Accounting: a system of recording, analyzing and explaining the financial transactions.
Accounts Payable: debts of a company for goods or services purchased that must be paid within one year. These debts are listed as a current liability on the company’s balance sheet.
Accounts Receivable: money owed to a company for goods and services it has sold. Payment is expected within one year. This money is listed as a current asset on the company’s balance sheet.
Accrual Basis: a method of calculation that dictates the inclusion of earned interest or dividends whether they were received or not.
Active Investment Strategies: a method of managing a portfolio that requires regular decisions and adjustments to the portfolio by the investor or investment manager. Decisions involve how much to buy and sell and how to reinvest.
Additional Benefits (Riders): optional insurance benefits which can added, for an additional cost, to the basic insurance plan to provide increased levels of risk coverage. Each additional rider increases the premium.
Adjusted Cost Base (ACB): the price paid for an asset plus expenses incurred buying it, such as commission.
Affiliated Company: a company with less than 50% of its stock owned by another corporation or one whose stock, with that of another corporation, is owned by the same controlling interests.
After-Hours Dealing or Trading: the trading of stocks and bonds after regular trading hours on organized exchanges.
Alberta Centennial Education Savings Plan (ACES) – Alberta only: families in Alberta can receive an extra $500 when they first open a RESP for their child, then $100 more when the child turns 8, 11 & 14 years of age. To qualify for ACES your child must be born after December 31, 2004, be enrolled in a school in Alberta, and you must contribute at least $100 to your child’s RESP the year before. The program was cancelled with the 2013 Alberta budget.
American Depository Receipts (ADR): receipts issued by U.S. Banks and trust companies that trade on U.S. exchanges which are equivalent to one share of a specific foreign company’s stock.
Amortization: gradually writing-off the value of an intangible asset over a period of time. Commonly applied to items such as goodwill, improvements to leased premises, or expenses of a new stock or bond issue
Amortization Schedule: a numeric table (usually computer generated) that shows how much principal and interest you must pay, how often and for how long to repay a loan.
Annual Report: the formal financial statements and report on operations issued by a company to its shareholders after its fiscal year end.
Annuity: a series of payments of a fixed amount for a specified period. A life annuity will continue for the lifetime of the recipient.
Any Occupation: refers to an option in disability insurance where one is unable to engage in all occupations qualified by education, training or experience.
Arbitrage: the simultaneous purchase of a security on one stock exchange and sale of the same security or an equivalent of that security on the same or another exchange which can result in a profit. The profit is the difference between the buy and sell prices and is usually a very small amount per unit. Arbitrage is a sophisticated maneuver executed by professional traders.
Arm’s Length: two parties to an agreement who are dealing at arm’s length and are independent of each other, while people who deal at non-arm’s length may be operating in collusion.
Arrears: these are interest or dividend payments, accrued since the last payment, which are still owed but have not been paid yet.
Ask: the lowest price at which someone is willing to sell a security.
Asset: anything of value owned by and individual including real property, financial assets and other financial resources.
Asset Allocation: strategically dividing your investments between the three asset classes (cash, fixed income, equities) to form an asset mix that fits your objectives, return expectations and risk tolerance.
Asset Mix: the allocation of your money among the different investment options.
At The Money Option: an option with an exercise or strike price that is equal, or almost equal, to the current market price of the underlying security.
Auction Market: market in which securities are bought and sold by brokers acting as agents for their clients, in contrast to a dealer market where trades are conducted over-the-counter. For example, the Toronto Stock Exchange is an auction market.
Authorized Shares: the number of shares a company is legally allowed to sell.
Averaging Down: buying more of a security as a lower price than the original investment. The aim of averaging down is to reduce the average cost per unit of the investment.
Baby Boomers: this term is used to refer to the group of people who were born between 1947 and 1966 in Canada. During this period, the rate of births increased from about 240,000 per year until it peaked at about 480,000 in 1959. The boom ended in 1966 as the birth rate fell to 360,000.
Back End Load: a fee payable when investors sell a mutual fund, based on either the original investment or the withdrawal value. Also known as a Deferred Sales Charge.
Balanced Mutual Fund: this fund balances risk by diversifying. Investments include equities and bonds of different maturity periods and stock and bonds of different risk levels.
Balance Sheet: a statement of assets, liabilities and any owner’s equity at a given date.
Balloon: in some serial bond issues a balloon is an extra-large amount that may mature in the final year of the series.
Bank of Canada: Canada’s central bank.
Bankers’ Acceptance: a type of short-term negotiable debt instrument issued by a non-financial corporation, such as Ford or General Motors, but guaranteed as to principal and interest by its bank. The guarantee reduces risk and therefore results in a higher issue price and consequent lower yield.
Bank Rate: the rate of interest that the Bank of Canada is prepared to lend to the chartered banks.
Bankrupt: you are bankrupt if you are insolvent and either you voluntarily file a petition for bankruptcy under the Bankruptcy and Insolvency Act or your creditors are successful in lodging a receiving order against you.
Basis Point: a phrase used to describe differences in bond yields, with one basis point representing one-hundredth of a percentage point. Thus, if bond X yields 5.50% and bond Y yields 5.75%, the difference is 25 basis points.
Bearer Bonds: these are owned by the person who possesses them. They usually come with attached coupons that can be clipped and redeemed.
Bear Market: a situation in which the prices of securities are falling. A “bear” is a person who expects that the market or the price of a particular security will decline.
Benchmark: an index or peer group average against which to judge an investment’s performance.
Beneficial Owner: the real owner of a security. An investor may have securities registered in the name of a broker, trustee or bank to facilitate transfer or to preserve anonymity but the investor is the beneficial owner and will receive any dividends, interest or profits from sales.
Beneficiary (Death): the person designated as the recipient of the benefits in an insurance policy or other assets upon death.
Beneficiary (RESP): a RESP where the person named by the subscriber is the intended recipient of the educational assistance payments from a RESP plan.
Benefit Period: this is the longest period for which benefits are payable for any one disability. Benefits can be paid for years, up to a maximum of age 65.
Best-earnings Plan: a defined benefit plan that calculates a persons retirement benefit based on the best earning of an employee’s career, usually over a three or five year period.
Beta: this is a measure of the sensitivity (i.e. volatility of a stock or a mutual fund) to movements in the overall stock market. A beta of 1 means the investment moves in perfect correlation to the underlying market. While a beta of -1 means the investment moves in the opposite direction of the underlying market.
Bid: the highest price a person is willing to pay for a security.
Binding Agreement: this is a form of a buy-sell agreement. It is the most effective means of guaranteeing a fair price from the point of view of the deceased’s family or the disabled shareholder. The purchase of the deceased or selling shareholder’s interest by the remaining shareholders protects the surviving or remaining shareholders in that no other parties can become involved in the business without their consent.
Blue Chip Stocks: nationally known common stock, usually with a continuous dividend payment record in good times and bad and other strong investment qualities. These stocks are usually high priced but have a tendency to be low yielding.
Blue Sky: a slang term for laws various Canadian provinces and American states have enacted to protect the public against securities frauds. The term “blue skies” indicates that a new issue has been cleared by a securities commission and may be sold to the public.
Board Lot: a regular trading unit which has been decided upon by the stock exchanges. For example, one board lot on the Toronto Stock Exchange equals 1000 shares for shares priced under 10 cents each, 500 shares for shares prices between 10 cents and 99 cents, and 100 shares for shares of $1 and over.
Bonds: debt issued by a corporation, government or government agency on which interest is paid in a specific period. The value of a bond is guaranteed at its stated maturity date, before then, it may trade above or below its book value.
Bond Swap Strategy: this is a strategy that sells long bonds and buys short bonds during periods of rising interest rates. It also does the opposite during periods of falling interest rates.
Book Value: the value today of contributions and interest accrued to date, assuming the certificate is held to maturity.
Bottom-up Investing: this investment style analyzes companies before looking at their industry and the economy. The analyst seeks out undervalued companies.
Budget: a plan for how you are going to allocate your money.
Bull Market: a situation in which the prices of securities are rising. A “bull” is a person who expects that the market or the price of a particular security will rise.
Business Buy-Out (Disability): these disability contracts bought by business owners or shareholders on the life (lives) of the other partner(s)/owner(s) to provide money to buy out a disabled partner. The benefit is based on a percentage of pre-disability income and is determined by the companies Issue and Participation Limit tables. Coverage can be less than maximum allowed and all companies have minimum issue limits.
Business Cycle: the continuous cycle and flow of economic activity. It is characterized by four phases: expansion; decline; recession; recovery
Buy-and-hold Strategy: assets are purchased in a portfolio and held until maturity or until the investors investment horizon is reached.
Buy-Sell Agreement: an agreement between shareholders and business partners to purchase each other’s shares in specified circumstances.
Call Loan: a loan which may be terminated or “called” at any time by the lender. The loan is then immediately payable with any accrued interest by the borrower to the lender. These loans are used to finance purchases of securities and exclude personal loans extended by banks to its customers.
Call Options: an option which gives the holder the right, but not the obligation, to buy a fixed amount of a certain stock at a specified price within a specified time. Calls are purchased by investors who expect a price increase in the stock.
Callable: securities which may be redeemed upon due notice by the security’s issuer. In the case of bonds, issuers of bonds may reserve the right to pay off the bond before maturity to take advantage of lower interest rates.
Canada Education Savings Grant (CESG): everyone is eligible for the basic Canada Education Savings Grant (CESG). The basic grant matches 20% of the first $2500 you contribute to your childs RESP each year, up to a maximum of $7200 per child.
Canada Learning Bond (CLB): families with lower incomes can also receive additional grant money from the RESP program. The CLB adds $500 to your child’s RESP the first year, then $100 each year they are eligible until your child turns 15 years old and you don’t have to make contributions to receive this grant. You qualify for the CLB if your child was born after December 31, 2003 and you receive the National Child Benefit Supplement.
Canada Pension Plan (CPP): this plan is administered by the Federal Government and was designed to provide a monthly retirement pension to contributors, disabled individuals and their children. It is also paid to the widows, widowers, and orphaned children of the deceased contributors.
