorney:
Give signing authority for your affairs to spouse or other trusted person in case of accident or other circumstances that leave you unable to manage your own affairs.
Preferred share:
A class of share capital that entitles its owners to certain preferences over common shareholders such as a fixed rate of prior dividend and return of the stock's par value in a liquidation. Preferred shares usually only have voting rights when their dividends are not being paid.
Price-earnings ratio:
The price of a stock divided by annual share profit, used to indicate whether a stock market is relatively expensive or inexpensive. The market price of a common stock divided by annual earnings per share. Also called P/E ratio or P/E multiple. For instance, if a company's net earnings amount to $1 million and it has one million shares outstanding, its earnings per share are one $1; if its shares are trading at $10, then its P/E ratio is 10 to 1. It indicates what investors are willing to pay for one year of a company's earnings per share.
Prime rate:
The interest rate charged by a bank to its most credit worthy borrowers.
Principal:
The amount of money lent or borrowed.
Prospectus:
A legal document describing a new issue of securities for sale to the public which is prepared in accordance with provincial securities commission regulations. A mutual fund prospectus contains information regarding the fund's investment objectives and restrictions, management fees, tax considerations, and all other details pertinent to the fund.
Real rate of return:
The stated rate of return less both the inflation rate tax considerations and the risk premium.
Redemption:
The right of a unit holder to sell some or all of his/her units back to the investment fund at the current net asset value per unit.
Redemption price:
The price at which bonds or preferred shares may be redeemed. The price is fixed at the time the securities are issued.
Retractable shares:
Usually applies to preferred shares of a company whereby the company can buy back the shares at a stated price on a certain date.
Return:
The amount of income, in dollars, you receive from an investment.
Right:
Issued by a company to existing shareholders. A right entitles you to buy additional shares at a specified price over a specified period in proportion to the number of shares you already own.
Risk:
The possibility that your investment will not achieve its expected return. The higher the potential reward, the greater the risk that is involved.
Stock yield:
The percentage of the dividend paid in relation to the price of the stock. For example, a stock selling at $40 a share with an annual dividend of $2 a share, yields 5%.
Stop order:
You place a stop order to sell your stock at a price, i.e. if the stock is dropping and you want to dump the moment it reaches a certain price to crystallize your gains then you place a stop order for that amount.
Strip bonds:
Bonds from which the interest coupon has been detached and sold separately. The two units, the interest-bearing coupon and the underlying principal are sold with significant discounts to face value.
Tax deferral:
The postponing of income taxes until a later date through various legal methods.
Taxable income:
The amount of your annual income that is used to calculate how much income tax must be paid; your total earnings for the year minus deductions.
Term deposit:
Similar to a guaranteed investment certificate. An interest-paying investment under which the investor commits funds for a specified term at a specified rate of interest.
Total Return Index (TRI):
Measures the performance of a stated index assuming reinvestment of all dividends and distributions over a period of time.
Treasury bills:
Short-term debt securities sold by governments for usually three months to one year. They carry no stated interest rate, but trade at a discount to the face value of the T-bill, The discount represents the return.
Unit:
In mutual funds, a unit represents a portion, or share, of the total value of the fund. Investors purchase a number of units and the unit value fluctuates with the net asset value of the fund.
Warrant:
Gives the holder the right to buy a security at a specified price within a specified period of time. Warrants often are "attached" to new securities issues of a company as an added inducement for prospective investors.
Yield:
The amount of interest or dividend paid on a load or an investment, expressed as a percentage. The yield on a stock is calculated by dividing the dividend by the current market price. This is also called "rate of return".
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