Investment Glossary
401(k): A employer-sponsored plan (in the United States) by which an employee elects to save a portion of his or her pay into an account for retirement. Contributions made to a 401(k) plan decreases your level of taxable income so you will pay less income tax. Paying taxes on the contributed earnings is deferred until you withdraw funds upon your retirement.
All or None: A condition on an order to buy or sell a security requiring the broker to fill the entire order, or none at all.
American Depositary Receipt (ADR): The stock of a foreign company that is traded on a U.S. stock exchange such as the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), or the NASDAQ. An ADR does not represent the actual shares of the foreign company; rather, it is a certificate that represents its stock.Annual Report: A report that describes in detail the accomplishments, operations, and financial aspects of a given company for its last fiscal year.
Annuity: A financial product, usually from an insurance company, that provides periodic monthly payments for a specified period of time to its beneficiary upon retirement.
Auditor: An accountant from an independent firm who verifies the accuracy of a company’s financial statements and makes sure that proper accounting practices were followed in their preparation.
Back-end Load Fund: A mutual fund for which you pay a fixed sales charge when you sell it.
Balanced Fund: A fund that invests proportionally in both stocks and bonds.
Balance Sheet (a.k.a. Statement of Financial Position): A financial statement that summarizes a company’s assets, liabilities, and shareholders’ equity for a given period.
Bear Market: A period in which low levels of money are being invested in the stock market, as stock prices are on the decline.
Board of Directors: A group of individuals elected by a firm’s shareholders who are responsible for overseeing policies and decisions in key areas in order to best serve the interest of stockholders and other stakeholders of the firm.
Blue-Chip Stock: The stock of a well established company that is generally seen as safe and of good quality.
Bond: A long term cash loan from a lender to a borrower.
Bond Fund (a.k.a. Income Fund): A fund that invests primarily in safe, high-yielding government and corporate bonds.
Bond Market: Includes individuals and other parties involved in the buying and selling of bonds on the over-the-counter market.
Book Value: The initial cost of an investment. It is usually determined by multiplying the price paid for the security by the number of shares bought.
Bottom Line: Refers to the net income (i.e.,: monetary profit) a company has made during a given period. It is called the Bottom Line because it is the last line that appears on the income statement.
Bubble: A surge in stock prices that leads to a massive sell-off of overvalued stocks.
Bull Market: A steady period in which stock prices are on the rise and where there is a lot of money that is being invested in stocks.
Callable Bond: A bond that can be called back or redeemed at any time by its issuer.
Canada Deposit Insurance Corporation (CDIC): A federal agency that provides insurance (up to $100,000) for Canadians’ personal bank accounts.
Canadian Investor Protection Fund (CIPF): A protection program that protects Canadian investors’ brokerage accounts for up to $1,000,000 in the event of a CIPF member’s bankruptcy.
Capital: Funds available to operate a business .
Capital Gain: The profit made on the sale of an investment.
Cash Flow Statement: A financial statement that summarizes a company’s cash receipts (inflows) and cash payments (outflows) for a given period.
Certificate of Deposit (CD): A certificate issued and sold by an American financial institution such as a bank or a credit union that entitles the holder to receive interest. A CD has a term (or maturity date), pays a specified rate of interest, and can be issued in any denomination. Terms typically vary from thirty days to five years. CDs are usually sold in the United States while Canadians buy Guaranteed Investment Certificates (GICs).
Compounding: The ability of an investment to generate additional earnings over a long period of time due to the reinvestment of its initial profits.
Commodity: An article of value that is of interest to traders and parties who use them. Commonly traded commodities include gold, silver, copper, oil, cattle, sugar, coffee, orange juice, and even currencies.
Common Stock (a.k.a. Common Shares): Shares for which owners have last claim, after creditors and preferred stock owners, on a corporation’s assets and profits (should it go bankrupt) but who have voting rights in the firm.
Consumer Price Index (CPI): An index that measures the increases in cost of selected consumer goods and services. It is used to measure the pace of inflation.
Convertible Bond: A bond that can be converted into common shares of stock by its owner.
Corporate Bond: A bond issued by a corporation.
Correction: A sudden drop (10% or slightly less) in prices of stocks on a given stock exchange that is usually due to a large sell-off of overvalued stocks. The sell-off brings stock prices back to levels that more accurately represent a company’s true worth.