Canada Student Loans Program (CSLP): this financial aid program established by the federal government is used to help students cover the cost of post-secondary education.
Canadian Investor Protection Fund (CIPF): an industry sponsored fund that protects investors from losses resulting from the bankruptcy of a member firm. The maximum coverage is $1,000,000 per account.
Cancel or change Former Order (CFO): an order that cancels or changes a customer’s current order.
Capital: to economists, capital means the machinery, factories and inventory required to produce other products. To investors, capital means their cash plus the financial assets they have invested in securities, their home and other fixed assets.
Capital Cost Allowance: an amount allowed under the Income Tax Act to be deducted from the value of certain assets and treated as an expense in computing an individual’s or company’s income for the taxation year. It may differ from the amount charged for the period in depreciation accounting.
Capital Gain: selling a security for more than its purchase price. Eligible for preferred tax treatment.
Capital Growth: occurs when the invested principal increases in value. Stocks and real estate are capital growth investments.
Capital Loss: selling a security for less than its purchase price. Can be used to offset capital gains.
Capital Market: this market brings together all the providers and users of capital, all the financial products, like stock and bonds which make the transfer of capital possible and all the people and organizations which support the process.
Capital Stock: all shares representing ownership of a company including preferred as well as common shares.
Capitalization or Capital Structure: total dollar amount of all money invested in a company such as debt, preferred and common shares, contributed surplus and retained earnings of a company. It can also be expressed as a percentage.
Career Average Plan: a benefit plan that bases a person’s retirement benefit on the average earnings during an employee’s career.
Central Bank: a body established by a national government to regulate currency and monetary policy on a national and international level. In Canada it is the Bank of Canada. In the United States it is the Federal Reserve Board and in the United Kingdom it is the Bank of England.
Certificate: an engraved document which shows ownership of a bond, stock or other security.
Chartered Banks: a private firm chartered under the Federal Bank Act.
Chattel Mortgage: a document that transfers the ownership of collateral assets to your lender if you default on your debt.
Child Tax Benefit: is a federal tax credit aimed at low and middle-income families. The amount is based on the ages and number of children under 18, family income and care expenses.
Class A and B Stock: names used by companies to distinguish between two classes of common stock. Class A stock may receive cash dividends while Class B may receive stock dividends. There also could be differences in voting rights or in priority of assets.
Clawback: this is the amount of OAS payments that are repaid through a special tax on high-income pensioners.
Close: the last transaction price for a stock on a particular stock exchange at the end of the trading day. If there was not an actual transaction that day, the close can refer to the last posted bid and ask prices.
Closely held Corporation: this generally refers to a private corporation with very few shareholders.
Codicil: a document that modifies the terms of an original will without requiring the entire will to be redrafted. Codicils are often attached to the will and are executed according to the same requirement as the will.
Coincident Indicators: statistical data that, on average, change at approximately the same time and in the same direction as the economy as a whole.
Collateral: assets used to secure a loan.
Commercial Paper: short-term negotiable debt securities issued by non-financial corporation with terms of a few days to a year.
Commission: the fee charged by an investment advisor for buying or selling securities as an agent on behalf of a client.
Commodities: products used for commerce that are traded on a separate, authorized exchange, such as the Winnipeg Commodities Exchange or the Chicago Board of Trade. Commodities include agricultural products and natural resources such as timber, oil and metals and are the basis for futures contracts traded on these exchanges.
Commodity Fund: a high risk mutual fund that trades futures contracts on oil, grain and currencies.
Common Stock or Common Shares: securities which represent ownership in a company and carry voting privileges. Common shareholders may be paid dividends but only after preferred shareholders are paid. Common shareholders are last in line after creditors, debt holders and preferred shareholders to claim any of a company’s assets in the event of liquidation.
Compound Interest: the interest rate paid on both the original investment as well as the interest it accumulates.
Confirmation: also called a contract. This is a printed acknowledgement giving details of a sale or purchase of a security, which is normally mailed to a client by the investment dealer within 24 hours of an order being executed.
Conglomerate: a company directly or indirectly operating in a variety of industries, usually unrelated to each other.
Consolidate Debt: obtain a loan at a lower interest rate to pay off higher interest debts to reduce overall interest costs.
Consolidated Financial Statements: a combination of the financial statements of a parent company and its subsidiaries, presenting the financial position of the group as a whole.
Constrained Share Companies: Canadian banks, trust, insurance, broadcasting and communication companies have limits on the number of shares or percentage of shares owned by people who are not Canadian citizens or residents. Foreign ownership is restricted since these companies or institutions are either culturally important or fundamentally important to the Canadian economy.
Consumer Loan: a loan for a fixed amount and for a fixed purpose, usually repayable in regular installments (also called a direct or fixed loan).
Consumer Price Index (CPI): an index, which measures the consumer prices, experienced by families and individuals living in urban and rural private households. The changes in the CPI measure price changes over time by comparing the cost of a fixed basket of commodities.
Continuous Disclosure: a securities issuer must issue a press release as soon as a material change occurs in its affairs and within ten days for any other changes in the company.
Contributory Earnings: all employable earnings above a basic exemption level, up to a ceiling or maximum yearly level, upon which CPP premiums are payable.
Contributory Period: the period over which CPP contributions are made, commencing on the later of January 1, 1966 or a person’s 18th birthday, and ending at age 70 if the individual decides to continue working.
Conventional Mortgage: the prospective homeowner borrows less than 75% of the purchase price.
Convertible Security: a bond, debenture or preferred share which may be exchanged by the owner, usually for the common stock of the same company. Convertibles are attractive to investors as they provide the security and income of a bond, debenture or preferred share, as well as the opportunity to participate in the growth of the company through converting to common shares.
Corporation: a form of business organization legally created under provincial or federal statutes which has a legal identity separate from its owners. The corporation’s owners and its shareholders are liable for its debts only to the extent of their investment, which is called limited liability.
Co-signer (same capacity as Guarantor): an individual who is equally responsible for debt with the principal debtor, whether or not the principal debtor defaults on the loan.
Cost of Living (COLA): this rider indexes the basic benefit using some extensive yardstick like CPI or a 5% adjustment annually. The rider may have a cap (2 X basic benefit) or it may be unlimited (very expensive). Some companies will boost monthly benefits prior to claim, causing a corresponding increase in premiums. In, addition, the insured may be able, after recovery; to purchase the “COLA” accumulated benefit, without proving their good health.
Coupon: a mini-certificate actually attached to a bond certificate which represents an actual interest payment. The coupon becomes negotiable on the date the interest is due and usually represents the six month interest payment on the face value of the bond certificate. The term “coupon” is sometimes used as a slang reference to the interest rate paid on a debt instrument.
Coupon Rate: the interest rate paid on the par value of a bond.
Cover: buying a security that you had previously sold short.
Creditor: a person or institution that extends credit, such as a bank lender or bondholder.
Creditor’s Insurance: some lending institutions, such as banks, trust companies and credit unions have benefits through insurance companies that will pay off loans or mortgages in lump sums in the event of a debtor’s disability.
Creditor Proof: creditors in the event of financial problems cannot seize the money held in one’s account.
Credit Rating: a historical record of your past credit history, maintained by a credit bureau.
Critical Illness Insurance: a type of insurance that pays out tax free lump sum if the policyholder is diagnosed with one of the covered conditions listed in the policy.
Cumulative Preferred: a preferred stock which has provision that if one or more of its dividends are omitted, these unpaid dividends accumulate and must be paid before any dividends may be paid on the company’s common shares.
Currency: the bills and coins issued by the central bank that we use in the market.
Current Assets: cash and assets such as accounts receivable and inventories, which in the normal course of business can be converted into cash within a year. Current assets are found on the company’s balance sheet.
Current Liabilities: money owed to the company and due to be paid within a year, such as accounts payable. Current liabilities are found on the company’s balance sheet.
Current Ratio: current assets of a business divided by current liabilities, thus measuring how much the value of current assets exceeds its liabilities. This is one of the tests to determine how much cash a company has on hand to cover its current liabilities.
Current Return: the annual income from an investment expressed as a percentage of the investment’s current value. On stock, this is calculated by dividing yearly dividends by the market price of the security. On bonds, this is calculated by dividing yearly interest by current price. For example, if the income is $50 a year on an investment with a value of $1000, the current yield is 5%.
CUSIP Number: a number identifying each stock and bond. The CUSIP system makes it easier to settle and clear trades. The acronym stands for Committee on Uniform Securities Identification Procedures.
Cyclical Stock: stock in an industry that is particularly sensitive to swings in economic condition, such as mining or forestry.
Day Order: an order to buy or sell a security valid only on the day the order is given.
Dealer market: a market in which securities are bought and sold over-the-counter in which dealers act as principals when buying and selling securities for clients. Also referred to as the unlisted market.
Death Benefit: the lump sum payment under the CPP payable to the spouse or estate of a deceased contributor.
Debenture: has the same structure as a bond, but is not secured by assets or property.
Debt: money borrowed from lenders for a variety of corporate or personal purposes. The borrower pays interest for the use of the money and is obligated to repay the principal amount on a set date.
Debt/Equity Ratio: a ratio that shows whether a company’s borrowing is excessive. The higher the ratio, the higher the financial risk.
Decline: a phrase used to describe the business cycle when economic growth decreases
Declines: there will be a small percentage of insurance applicants who will not be eligible due to medical or non-medical findings. These people present risks, which are too great to be taken under regular underwriting practices. Individuals with progressive diseases, recent or scheduled surgery and chronic or current disabling conditions would be ineligible as would those persons who are found to have significant non-disclosed medical history.
Deemed Disposition: under certain circumstances, taxation rules state that a transfer of property has occurred, even without a purchase or sale, for example, there is a deemed disposition on death or emigration from Canada.
Default: a bond is in default when the borrower has failed to live up to the obligations under the terms of the agreement. Examples of this are declining to pay interest or sinking fund payments or failure to redeem the bonds at maturity.
Default Risk: the uncertainties that the borrower will not be able to pay back the bond or make interest payments.