Coupon or Coupon Rate: The rate of interest that a bond pays.
Day Order: An order to buy or sell a security that expires at the end of the day if it has not been filled.
Day Traders: Stockbrokers and investment houses that buy and sell stocks for profit in the short term. They usually only hold on to stocks for short periods of time such as a few days, weeks, or months.
Debenture (a.k.a. Unsecured Bond): A bond for which no assets are pledged as security.
Deflation: Occurs when there is a sustained decrease in prices paid for goods and services. It is the opposite of inflation. Delayed Quote: The price at which a security was recently traded. Delayed Quotes are typically reported fifteen to twenty minutes after the most recent trade. See also Real-Time Quote and Stock Quote.
Discount Broker: A financial institution that offers financial services such as the trading of securities to its clients at discount prices.
Dividend: The sharing of company profits, usually in the form of a cash payment, to stockholders. Sometimes dividends can be distributed in the form of additional shares instead of cash.
Dividend Fund: A fund that invests in the stock of corporations that consistently issue dividends
Dividend Income: Income received in the form of dividends.
Dividend Reinvestment Plan: A plan by which a company gives the option to their shareholders to reinvest dividends in additional company stock as opposed to receiving cash distributions.
Dividend Stock (a.k.a. Income Stock): A stock that provides payouts in the form of dividends to its stockholders.
EDGAR (Electronic Data-Gathering, Analysis, and Retrieval): An online system that provides information and financial statements about American companies to the public.
Electronic Trading System: An electronic trading platform or network by which securities are bought and sold by buyers and sellers.
Equity Fund: A fund that invests in company stocks.
Exchange-Traded Fund (ETF): A basket of securities similar in nature to a mutual fund but trades like a stock. ETFs are bought and sold as shares on a stock exchange and generally have lower MERs than do mutual funds.
Face Value (a.k.a. Par Value): The amount the issuer of the bond agrees to pay upon maturity of the loan. It is called Face Value because the amount is usually stated on the face of the bond.
Federal Deposit Insurance Corporation (FDIC): A U.S. government corporation that provides deposit insurance guaranteeing checking and savings deposits in member banks up to a maximum of $100,000.
Fill or Kill: An option placed with an order to buy or sell a security instructing the broker to cancel the order if it cannot be filled immediately.
Financial Advisor: An investment professional who provides financial and investment advice to clients.
Financial Ratio: A mathematical expression indicating the relationship between two business-related variables. Financial ratios are used to gauge the performance and financial well-being of a company.
Fiscal Year (FY): A time period of twelve consecutive months for which a company records and reports its earnings.
Foundation: A separate legal entity created to protect and manage the assets of a family, charity, or company in strict accordance to the wishes of its founder.
Front- and Back-end Load Fund (a.k.a. Level Load Fund): A mutual fund that charges a sales fee both at the time of its purchase and sale. See also Front-end Load Fund and Back-end Load Fund.
Front-end Load Fund: A mutual fund for which you pay a fixed sales charge at the time of purchase.
Full-Service Broker: A brokerage or financial services firm that provides its clients with a variety of services including placing trades for securities, providing advice for investment decisions, offering retirement and tax planning tips, and sharing investment research.
Fund: A pool of securities. When we talk about a fund we are generally referring to a mutual fund or an exchange-traded fund. See also Mutual Fund and Exchange-Traded Fund.
Fundamental Analysis: A method of evaluating a security such as a stock based on qualitative and quantitative information such as a company’s sales, earnings, financial position, market outlook, the economy, as well as many other factors in order to determine if it is a worthwhile investment.
Futures (a.k.a. Futures Contract): An agreement in which one party promises to buy or sell a pre-determined amount of a given commodity at a pre-determined price sometime in the future.
Global Fund: A diversified mixture of foreign Equity, Bond, and Money Market funds.
Good Till Cancelled: An option placed with an order to buy or sell a security that remains in effect until it is executed by the broker or cancelled by the investor.
Greenback: The United States dollar.
Growth Fund: A fund that invests in growth stocks.
Growth Stock: A company that is demonstrating steady growth in terms of earnings and sales, usually upwards of 15% for at least the past few years.
Guaranteed Investment Certificate (GIC): A certificate issued and sold by a Canadian financial institution such as a bank or a credit union that entitles the holder to receive interest. A GIC has a term (or maturity date), pays a specified rate of interest, and can be issued in any denomination. Terms typically vary from thirty days to five years. GICs are usually sold in Canada while Americans buy Certificates of Deposits (CDs).
Income Trust: An investment trust that holds income-producing assets of a corporation in which earnings are distributed to the unitholders (owners) of the trust.
Inflation: A sustained increase in the level of prices paid for goods and services.
Index Fund: A fund that attempts to match the performance of a particular market index by buying the exact same securities found in that index.
Initial Public Offering (IPO): The initial sale of shares of a formerly privately-owned company to the general public. Usually an underwriter will buy all the shares, keep some for its preferred clients, and resell the rest to the public.
Interest Income: Income received from an investment in the form of interest payments. Interest Income is typically obtained from investments such as bonds, CDs/GICs, and cash held in savings or bank accounts.
International Business Company (IBC) (a.k.a. International Business Corporation): A company or corporation that is created in an offshore jurisdiction or tax haven.
Individual Retirement Account (IRA): A retirement account (in the United States) usually established by an employed person for which contributions are tax deductible and for which investment gains are tax-sheltered until they are withdrawn upon retirement.
Investment Portfolio: A collection of investments.
Liquid Assets: Assets such as cash, securities, accounts receivable that can be converted to cash in a very short period of time.
Load Fund: A mutual fund that carries a sales charge.
Locked-in RRSP: An RRSP account from which the owner is generally not permitted to withdraw funds until retirement. Pre-retirement withdrawals can only be made under special or emergency circumstances such as personal hardship. See also RRSP and Self-Directed RRSP.
Loonie: The Canadian dollar.
Lot: The quantity of shares traded for a particular security such as a stock or ETF. See also Round Lot and Odd Lot.
Marginal Tax Rate: The amount of income tax paid on additional dollars of income earned. Generally, the more income one makes, the higher the tax rate.
Market Correction: See Correction.
Market Capitalization: The market value of all outstanding shares of a company. It is determined by multiplying the total number of shares by its current market price.
Market Index: A sampling of selected securities from a particular exchange used to track or indicate the overall performance of all the securities traded on the exchange. At the same time, it is a tool that is used to track the general performance of a given market or certain type of investment such as stocks.
Market Price: The current market price at which a security is trading.
Market Timing: A short-term strategy used by day traders who buy securities at low prices (or during market lows) and resell them at slightly higher prices for profit.
Market Value: The current value of an investment. It is determined by multiplying the market price for the security by the number of shares owned.
Maturity Date: The date on which a bond becomes redeemable.
Mid-Cap Stock: A stock for which market capitalization lies between one and a half and five billion dollars.
Micro-Cap Stock: See Penny Stock.
Monetary Policy: A policy by which a government attempts to influence economic activity and/or control inflation by adjusting the money supply and interest rates.
Money Market Fund: A fund that has holdings in short-term money market instruments such as treasury bills, notes, and short-term bonds with good credit ratings.
Money Market Sweep: An option whereby a bank or broker automatically transfers available cash (at specified levels) from your account into either a higher-interest account or into a money market fund.
Multinational Corporation: A corporation that has operations established in many countries.
Mutual Fund: A company that is created where individual investors and other companies pool their money to purchase various securities such as stocks, bonds, and money market investments.
No Load Fund: A mutual fund that has no sales charges.
Offshore banking: Banking in a jurisdiction or tax haven where strict bank secrecy laws and privacy legislation are in place.
Offshore Foundation: A foundation that is established and managed in an offshore jurisdiction.
Offshore Jurisdiction (a.k.a. Favorable Jurisdiction): A country or territory that is considered as a tax haven.
Offshore Trust: A trust that is established and managed in an offshore jurisdiction.
Online Broker: A broker who provides services to clients over the Internet. See also Discount Broker and Full-Service Broker.
Open Order: An order to buy or sell a security that remains active until it is executed by the broker or cancelled by the investor. The term is commonly used to refer to any order that is currently pending.
Option: An investment strategy that gives the right to the holder to buy (call) or sell (put) shares of a security in the future at a specific price.
Opportunity Cost: The cost of foregoing another type of investment that would generate superior revenue than the one that is currently held.
Over-the-counter market: A market in which bonds are traded.
Overnight Rate: The interest rate that banks pay its country’s central bank or other banks to borrow money from it.