Deferred Profit Sharing Plan (DPSP): a tax-favored arrangement whereby an employer distributes a portion of their pre-tax profits or a percentage of income to designated employees. Employers do not contribute their own funds, but money is accumulated in a tax-sheltered account for them.
Defensive Stock: stock of a company with continuous dividend payments, which has demonstrated relatively stable earnings despite poor economic conditions.
Deferred Income Taxes: income tax that would otherwise be payable currently, but which is not paid immediately. This is because larger allowable deductions are made when calculating taxable income than when calculating net income in the financial statements. An acceptable practice, it is usually the result of timing differences and represents differences in accounting reporting guidelines and tax reporting guidelines.
Deferred Sales Charge (DSC): a fee payable when investors sell a mutual fund, based on either the original investment or the withdrawal value. Also know as a back-end load.
Deficit: a financial situation for an individual, company or government where expenses exceed income.
Defined Benefit Pension Plan: this is a plan that defines the amount of the pension benefit payable at retirement rather than the annual contributions.
Defined Contribution Pension Plan: this plan defines the amount of employee and employer contributions up front, but does not define the ultimate value of the pension benefit. The value of the pension depends on what can be purchased from the accumulated contributions plus interest.
Delist: the removal of a security’s listing on a stock exchange. This is done when the security no longer exists, the company is bankrupt, the public distribution of the security has dropped to an unacceptably low level, or the company has failed to comply with the terms of its listing agreement.
Demand Loan: a form of credit where the lender has the right to require repayment in full at any time, which he might do if he becomes nervous about your ability to repay the loan.
Demographics: this refers to the characteristics of a human population such as age, sex, and income that is used for market research, sociological analysis and other such purposes.
Depreciation: systematic charges made against earnings to write-off the cost of an asset over its estimated useful life because of wear and tear through use, action of the elements, or obsolescence. It is a bookkeeping entry and does not represent any cash outlay nor are any funds earmarked for the purpose. It reduces the company’s fixed assets to zero over a specified time period.
Derivative: a type of financial instrument whose value is based on the performance of an underlying financial asset, commodity or other investment.
Dilution: reducing the actual or potential earning per share by issuing more shares or giving options to obtain more.
Director: person elected by voting common shareholders at the annual meeting to direct company policies.
Disability Insurance: insurance that is designed to replace earned income in the event that an accident or illness prevents you from pursuing your livelihood.
Disclaimer Clause: securities commissions require that all prospectuses carry a disclaimer on the front page stating that the securities commission itself has in no way approved the merits of the securities being offered for sale.
Discount: the amount by which a preferred share or bond sells below its par value.
Discounted: when some anticipated event such as increased dividends or lower earning has already been reflected in the market price of a stock, it is said to be “already discounted” by the market.
Discount Brokers: brokerage firms that offer lower commission rates than investment dealers, but do not offer the services that investment dealers do, such as advice, research and portfolio planning.
Discretionary Account: a securities account where the client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades on behalf of that investor.
Disposable Income: is defined as the total consumer income less taxes and government transfers.
Distribution: a payment of interest, dividends or capital gains from a mutual fund.
Diversification: spreading investment to reduce risk by buying different securities from various companies, businesses, locations and governments.
Dividend: an amount distributed out of a company’s profits to its shareholders in proportion to the number of shares they hold. A preferred dividend usually is for a fixed amount, while a common dividend may fluctuate with the profits of the company. A company is under no legal obligation to pay either preferred or common dividends.
Dividend Reinvestment Plan: a plan that allows shareholders to purchase more shares from dividends rather than receiving the dividend as income.
Dividend Tax Credit: a procedure to encourage Canadians to invest in preferred and common shares of taxable, dividend-paying Canadian corporations by giving a tax break to such investors.
Dollar Cost Averaging: a method of obtaining investments by purchasing a certain dollar amount of investments at regular time intervals.
Domicile: this is the official residence of an individual. The province of domicile determines under which provincial laws the deceased’s estate will be probated upon death.
Dow Jones Industrial Average (DJIA): an average made up of 30 blue chip stocks that trade daily on the New York Stock Exchange. The DJIA is used as an overall indicator of market performance although criticism is periodically raised over how it is calculated, as well as the fact that so few companies are included so that it may not be a truly representative indicator of market activity.
Earnings or Income Statement: a financial statement which shows a company’s revenues and expenditures resulting in either a profit or a loss during a financial period.
Earnings per Share: this is calculated as the after-tax income for a corporation divided by the number of outstanding common shares.
Economics: the study of how people use scarce resources to satisfy unlimited wants.
Elimination Period: this represents the number of days of disability that must lapse before benefits are paid. It is not uncommon to have a 30, 60, or 90 day waiting period. It is also referred as the qualifying period.
Efficient Market: the market in which all the available information has been analyzed and is reflected in the current stock price.
Enhanced CESG: provides families with average or lower incomes the ability to receive more CESG grant sooner. Depending on the family income, the government will match up to 40% of the first $500 in contributions and 20% of the next $2,000 up to the lifetime CESG of $7,200 per child
Equilibrium: a condition that satisfies the decisions of both consumers and producers. Equilibrium is a state of rest in the economy where demand and supply are in balance or equal to one another.
Equity: any ownership interest; excess of total assets over total liabilities.
Equity Funds: invests in the stocks of companies traded on the stock markets.
Equity Markets: these markets trade in common and preferred shares of corporations.
Estate: the total wealth or net assets an individual accumulates over a lifetime.
Estate Planning: the name of the process required to create, conserve and transfer an individual’s assets in preparation for death or disability.
Eurobonds: bonds denominated in Canadian dollars or other currencies and sold to investors in currencies other than the country of issue. For example, a bond denominated in Canadian dollars and issued in Germany would be classified as a Eurobond.
Exchanges: an organized market for buying and selling financial securities, such as the Toronto Stock Exchange.
Exchange Rate Risk: the uncertainty that a rise in the foreign exchange rates of a domestic currency will cause the value of investments in foreign currencies to fall.
Exchange Traded Funds (ETF): shares of an exchange-traded fund that trade on a major stock exchange. Like index mutual funds, they are designed to match the performance of a certain index by investing in the constituent components included in that index. The shares can be traded throughout the trading day, Also known as Index Participation Units.
Ex-Dividend: this means “without dividend.” If a share quoted ex dividend is purchased, the investor is not entitled to an upcoming already-declared dividend. The seller receives this dividend.
Executor: the person or organization appointed in a will to carry out the terms of the will.
Exempt List: large professional buyers of securities, mostly financial institutions, that are offered a portion of a new issue by one member of the banking group on behalf of the whole syndicate.
Exempt Market: an unregulated market for sophisticated participants in government bonds, corporate issues and commercial paper. A prospectus is not required to raise money privately from these private investors (largely institutions, but also individual investors) and registration of the issue with a securities commission is not needed.
Exempt Purchaser: a category of institutional investors to which the sale of a new issue of securities does not require the issuer to file a prospectus with the applicable securities commission.
Exercise: the action taken by the holder of a call option if he or she wishes to purchase the underlying security or by the holder of a put option if he or she wishes to sell the underlying security. Also refers to the action taken by a rights or warrant holder.
Exercise Price: the price at which the underlying stock of a call option can be purchased, or the price at which the underlying stock of a put option can be sold. Also referred to as the strike price.
Expansion: this phrase is used in the business sector when economic growth increases.
Expiration Date: the date when put and call options & rights and warrants expire, as well as other privileges or conversion features.
Ex-Rights: this means “without rights.” Buyers of shares quoted ex-rights are not entitled to forthcoming rights.
Extended Health Care Benefits: insurance coverage that is designed to cover medical expenses that are not covered by your provincial health plan.
Extendible Bond or Debenture: a bond or debenture issued with a specific maturity date, but granting the holder the option to extend the maturity date by a specified number of years.
Extra: short for “extra dividend.” A dividend in the form of either stock or cash in addition to the regular common dividend the company usually pays to shareholders. Also referred to as a special dividend.
Face Value: the value of a bond or debenture that appears on the face of the certificate. Face value is the amount the issuer promises to pay at maturity. Face value is no indication of market value. For example, a low grade bond may have a face value of $1,000 but can trade at a market price of $130.
Family Trust: an inter vivos (while living) trust established with family members as beneficiaries.
Farm Marketing Boards: the farming boards that intervene in the agricultural sector with the intent of stabilizing the prices of agricultural products.
Fee-Based Accounts: client accounts in which the investment dealer does not charge commissions, but charges a fee based on the value of the investor’s account.
Final Prospectus: the prospectus which supersedes the preliminary prospectus and is accepted for filing by the applicable provincial securities commissions. The final prospectus shows all required information pertinent to a new issue and a copy must be given to each buyer of the new issue.
Finance or Acceptance Company Paper: short-term negotiable debt securities similar to commercial paper, but issued by finance companies.
Financial Instruments: the term used for debt instruments which are loans with an agreement to pay back funds with interest, or equity securities, which are shares or stock in a company.
Financial Intermediary: an institution such as a bank, life insurance company, credit union or mutual fund company which receives cash and invests it on behalf of the suppliers of the cash.
Financial Planners: provides expertise in assessing clients’ current position. They establish long and short-term goals and the strategies to achieve current and future goals.
Financial Planning: the process of ensuring all aspects of your financial situation are properly organized and directed to achieving your goals.
Financial Statement: written record of the financial status of an individual or business.
First in First out (FIFO): a method of valuing inventory which assumes that the first items bought are also the first items used or sold.
Fiscal Agent: an investment dealer appointed by a corporation or government to advise in financial matters and to manage the underwriting of its securities. The Bank of Canada acts as a fiscal agent to the federal government.
Fiscal Policy: the attempt of the government to influence economic activity by altering spending or taxes.
Fiscal Year: a company’s accounting year. Due to the nature of particular businesses, some companies do not use the calendar year for their bookkeeping. A typical example is the department store which finds December 31st too early a date to close its books after the holiday rush and has a January 31st fiscal year-end instead.
Fiduciary Duty: the fiduciary duty of care calls for complete loyalty and fidelity to the client. It is inferred from the special relationship of trust between the client and the professional.
Financial Risk: this is the uncertainty that a company will fail to meet expected financial goals and provide a lower rate of return than anticipated.
Fixed Asset: a tangible long-term asset such as land, buildings or machinery, held for use rather than for processing or resale. Fixed assets are found on a company’s balance sheet.
Fixed Charge: a company’s expenses, such as debt interest, which it must pay and which are deducted from income before income taxes are calculated.
Fixed Income Securities: securities that generate a predictable stream of interest or dividend income, such as bonds, debentures and preferred shares.
Flat Benefit Plan: a defined benefit plan that pays a flat rate benefit, regardless of earnings, based on years of service.
Flow-Through Shares: tax deductions and credits, normally available only to a corporation, are given to the owners of the corporation’s flow through shares. Canadian exploration and mining companies are able to issue such shares at a premium because investors are considered to be funding exploration and development costs and are therefore entitled to deduct these expenses from all other income.
Foreign Exchange Rate: price at which one country’s currency can be converted into another country’s currency.
Front-End Load: a fee (0% to 5%) investors pay when they buy a mutual fund, based on the amount invested.
Fully Diluted Earnings per Share: earnings per common share calculated on the assumption that all convertible preferred shares, convertible debentures, stock options (under employee stock-option plans) and warrants.
Fundamental Analysis: an analysis of securities based on the fundamental facts about a company, such as sales, earnings and dividend prospects. This is in contrast to technical analysis.
Future contract: an agreement to buy or sell a commodity sometime in the future.
Future Value: the amount to which a sum or annuity grows over a given period at a certain interest rate.
General Mortgage Bond: a bond which is secured by a blanket mortgage on the company’s property, but which is usually subordinated to one or more other mortgage bonds.
Gift: this asset is transferred without legal consideration. If the grantor and beneficiary are non-arm’s length, the grantor may have to pay an assessed capital gain on the fair market value of the gift.
Goods and Services Tax Credit: is a tax credit introduced to help low income families compensate for any increase in living cost resulting from the Goods and Services Tax (GST)
Goodwill: goodwill is an intangible asset of a company. The buyer of a business is often willing to pay for the “good name” of the business in addition to the value of its assets. Goodwill appears on the balance sheet as the excess of the amount paid for the shares over their net asset value.
Grace Period: most insurers will allow a thirty-one day grace period in which to pay premiums.
Grantor: the person who establishes and transfers assets to a trust; can also be known as the settler.
Growth Stock: usually a non-dividend paying common stock of a company with expansion potential. The corporate funds that would normally be paid to shareholders as dividends are put back into the company to pay for expansion. Growth stocks have the potential for capital gains rather than income.
Group Insurance: a form of insurance designed to insure classes of persons instead of specific individuals.
Gross Debit Service Ratio (GDR): this ratio helps determine your ability to carry debt. It is calculated as: annual mortgage payments + Property taxes/Gross annual income. As a rule, your GDS ratio should not exceed 25% to 32% of your gross income.
Gross Income: income before taxes including wages, income from investments, monetary gifts and liquid assets.
Growth Funds: allows investors to participate in stock market oriented investments, which have shown, over long periods, to out perform other types of investments.
GTC Order: this stands for a “good till cancelled” order. This is an order to buy or sell a security at a specified price, which is valid until executed or cancelled. This is the same as an open order.
Guarantor: a third party that agrees to repay any outstanding balances on your loan if you fail to do so. A guarantor is responsible for the debt only if the principal debtor defaults on the loan.
Guaranteed Income Supplement: this is the amount payable to low income earners who receive Old Age Security (OAS).
Guaranteed Investment Certificate (GIC): a certificate or term deposit, which fully guarantees the interest and the return of capital at maturity.
Halt in Trading: a temporary halt in the trading of a security to allow significant news to be reported and widely disseminated. Usually the result of a pending merger or a substantial change in dividends or earnings.
Hedge: a transaction used as a protective maneuver intended to reduce the risk of loss from price fluctuations of securities.
Hedge Fund: an investment vehicle, suitable for sophisticated investors, that is less regulated and typically more risky than mutual funds, investing in securities and employing strategies that are not permitted in mutual funds.
Holding Company: a company that owns the securities of another company, usually with voting control.
Horizontal Spread: purchasing either a call or put option and simultaneously selling the same type of option with the same strike price but a different expiration month.
Household Income: the income for a household unit typically consists of an individual or couple plus any children or other financial dependants who live together.
Hypothecate: to pledge securities as collateral for a loan.
IIROC: established in 2008, the Investment Industry Regulatory Organization of Canada is a non profit self regulatory organization in Canada.
Income attribution: is a process specified under the Income Tax Act where certain investment income may be deemed taxable to a person other than the recipient, if the investment income was the result of certain transaction between family members.
Income Bond: generally, an income bond promises to repay principal but only to pay interest when the company earns a certain amount of money. In some cases, if the interest is unpaid on an income bond, it may accumulate as a claim against the company when the bond matures.
Income Funds: for security oriented investors, these funds provide interest income with lower risk or volatility than most growth funds.
Income Splitting: by contributing on behalf of your spouse, you can reduce your combined taxes even after retirement. If your spouse is in a lower income tax bracket, the retirement income received in your spouse’s name will be taxed at your spouse’s lower tax rate.
Income Statement: a financial statement showing a company’s revenues and expenses for a certain period, typically a year or a quarter.
Income Stock: a common stock that pays, or is expected to pay, an attractive dividend to shareholders. Usually stock from a more mature company that does not expect expansion or growth.
Incontestability: the insurer because of misrepresentation of facts cannot cancel a contract, after it has been in force for two years, unless fraud has been committed, or unless a misstatement of age has occurred.
Indenture: the documentation of a legal agreement on the rights of the bondholder.
Index: a statistical tool that measures the state of the stock market or the economy, based on the performance of stocks or other meaningful components. Examples are the TSX Index and the Dow Jones Industrial Average.
Index Fund: a mutual fund that tries to match the performance of an index by holding the component stocks of that index, or by using derivatives.
Index Participation Units (IPUs): shares of an exchange-traded fund that trade on a major stock exchange. Like index mutual funds, they are designed to match the performance of a certain index by investing in the constituent components included in that index. The shares can be traded throughout the trading day. Also known as Exchange Traded Funds.
Inflation: the term is used to describe rising prices of goods and services within an economy, usually measured in the Consumer Price Index. (CPI)
Inflation Risk: the uncertainty that the return on investment will be low enough to result in a negative, real, after-tax rate of return. This is often described as a decrease in purchasing power.
Initial Public Offering (IPO): a new issue of securities offered to the public for investment for the very first time.
Insider: directors, senior officers and any other people, such as lawyers and accountants, who can be presumed to have access to non public information concerning a company. It also includes anyone owning more than 10% of the voting shares in a corporation.
Insider Report: a report of all transactions in the shares of a company made by those considered to be insiders of the company. It is submitted each month to the provincial securities commissions and allows the administrators to monitor trading by such people to ensure regulations are not violated.
Insider Trading: when an insider trades a company’s shares, it is illegal if the trading is based on important confidential information.
Installment Debentures: a bond or debenture issue in which a predetermined amount of the principal becomes due and payable each year. Also called a serial bond or debenture. This is popular as a municipal financing vehicle.
Institutional Clients: the sales department of a securities firm serves two categories of clients. The institutional segment deals with banks, insurance companies, trust companies, pension fund managers and large corporations. The retail branch deals with individual investors.
Insurance: this is a formal method of sharing or transferring a risk from a single individual to a group, by providing a basis for all losses to be shared on an equitable basis by all members of the group.
Insured or High-Ratio Mortgage: the purchaser borrows more than 75% of the purchase price of the house and has the mortgage insured by Canada Mortgage and Housing Corporation.
Installment Loans: consumer Loans (also known as direct credit or fixed credit) usually involves a fixed sum repaid over a fixed period. They usually are obtained through banks, trust companies, credit unions or loan companies.
Insurable interest: an applicant has to have insurable interest in the contract when it is issued.
Intangible Asset: an asset which has no physical substance, such as goodwill, patents, trademarks and copyrights.
Interest: money charged by a lender to a borrower for the use of his or her money.
Interim statements: these are financial statements issued for a certain period within a fiscal year, such as a three-month or first quarter interim statement.
Inter Vivos Trust: is a trust established between living persons, usually to pass assets to your Beneficiaries. Often referred to as a living trust.
Intestate: a person is said to have died intestate when they die without a will. The estate of the deceased is then subject to the provincial statues governing intestacy.
In The Money Option: a call option is in the money if its exercise or strike price is below the current market price of the underlying stock. A put option is in the money if its strike price is above the current market price of the underlying stock.
Intrinsic Value: that portion of a warrant, right or call options’ price that represents the amount by which the market price of the underlying security exceeds the price at which the warrant, right or call option may be exercised. The intrinsic value of a put is calculated as the amount by which the underlying security`s market value is below the price at which the put option can be exercised.
In Trust For: the designation specified when an account is established for another as beneficiary, usually for a minor.
Investment: the purchase or ownership of a security to make money by gaining income, increasing capital, or both.
Investment Advisor: this is a person employed by an investment dealer who provides investment advice to clients and executes trades on their behalf in securities and other investment products. Investment advisors must attain set educational qualifications, follow certain rules and regulations and be registered by the securities commission in the province in which he or she works.
Investment Class: a group of investments that display common traits such as stocks, bonds or real estate.
Investment Dealer: this refers to securities firms which employ investment advisors to work with retail and institutional clients and has underwriting, trading and research departments.
Investment Income: the money paid, either as interest or dividends on an investment.
Investment Mix: allocating deposits to different investment options.
Investor: a person whose principal concern in the purchase of a security is the minimizing of risk, compared to the speculator who is prepared to accept calculated risk in the hope of making better than average profits or the `gambler`who is prepared to take even greater risks. More generally it refers to people who invest money in investment products.
Issuer Bid: an offer by an issuer to buy back some of its own securities. This is usually done because the company feels the market is undervaluing its securities.
Jitney: the execution and clearing of orders by one member of a stock exchange for the account of another member. For example, investment dealer A is a small firm whose volume of business is not sufficient to be a member of the exchange. Instead it gives its orders to investment dealer B for execution and pays a reduced percentage of the normal commission.
Joint and Last Survivor Annuity: an annuity payable to two people, usually spouses, during their lifetime, as well as during the life of the survivor after the first annuitant dies.
Joint Tenancy: this is a method of property ownership in which two or more people hold an undivided interest in property. When one of the people dies, the full title of the property passes to the surviving tenant or tenants, instead of the deceased tenant’s heir or assigns.
Junior Bond Issue: a corporate bond issue, the collateral for which has been pledged as security for other more senior debt issues, and therefore ranks behind these prior claims.
Junior Debt: one or more junior bond issues.
Junior Stocks: shares of smaller companies with a limited history of earnings, often in emerging industries.
Junk Bond: also known as high-yield bond. These bonds are rated below investment grade.
Key Person: these disability policies are designed to compensate an employer for a financial loss due to the disability of a key employee. These plans pay benefits based on proof of loss or on a percentage of the employee’s income usually for a period of no more than a year.
Know Your Client Rule: this is the given rule that recognizes the fiduciary duty of the investment advisor to understand the client’s investment objectives and make appropriate recommendations for investments.
Labour Force: the total number of employed and unemployed workers.
Labour Sponsored Venture Capital Corporation (LSVCC): investment funds, sponsored by labour organizations, that have a specific mandate to invest in small to medium-sized businesses. To encourage this mandate, governments offer generous tax credits to investors in LSVCCs.
Ladder Approach: this is the method that involves purchasing several investments, each with a different maturity date, to reduce inflation, interest rate and default risk for fixed income investments.
Lagging Indicators: these are market indicators that often continue an upward trend after the peak of the economy has been signaled by other economic indicators or continue a downward trend after a rise has been signaled. These indicators include business expenditures for new plants and equipment, consumers` installments credit, short term business loans and the overall value of manufacturing and trade inventories.
Last In First Out: a method of valuing inventory which assumes that the last articles bought are the first used or sold.
LEAPS: long Term Equity Anticipation Securities are long term (2-3 years) option contracts.
Leverage: the use of borrowed funds for investment purposes. Leverage magnifies both the returns and losses on an investment. This strategy is considered high risk.
Leveraged Buy Out (LBO): a takeover financed to a large degree by debt that is secured, serviced and repaid through the cash flow and assets of the acquired company. Typically, an LBO is financed predominantly by a bank debt and low quality bonds, and to a minimum degree by equity. Its extreme leverage makes a LBO dependent upon a stable economy and stable interest rates, as well as a stable cash flow from the acquired company for its success.
Liabilities: these are the debts and obligations of a company. Current liabilities are debts due and payable within one year. Long term liabilities are those payable after one year. Liabilities are found on a company`s balance sheet.
LIBOR: the London Interbank Offered Rate is the interest rate that the banks charge each other for loans.
Lien: this is the claim against property pledged or mortgaged to secure performance of an obligation.
Life Annuity: an annuity that guarantees continued payments to the annuitant, regardless of how long the annuitant lives.
Life Annuity with a Guaranteed Term: this type of annuity has a special clause that guarantees payments will continue for a specified period, even if the annuitant dies before the end of the term.
Life Income Fund (LIF): an account set up to hold pension plan monies while allowing added flexibility over an annuity (similar to a RRIF)
Life Insurance: this is a contract between you and a life insurance company that specifies that the insurer will provide either a stated sum or a periodic income to your designated beneficiaries upon your death.
Lifestyle Expenditures: the cost you incur to sustain your lifestyle, including the money you spend on housing, food, clothing, household expenses, transportation, insurance, entertaining and gifts. Also included are the interest charges associated with financing a major capital purchase such as a house or a car. Lifestyle expenditures do not include income tax expenses or any capital transactions.
Lifetime Injury or Sickness: this benefit sometimes issued as an “accident” only benefit providing for an extension of the basic benefit if disability occurs before age 65. It may provide for a reduced benefit if disability occurs after age 50 or 55.
Limit Order: this is a client`s order to buy or sell a security at a specific price. The order can be executed only at that price or a better one. It sets the maximum price the client is willing to pay as a buyer, and the minimum price he or she is willing to accept as a seller.
Limited Liability: when `limited` is at the end of a Canadian company`s name, the company`s shareholders` responsibility for the debts of the company is limited to the amount of money they paid to buy the shares. In contrast, ownership of a company by a sole proprietor or partnership carries unlimited personal legal responsibility for debts incurred by the business.
Limited Period Exclusion Rider: this exclusion places a specific elimination period on a particular condition, but it provides full coverage after the specific elimination period is met. In many cases, this elimination period is longer than the elimination period on the basic policy.
Line of Credit: a special kind of loan that lets customers write cheques up to a certain total amount, often between $10,000 and $50,000.
Liquidation: the process of converting property and securities into cash. When a company is dissolved or closed down, cash remaining after sale of its assets and payment of all indebtness is distributed to the shareholders, beginning with the preferred shareholders and ending with the common shareholders.
Liquidity: the ease by which an asset can be quickly bought or sold without adversely affecting its price.
Listed Stock: the stock of a company which is traded on a stock exchange. Companies pay fees to the exchange to be listed and must abide by the rules and regulations set out by the exchange to maintain listing privileges.
Listing Statement: a stock exchange document published when a company`s shares are accepted for listing. It provides basic information on the company, its business, management, assets, capitalization and financial status.
Load: a charge added to mutual funds which covers sales commissions and all other costs of distribution. The load, usually a percentage of the money invested in the fund, may be charged as a front end, on the purchase of the fund, or as a back end, when the fund is sold or redeemed.
Locked-in RRSP (LIRA): this is an RRSP with the funds having been provided from a Registered Pension Plan.
Locked-In Retirement Income Fund (LRIF): this RRIF is designed to provide a life income for the beneficiary by restricting the maximum withdrawals from the plan based on the investment earnings from the plan based on the investment earnings of the LRIF.
Long: term used to signify ownership of securities.
Long Term Bond or Debenture: a bond or debenture maturing in more than 10 years.
Long Term Care Insurance (LTC): a type of insurance that helps pay for the cost of long term care in the event that you cannot perform 2 out of 5 basic activities of daily living (dressing, bathing, eating, toileting, continence, transferring)
Long Term Disability Insurance (LTD): an insurance policy that replaces lost income in the event that one cannot work due to illness, injury, or accident for an extended period of time.
Low Load: refers to the fee structure from a mutual fund for early redemption. Typically, the fees apply for the first 2 or 3 years.
Managed Account: this is similar to a discretionary account where a client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades, but on a continuing basis for a fee. Managed accounts can be solicited whereas discretionary accounts are opened as a matter of convenience to clients who are ill or out of the country.
Management Expense Ratio (MER): the total expense of operation a mutual fund, expressed as a percentage of the fund’s net asset value. It includes the management fees as well as other expenses charged directly to the fund, such as administrative, audit, legal fees etc., but excludes brokerage fees. Published rates of return are calculated after the MER has been deducted.
Manipulation: the illegal practice of buying or selling a security for the purpose of creating a false or misleading appearance of active trading, or for the purpose of raising or depressing the price to induce purchases or sales by others.
Margin Account: a client account where he or she uses credit from the investment dealer to buy a security. The client needs to deposit a “margin” amount with the balance being advanced by the investment dealer against acceptable collateral such as investments. The investment dealer can make a “margin call” and demand that the client deposit more money or securities when the value of the account falls below a certain level. If the client does not meet the margin call, the dealer can sell the securities in the margin account at a possible loss to cover the balance owed. The client is also charged interest on the money borrowed from the investment dealer for the purchase of securities.
Market Capitalization: the total market value of all the shares of a company that investors own.
Market Maker: an authorized trader employed by an investment dealer who is required by the applicable self-regulatory organizations to maintain reasonable liquidity in securities markets by making firm bids or offers for one or more designated securities.
Market Order: an order placed to buy or sell a security immediately at the best current price.
Market Price: the most recent price at which a security transaction took place.
Market Risk: the uncertainty of economic, social, or political events that would result in an investment having decreased value. Since these events usually affect the entire market, market risk is called systematic risk.
Market Timing: making trades based on a strategy of predicting which investment class will earn the highest returns over a defined period.
Marriage Contracts: an agreement between spouses either before or during marriage which could cover a wide range of topics including ownership of assets brought in the marriage, subject to any restrictions in the provincial family law. Commonly referred to as a prenuptial agreement or prenup.
Material Change: a change in the affairs of a company that is expected to have a significant effect on the market value if its securities, such as a change in the nature of the business or a change in the Board of Directors.
Material Facts: all material facts must be disclosed. Misrepresentation of a fact will make the contract voidable by the insurer. The smoking status is a good example. There is a two-year time limit for voiding the contract from the date of issue, renewal or reinstated. After that period, the insurer is bound by the contract except in the case of fraud.
Maturity: the date on which a loan or a bond or a debenture comes due and is to be paid off.
Maturity Date: the time at which a debt instrument expires or comes due.
Medium-Term Bond or Debenture: a bond or debenture which matures in more than three years, but less than 10.
Member Firm: an investment dealer which owns a seat on , or shares of, a particular stock exchange or is a member of the Investment Dealers Association of Canada.
Merger: the act of one company permanently joining another to become one company.
Misstatement of Age: if an age of the insured has been misstated, the insurer can increase or decrease the benefits payable under the contract to an amount that would have been purchased for the same premium at the correct age, or they can adjust the premium accordingly.
Monetary Policy: a policy followed by the federal government through the Bank of Canada for controlling credit and the money supply in the economy. The policy will vary according to the anti-inflationary or job-creating results the government primarily desires to achieve.
Money Market: that part of the capital market in which short-term financial obligations are bought and sold. These include federal government treasury bills, short term Government of Canada bonds, commercial paper, bankers’ acceptances and guaranteed investment certificates. Longer term securities, when their term shortens to three years, are also traded in the money market.
Money Market Funds: invest in short term investments and is generally the least risky of the market-related funds and offer the lowest positive returns.
Mortgage: a contract specifying that certain property is pledged as security for a loan. The money is to be repaid in installments which usually combined principal and interest payments.
Mortgage Backed Securities: similar to bonds, these securities are backed by a share in a pool of home mortgages insured under the National Housing Act. The securities pay interest and a part of the principal each month. They trade in the bond market at prices reflecting current interest rates.
Mortgage Funds: invests in commercial and industrial mortgages.
Mutual Fund: is a professionally managed pool of investments which provide an individual investor with an opportunity to invest in the stock market or other areas without the responsibility of making specific investments.
Mutual Fund Dealer Association (MFDA): a regulatory organization that monitors and regulates mutual fund dealers and salespeople.
NASD: the National Association of Securities Dealers, Inc. This is the American self-regulatory organization of the securities industry responsible for the regulation of NASDAQ and the over-the-counter market.
NASDAQ: the National Association of Securities Dealers Automated Quotations Systems, the electronic, over-the-counter, screen-based communications system used by the second largest US securities market.
Net Asset Value: total assets of a corporation less its liabilities. Also referred to as shareholders’ equity.
Net Asset Value per Share (NAVPS): this represents the price of a mutual fund unit.
Net Earnings: that part of a company’s profits remaining after all expenses and taxes have been paid and out of which dividends may be paid.
Net Worth: the difference between assets and liabilities.
New Issue: a stock or bond issue sold by a company for the first time. Proceeds may be used to retire outstanding securities of the company, or be used for a new plant or equipment or for additional working capital. New debt issues are also offered by governments.
No-Fault Insurance: this is a government-mandated insurance policy designed to provide automatic compensation for automobile accident victims, regardless of who is to blame.
No Load Fund: a mutual fund that has no sales fees.
No Par Value (NPV): common stock that has no stated face value. This is the usual practice in Canada so it is assumed and not always stated on the share certificate.
Nominal Interest Rate: the stated interest rate, which does not take inflation into consideration.
Non-Cumulative: a preferred dividend which does not accumulate if unpaid.
Non-Refundable Tax Credit: can only be used to reduce federal tax payable to zero dollars, not create a negative amount to be refunded.
Non-Registered Funds: money that is deposited with after-tax dollars and is not invested in registered tax sheltered vehicles such as RRSP’s. Income earned by the funds is taxed annually, even if the investment earnings are not actually withdrawn.
Objective: a position or financial state you wish to achieve. Well-defined objective are critical to the success of any money management plan because they provide your plan with a sense of purpose and a benchmark against which you can measure your progress.
Odd Lot: a number of shares equaling less than a board lot, the regular trading unit decided upon by the particular stock exchange. Also, an amount less than the par value of one trading unit on the over-the-counter market.
Offer: an offer is the same as an ask, which is the lowest price at which a person is willing to sell a security. This is opposed to a bid, which is the highest price at which a person is willing to buy a security.
Of Record: shareholders of record are those who appear on the company’s books or records as a certain date. If, for example, a company announces that it will pay a dividend to shareholders of record January 15, every shareholder whose name appears on the company’s books on that day will be eligible for a dividend from the company.
Old Age Security (OAS): this program is set up by the government to ensure an adequate level of income, regardless of past employment income, for retired individuals. OAS was first started in 1951.
Open End or Mutual Fund Investment Company: this is a company which uses its capital to invest in other companies. Open end, or mutual funds, sell their own new shares to investors, buy back their old shares, and are not listed for trading on a stock exchange. Open end funds get their name because their capitalization is not fixed and they normally issue more shares as people want them.
Open Order: an order to buy or sell a security at a specified price which is valid until executed or cancelled.
Option: an investor who purchased an option has the right, but not the obligation, to buy or sell certain securities at a specified price within a specified time. A put option gives the holder the right to sell the security, a call option gives the right to buy the security.
Option Eligible Securities: securities which meet the eligibility criteria as underlying securities for put and call options on a stock exchange.
Option Holder: the buyer of either a call or put option.
Option Premium: this is the price of an option. It is the amount of money that the option holder pays for the rights and the option writer receives for the obligations granted by the option.
Option Writer: the seller of either a call or put option. The option writer receives payment, called a premium, and is obligated to buy or sell the underlying security at a specified price, within a certain period of time, if called upon to do so.
Ordinary Annuity: a series of equal payments over a fixed number of years where the payments are made at the end of each period.
Out of the Money Option: a call option is out of the money if its exercise or strike price is above the current market price of the underlying security. A put option is out of the money if its exercise or strike price is below the current market price of the underlying security.
Outstanding Shares: securities that have been issued and sold to shareholders are referred to as outstanding.
Overhead Expense: these policies are reimbursement contracts. They reimburse the disabled professional or businessperson for actual business expenses while disabled. An example of this would be a business owner who has his or her own office with staff. If this person were to become disabled, rent, salary for the staff members and other office costs must be paid. Overhead expense policies will cover these ongoing costs.
Over the Counter Market (OTC): a secondary market where dealers hold an inventory of securities that they sell “over the counter” to anyone willing to accept their prices.
Own Occupation: unable to perform the important duties of one’s own occupation (trained and educated specifically) and not gainfully employed in any other occupation.
Paper Profit: a profit on a security which has not been taken. Paper profits become realized profits only when the security is sold. A paper loss is the opposite to this. An example of a paper profit would be the purchase of ABC at $25. It is now trading at $27, so the paper profit is $2 per share.
Par Value: the stated face value of a bond or, in the case of stock, an amount assigned by the company’s charter and expressed as a dollar amount per share. Par value of common stock usually has no relationship to the current market value and so no par value stock is issued. Par value of preferred stock is significant, however, as it indicates the dollar amount of assets each preferred share would be entitled to in the event of liquidation of the company.
Pari Passu: this means “in equal proportions.” It usually refers to equally ranking issues of a company’s preferred shares.
Partial Disability: loss of some functions will provide 50% of the total disability income provided by the contract.
Participating Feature: this applies to some preferred stocks which, in addition to a fixed rate of dividend, also share in the earnings of the company and may receive additional dividends over and above their specified dividend rate.
Passive Investment Strategies: this process uses a selected portfolio mix that is re-balanced only after a financial goal is met or securities mature.
Penny Stocks: low priced speculative issues of stock selling at less than $1.00 a share.
Per Stripes: the death proceeds of a contact or policy are divided equally among the named beneficiaries. The share of any deceased named beneficiary is then distributed to his or her living descendants.
Permanent Life Insurance: life insurance that provides coverage for your entire life and pays a predetermined benefit when you die. Also known as whole life insurance.
Person Wealth: in the context of the Natural Wealth Process, wealth
Personal Financial Planning: a process that involves examining a client’s financial and personal circumstances, defining realistic objectives and developing and implementing strategies for achieving those objectives.
Piggy Back Warrants: some warrants entitle the holder to acquire shares plus additional warrants at a later date. The warrants that are received upon the exercise of the initial warrants are known as piggy back warrants.
Poison Pill: a corporate provision to combat hostile takeovers. When triggered, the poison pill allows shareholders to acquire additional shares at below market price, thereby increasing the number of shares outstanding and making the takeover prohibitively expensive.
Power of Attorney (POA): a document that authorizes a particular person to perform certain acts on behalf of the one signing the document.
Pre-Authorized Chequing (PAC): a term used to describe a method of electronically withdrawing a predetermined amount from a bank account to pay for a product or service, or deposit an amount to an investment plan based on a pre-signed authorization.
Preferred Shares: a class of capital shares that pays dividends at a specified rate and that has preferences over common shares in the payment of dividends and liquidation of assets. Preferred shares do not ordinarily carry voting rights.
Premium: the price paid for insurance contract.
Present Value: the value today of a future payment or receipt, or series of future payments or receipts determined by applying a nominal interest rate that might be earned to lump sum in advance. The present value is the discounted value of any future payments.
Presumptive Disability: even though the insured is not completely disabled, they are “presumed” to be so if they lose the use of speech, hearing, sight or two limbs.
Price to Earnings (PE) Ratio: this is a common stock’s current market price divided by annual per share earnings. This ratio is a short way of saying that a share is selling at so many times its actual or anticipated annual earnings. A price to earnings ratio is one tool used to compare one share to another.
Primary Wealth: in the context of the Natural Wealth Process, primary wealth is the most significant source of an individual’s or family’s wealth.
Prime Rate: the interest rate charged by the central bank when lending to chartered banks. In the case of the bank prime rate, it is the interest rate chartered banks and credit union’s charge to their most credit worthy borrowers.
Principle: a dealer buying or selling securities for his or her own account, the term can also refer to a person’s capital or to the face value of a bond.
Private Placements: the underwriting of a security and its sale to a few buyers, usually institutional, in large amounts. No formal prospectus is needed to be prepared in this instance as the buyers are considered to be sophisticated.
Probate: this is used to make an orderly distribution and transfer of property from the deceased to a group of beneficiaries. The probate process is under court supervision of property transfers, filing of claims against the estate by creditors and publication of a last will and testament.
Professional liability Insurance: a form of public liability insurance designed to indemnify practicing members of a profession from losses payable to patients or clients arising from their negligence in carrying out their profession.
Profit Taking: selling securities to take profit. The process of converting paper profits into cash.
Program Trading: a sophisticated computerized trading strategy whereby a portfolio manager attempts to earn a profit from the price spreads between a portfolio of equities similar or identical to those underlying a designated stock index and the price at which futures contracts (or their options) on the index trade in financial futures markets.
Prospectus: a document that contains detailed information on the nature of an investment. It also includes the investor’s rights and the borrower’s obligations and any other information useful to the investor.
Proxy: written authorization given by a shareholder to someone else, who does not necessarily need to be a shareholder, to represent him or her and vote at a shareholders’ meeting.
Purchasing Power: the amount of goods that can be purchased for a given dollar amount.
Put Options: this gives the holder the right, but not the obligation, to sell a fixed amount of a certain stock at a specified price within a specified time. Puts are purchased by those who think a stock may go down in price.
Qualified Condition Exclusion Rider: the qualified condition exclusion is a step beyond the limited period exclusion. It provides benefits for a specific named impairment showing the elimination period, benefit period and indemnity payable for the particular condition. It may also extend or limit coverage under various benefit riders.
Qualifying Period: also known as the elimination period. This represents the number of days of disability that must elapse before benefits are paid.
Quantitative Analysis: the study of economic and stock valuation patterns in order to identify and profit from any anomalies.
Quebec Education Savings Incentive (QESI): families in Quebec can receive another 10% to 20% on the first $500 they contribute to their child’s RESP each year and 10% on the next $2000, up to a lifetime maximum of $3600.
Quintus Financial: a boutique firm that specializes in the wealth management of individual and corporate clients.
Real Estate Investment Trust (REIT): an investment vehicle that invests funds on behalf of its investors in the real estate related investments such as construction loans, mortgages, land and real estate company securities.
Real Interest Rate: the nominal rate of interest minus the percentage change in the consumer Price Index, or the rate of inflation.
Recession: this term refers to the time in the business cycle in which the pace of economic growth slows. Real GDP falls for two consecutive quarters to be recorded as a recession.
Record Date: the date by which an investor must officially own shares in order to receive such things as dividends or rights. These people are called stockholders of record.
Recovery: a phrase used to describe the business cycle when economic growth occurs.
Recurrent Clause: if the disability reoccurs within six months, the claim resumes as if no recovery had taken place. After six months, the recurrent or new disability will require a new elimination and benefit period.
Red Herring: a preliminary prospectus, so called because certain information is printed in red ink around the border of the front page. It does not contain all the information found in the final prospectus. Its purpose is to ascertain the extent of public interest in an issue while it is being reviewed by a securities commission.
Redeem: to sell units of a mutual fund back to the mutual fund company for cash.
Redemption Charge: a fee investors pay when they sell a fund, usually higher for short-term investments.
Registered Disability Savings Plan (RDSP): a program started in 2008 to help parents and others save for the long term financial security of a person who is eligible for the disability tax credit.
Registered Education Savings Plan (RESP): plan allowing the accumulation of tax-sheltered contributions for education.
Registered Pension Plan (RPP): a formal arrangement where an employer provides retirement income to employees.
Registered Retirement Income Fund (RRIF): money that is accumulated in an RRSP is converted to a RRIF. This allows the individual to begin receiving retirement income (monthly, quarterly, or annually).
Registered Retirement Savings Plan (RRSP): a registered vehicle that allows investors to defer current income taxes while saving for retirement.
Registered Tax Deferral Savings Plans: government approved savings plans such as RPPs, RRSPs, RRIFs, and RESPs in which funds contributed by individuals are tax-deductible within certain limits and investments earnings accumulate in the plans on a tax deferred basis until deregistration or maturity of the plans.
Registrar: usually a trust company appointed by a company to manage the issuance and registration of securities certificates.
Regular Occupation: a benefit in disability insurance whereby one is unable to perform an occupation used currently to earn a living and not gainfully employed in another occupation.
Reinstatement: the act does not provide for the insurer to allow the insured the right to reinstate the contract once it has lapsed for nonpayment of premiums, but most insurers do have a provision.
Reporting Issuer: a corporation that has issued and outstanding securities held by public and is subject to the continuous disclosure requirements of securities administrators.
Repurchase Agreements: an agreement between a seller and a buyer, usually in government securities, in which the seller agrees to buy back the security at a later date.
Resistance: used in technical analysis to describe a price level that a security has difficulty reaching.
Restricted Shares: shares that have limited voting rights or in some cases, no voting rights. These shares participate in a company’s earnings and assets in liquidation as common shares do and are sometimes referred to as restricted common shares. Restricted shares may not command the same market price as voting shares of the same company since they do not have voting rights.
Retained Earnings: this is any profit that is not distributed.
Retractable: a feature which can be included in a new debt issue or preferred share which grants the holder the option, under specified conditions, to redeem the security on a stated date. This date would be prior to maturity in the case of a debt issue.
Return: the income earned or a capital gain made on an investment.
Reverse Split: the exchange of a greater number of a company’s shares for a lesser number. For example, exchanging three shares for one. This results in a higher share price and less shares outstanding. This is also called a consolidation or a negative split.
Right: the temporary privilege granted to a company’s existing common shareholders to acquire additional common shares directly from the company at a stated price. The price is usually at a discount to the market price of the common stock on the day the rights are issued, and the rights only are good within a specified time period. Rights of listed companies trade on stock exchanges from the ex rights date until their expiry, so holders can either exercise the rights or they can sell them.
Right of Action: most securities legislation provides that those who sign a prospectus may be liable for damages if they prospectus contains a misrepresentation.
Right of Redemption: a mutual fund’s shareholders have a continuing right to withdraw their investment in the fund simply by submitting their shares to the fund itself and receiving in return the dollar amount of their net asset value.
Right of Rescission: the right of a purchaser of a new issue to withdraw from the purchase agreement within the specific province’s applicable time limits if the prospectus contained an untrue statement or omitted a material fact.
Right of Withdrawal: the right of a purchaser of a new issue to withdraw from the purchase agreement within two business days after receiving the prospectus.
Royalty Trust: an investment vehicle that holds resources like oil and gas, from which profits flow to investors.
Seat: the traditional term for membership on a stock exchange. An investment dealer would buy a seat on the exchange and one employee would be designated as the seat holder.
SEC: the Securities and Exchange Commission, a federal body established by the United States Congress as a national U.S. regulatory authority. In Canada there is no national regulatory authority because securities legislation is provincially administered.
Secondary Market: a financial market where previously issued securities are sold. The Vancouver Stock Exchange is an example of a secondary market.
Secondary Wealth: in the context of the Natural Wealth Process, any wealth that is not considered primary wealth.
Secured Line of Credit: the customer pledges personal assets such as a home as security for a line of credit.
Securities Administrator: a general term referring to the provincial regulatory authority responsible for administering provincial securities acts.
Securities Commission: each province has a securities commission or administrator which oversees the provincial securities act. This act is a set laws and regulation which set down the rules under which securities may be issued and traded.
Segregated Funds: insurance companies sell these funds as an alternative conventional mutual funds. Like mutual funds, segregated funds offer a range of investment objectives and categories of securities. These funds have a unique feature of guaranteeing that, regardless of how poorly the fund performs, at least a minimum percentage of the investor’s payment into the fund will return when the fund matures.
Self Directed RRSP: a type of RRSP whereby the holder invests or contributes certain acceptable assets such as securities directly into a registered plan which is usually administered for a fee by a Canadian financial services company.
Self Regulatory Organizations (SROs): many important rules governing securities industry practices and standards in Canada are set by the self regulatory organizations, which include TSX Venture Exchange, the TSX, the Montreal Exchange, IIROC and the MFDA. Many of the regulatory and compliance functions have been delegated to the SROs by the provincial securities administrators.
Senior Bond Issue: a corporate bond issue which has priority over other bonds as to its claim on the company’s assets and earnings. An example is a first mortgage bond.
Senior Debt: a senior debt issue ranks before other issues in terms of claims on assets in the event of a company break up. For example, senior bonds rank before junior bonds, which rank before senior debentures, which rank before junior debentures.
Settlement Date: the date on which a security buyer must pay for his or her purchase, or a seller must deliver the securities he or she has sold. In Canada, investors have three days to pay for the purchase of a stock or, if selling, three days to turn in the securities certificate if it is in their possession.
Settlor: the person establishing and transferring assets to a trust, also known as the grantor.
Shareholder or Stockholder: someone who owns preferred or common shares of a company.
Shareholders’ Equity: ownership interest of common and preferred stockholders in a company. It is also the difference between the assets and liabilities of a company, which is sometimes called net worth.
Shareholder of Record: a shareholder whose name is registered in the records of a company whose shares he or she holds. Dividend payments and rights issues are announced as being payable to shareholders of record.
Shares or Stocks: these two terms are used interchangeably. Certificates representing ownership in corporation and the appropriate claim on the corporation’s earnings and assets.
Short Selling: the sale of a security which the seller does not own. This is a speculative practice done in the belief that the price of a stock is going to fall and the seller will then be able to cover the sale by buying the security back at a lower price. The profit would be the difference between the initial selling price and the subsequent purchase price. It is illegal for a seller not to declare a short sale at the time of placing the order.
Short Term Bond: a bond or debenture maturing within three years.
Short Term Debt: company borrowings repayable within one year that appear in the current liabilities section of the company’s balance sheet. The most common short term debt items are bank advances or loans, notes payable, debentures and bonds due within one year.
Simple Interest: the amount of interest paid out on a certificate at the end of the term.
Sinking Fund: a fund set up by a company to retire, over a period of time, the major part of a preferred share issue, or a debt issue prior to maturity. The fund helps to pay off the debt issue over the term of the issue and can be compared to principal payments make by a mortgage holder. Even though the issue is outstanding until maturity, the small incremental payments made under a sinking fund can make the maturity of the bond issue less onerous on the company. Instead of having to refund the entire issue, there may only be a small outstanding balance. A sinking fund security is attractive to investors as there is more assurance that the debt will be repaid on maturity.
Small Cap: companies that have smaller market capitalizations typically are less well established, often faster growing and usually more volatile.
Speculator: a speculator is one who is prepared to accept calculated risks in the marketplace for attractive potential returns. A speculator’s objective is usually short to medium term capital gain, whereas regular income and safety of principal are the prime goals of the conservative investor.
Spousal RRSP: an RRSP that is owned by one spouse, but with contributions as well as tax deductions linked to the other Spouse.
Spousal Trust: a trust in which the spouse is the only person to receive income or capital from the trust during the spouse’s lifetime. Often with restrictions on the removal of capital from the trust.
Spousal Allowance: this is a monthly pension payable to a spouse, widow or widower who is aged 60 to 64 of an OAS pensioner.
Standard Deviation: measures how volatile a security was over a past period to give an indication of how it might behave in the future.
Statement of Changes in Financial Position: a financial statement which provides information as how a company generated and spent its cash during the year. It links the company’s balance sheets for two successive years and provides a summary of the incoming and outgoing movement of a company’s funds for the period. It explains changes in working capital (current assets less current liabilities) from one year to the next.
Statement of Material Facts: a document presenting the relevant facts about a company and compiled in connection with an underwriting or secondary distribution of its shares. It is used only when the shares underwritten or distributed are listed on a recognized stock exchange and takes the place of a prospectus in such cases.
Stockholder or Shareholder: someone who owns preferred or common shares of a company.
Stock Consolidation: the opposite of a stock split. A number of existing shares are combined into a smaller number of shares.
Stock Dividend: dividends paid to shareholders in shares of stock rather than cash.
Stock Exchange or Stock Market: an organized marketplace where buyers and sellers are brought together to buy and sell stocks and must follow certain rules, regulation and guidelines.
Stock Index: an indicator used to measure and report value changes in a specific group of stocks.
Stock Savings Plan: some provinces, such as Quebec, Nova Scotia, Saskatchewan and Newfoundland offer stock savings plans which allow individuals in those provinces a deduction or tax credit for provincial income tax purposes. The credit or deduction is a percentage figure based on the value of investment in certain prescribed vehicles.
Stock Split: division of a company’s outstanding common shares into a larger number of common shares. A three-for-one split by a company with one million shares outstanding would result in three million shares outstanding. Each holder of 100 shares before the three-for-one split would have 300 shares after the split, but his or her proportionate equity in the company would remain the same.
Stock Symbol: a unique three or four letter symbol assigned to a security trading on a stock exchange.
Stop Loss and Stop Buy Orders: orders of a certain security when the price of a stock rises or falls to a specified price. A stop loss order is an order to sell when the price of the stock declines to, or below, a stated price. The purpose of this is to reduce the amount of loss that might occur. A stop buy order is an order to buy a stock when the price rises to a certain level. This is given by a person who has sold a security short and is an attempt to reduce loss or protect a profit should the price rise unexpectedly.
Strike Price: the price at which the underlying stock of a call option can be purchased, or the price at which the underlying stock of a put option can be sold. Also referred to as the exercise price.
Strip Bonds or Zero Coupon Bonds: these are high quality federal or provincial government bonds originally issued in bearer form, where some or all of the interest coupons have been detached. The bond principal and any remaining coupons trade separately from the strip of detached coupons, both at substantial discounts from par.
Stripped Debentures: debentures which have been separated from other securities, such as warrants, which were originally issued together as a unit.
Subscriber: a person who owns and contributes money into an RESP for use by beneficiary.
Surtax: an additional income tax over and above the regular income tax amount. Usually used as a temporary measure to raise funds for short-term needs.
Suspension of Trading: an interruption in trading imposed on a company if their financial condition does not meet an exchange’s requirements for continued trading or is the company fails to comply with the terms of its listing agreement.
Sweetener: a feature included in the terms of a new issue of debt or preferred shares to make the issue more attractive to initial investors. Examples of sweeteners include warrants, or convertible, extendible or retractable features.
Switching: selling one security and buying another.
Syndicate: a group of investment dealers who underwrite and distribute a new issue of securities or a large block of an outstanding issue.
Systematic Risk: any uncertainly that affects the whole market such as political, social and economic decisions.
Systematic Withdrawal Plan (SWP): a term used to describe a method of electronically withdrawing a set amount of money on given day.
Tax Free Savings Plan (TFSA): the program was created in 2009 as a tax free investment vehicle for Canadian residents 18 and older. The current limit is $5,500 per year.
Taxable Income: your net income less any permitted other deductions, such as business or investment losses carried forward from previous years.
Tax Bracket: although income tax is paid by most wage or income earners, the rate of income tax paid increases as income exceeds certain amounts, called brackets.
Tax Credit: tax credits reduce taxes payable to the same extent for all taxpayers, regardless of their income level and marginal tax rate. Deductions from taxable income, however, are more valuable as your income and tax rate increases.
Tax Shelter: this is an investment that offers tax savings in some form, such as immediate deductions, credits or income deferral.
Tax Systematic Withdrawal Plan (T-SWP): the program allows investors the option of withdrawing (5%, 6%, 8%) regular income from their mutual fund in a tax efficient manner.
T-Bill: a Common term for a government treasury bill, which is a short term government debt issue.
Technical Analysis: a method of market and security analysis that studies investor attitudes and psychology as revealed in charts of stock price movements and trading volumes. This analysis may be used to assess possible future price action.
Tenancy in Common: this is a method of property ownership in which two or more persons hold an undivided interest in property. On the death of one of the tenants in common, that tenant’s share of the property passes to the deceased’s heir or assigns.
Term Insurance: life Insurance, which is, issued for a specified number of years normally building up no cash value and expiring without value.
Testamentary Trust: a trust created under the terms of a will and which takes effect on the death of the testator.
Testator: the person who is making a will in his or her own name.
Thin Market: a market in which there are comparatively few bids to buy or offers to sell, or both. The phrase may apply to a single security or to the entire stock market. In a thin market, price fluctuations between transactions are usually larger than when the market is liquid. A thin market in a particular stock may reflect lack of interest in that issue, or a limited supply of the stock.
Time Limit Order: a client order that specifies the time during which it can be executed.
Timely Disclosure: the obligation for companies to promptly release to the news media any favorable or unfavorable corporate information which is of a material nature. This obligation is imposed by the securities administrators on companies. Broad dissemination of this news allows all investor to trade the company’s securities with the same knowledge about the company as insiders.
Top Down Investing: this investment style analyzes the economy and the industry before looking at specific companies. The analyst is looking for companies that will generate above average returns.
Toronto Stock Exchange (TSX): formerly known as the TSE, this is Canada’s largest stock exchange.
Total Debt Service Ratio (TDSR): the TDSR is one of the formulas used to measure your ability to carry debt. It is calculated as the percentage of gross annual income required to cover the annual payments from housing and other debts. Generally speaking, this ratio should be below 45%.
Trading Halt: suspension of trading in a security while material news from the issuer is being spread. A trading halt gives all investors equal opportunity to hear the news and make any appropriate trade decisions.
Trailer Fee: a fee mutual fund companies pay to fund sellers for as long as clients money remains in the fund. Also called a service fee.
Transaction Date: the date on which the purchase or sale of a security takes place.
Transfer Agent: a trust company appointed by a company to keep a record of the names, addresses and number of shares held by its shareholders. Frequently the transfer agent also distributes dividend cheques.
Treasury Bills: short-term loans to the government.
Triple Witching: the last hour of the trading session where index futures, index options, and stock options expire. They occur on the third Friday every March, June, September and December.
Trust: an account in the name of a person called a trustee held for the benefit of another person.
TSX Index: represents the stock prices of approximately 250 Canadian companies.
Tuition Tax Credit: is a non-refundable credit for tuition fees paid to a university, college or other institution where post-secondary level courses are offered.
Underlying Securities: the specific security that is bought or sold by exercising an option.
Unemployment Rate: the number of people unemployed measured as a percentage of the labour force.
Universal Life: this is a life insurance policy that consists of term insurance and an investment account. It is also known as variable life insurance.
Unlisted: a security not listed on a stock exchange but traded on the over the counter market.
Unregistered Annuity: an annuity purchased with funds that are not registered.
Unsecured Loans: loans that rely solely on your credit history, reputation and integrity to ensure payment.
Unsystematic Risks: these are uncertainties that are specific to one particular company and do not affect the market as a whole.
Variable Life Insurance: this is a form of permanent life insurance that builds up a cash value. It is also referred to as universal life.
Venture Capital: money raised by companies to finance new, risky ventures.
Vesting: a term used to refer to the employee’s right to his pension entitlement after meeting a minimum service requirement.
Volatility: the rate of change in the price of a security over a given time.
Volume: the amount of shares bought and sold on a stock exchange.
Voting Rights: given to each shareholder of a common stock and allow the shareholder a voice in determining the directors of the company and company policy.
Waiting Period or Elimination Period: this is the length of time between the onset of disability and the commencement of benefit, usually expressed as 30, 60 or 90 days. The shorter the period, the higher the premium.
Waiver of Premium: most companies waive the premium after the insured has been disabled for 90 days or more. The waiver period and the elimination period may be co-incidental.
Warrant: a certificate giving the holder the right to purchase securities at a stipulated price within a specified time limit. Warrants are usually issued along with a new issue of securities as an inducement or sweetener to investors to buy the new issue.
Whole Life Insurance: life insurance that provides coverage for your entire life and pays a predetermined benefit when you die. Also known as Permanent Life Insurance.
Will: a document outlining the wishes of the deceased for the disposition of property.
Working Capital: this is the excess of any current assets over any current liabilities.
Working Capital Ratio: current assets of a company divided by its current liabilities. This is a measure of a company’s liquidity.
Wrap account: a type of fully discretionary account in which a client has given specific written authorization to a partner, director or qualified portfolio manager of an investment dealer to select securities and execute trades for him or her. A single annual fee, based on the account’s total assets, is charged instead of commissions and service charges being levied separately for each transaction. The account is then managed separately from all other wrap accounts, but is kept consistent with a model portfolio suitable to clients with similar objectives.
Year’s Basic Exemption (YBE): the minimum level of earnings above which CPP Premiums are calculated.
Year’s Maximum Pensionable Earnings (YMPE): the upper ceiling on pensionable earnings adjusted annually by changes in the cost of living as measured by the CPI. When an individual reaches this ceiling, no further CPP premiums are required.
Yield: this is the measure of the return on an investment and is shown as a percentage. A current yield is calculated by dividing the annual dividend by the current market price of the stock. For example, a stock selling at $50 and with an annual dividend of $5.00 per share yields 10%. A bond yield is a more complicated calculation, involving annual interest payments plus amortizing the difference between its current market price and par value over the life of the bond.
Yield Curve: a graphic representation of the relationship among yields of bonds of the same quality, but with different maturities.
Yield to Maturity: the rate of return an investor receives if a fixed-income security is held to maturity.
Zero Coupon Bonds: usually high quality federal or provincial government bonds originally issued in bearer form where some or all of the interest coupons have been detached. The bond principal and any remaining coupons trade separately from the strip of detached coupons, both at substantial discounts from par. Also called strip bonds.