Owners’ Equity (a.k.a. Owner’s Capital): The amount of money initially invested in the firm by its owner plus net income reinvested in the business. It is the same as Shareholders’ Equity except that in this case there is only one owner of the firm.
Portfolio: See Investment Portfolio.
Portfolio Turnover: The changing (buying or selling) of securities held in a fund or portfolio.
Preferred Stock (a.k.a. Preferred Shares): Shares for which owners have first rights on a corporation’s assets and profits after bondholders (should it go bankrupt) but who usually have no voting rights in the firm.
Profit And Loss Statement: See Income Statement.
Profit-Sharing: An incentive by which an employer distributes company profits among its employees. Companies offer such incentives as a means of retaining employees’ loyalty and commitment.
Prospectus (for a mutual fund): A document that describes the fund’s objectives, characteristics, holdings, manager(s), risks, and fees, all in great detail.
Prospectus (for a stock): A document that describes information about a company, its line of business, financial situation, and its intention to issue stock to the public.
Publicly-Traded Company: A company that makes shares of its stock available to the public on a particular stock exchange.
Registered Retirement Savings Plan (RRSP): A Canadian government-sponsored retirement plan/account in which Canadians can save for retirement. RRSPs have two distinct tax advantages: firstly, funds placed into the account are deducted from the individual’s taxable income; secondly, paying taxes on income generated from investments in the account are deferred until their withdrawal upon retirement.
Retained Earnings: Company profits that are reinvested in the firm.
Return on Investment (ROI): The profit made through the sale of an investment.
Round Lot: A block of one hundred (or a multiple of) shares traded for a particular security. See also Lot and Odd Lot.
Roth 401(k): A 401(k) account in which contributions are considered an integral part of your regular earnings. The main difference between a 401(k) and a Roth 401(k) is that upon retirement, you will not be required to pay any income tax when you make withdrawals from the account. The other main advantage of a Roth 401(k) is that it allows you to make withdrawals at any time tax-free and without penalty.
Roth IRA: An Individual Retirement Account in which contributions are considered an integral part of your regular earnings. The main difference between an IRA and a Roth IRA is that upon retirement, you will not be required to pay any income tax when you make withdrawals from the account. The other main advantage of a Roth IRA is that it allows you to make withdrawals at any time tax-free and without any penalty.
Rule of 72: A rule used to determine how fast you can double your money. Simply divide 72 by your expected rate of return.
Securities and Exchange Commission (SEC): A federal organization in the United States that enforces federal securities laws and regulates the financial markets. They promote full disclosure of publicly-traded securities in order to protect investors.
Securities Investor Protection Corporation (SIPC): A federal protection plan that covers cash and securities of U.S. investors’ brokerage accounts up to a ceiling of $500,000 (including a $100,000 for cash claims). Take note that the SIPC does not cover broker fraud cases.
SEDAR (System for Electronic Documentation and Retrieval): An online system that provides information and financial statements about Canadian companies to the public.
Self-Directed RRSP: An RRSP account, usually online, in which the owner decides which securities or assets will be held in the account. See also RRSP and Locked-in RRSP.
Settlement Date: The date on which a buyer takes possession of a purchased security.
Share: A single piece or unit of ownership in a company.
Shareholder: A person or entity that holds stock.
Shareholders’ Equity: The amount of money initially invested in the firm, including capital raised from the initial sale of company stock plus retained earnings.
Small-Cap Stock: A stock for which market capitalization is less than one and a half billion dollars.
Special Dividend: A dividend issued every eight, nine, or ten years or so to reward investors for sticking with the company over the long run. These special dividends can be huge, sometimes paying seven or eight times the regular dividend amount.
Specialty Fund (a.k.a. Sector Fund): A fund that concentrates its holdings in a group of companies from a particular sector, industry, country or region.
Stakeholder: Any party that has a stake or interest in a firm or organization. Stakeholders usually include investors, customers, suppliers, the community, and even the environment.
Statement of Financial Position: See Balance Sheet.
Stock: Shares of ownership in a company.
Stockbroker: An investment professional who buys and sells stocks on behalf of clients. See also Broker.
Stock Exchange: A regulated market in which stocks are traded between buyers and sellers.
Stockholder: A person or entity that holds stock.
Stock Market: A market in which stocks are traded.
Stock Market Crash: A sudden drop in stock prices of 20% or more over the course of a day or two.
Stock Option: The right to purchase a stated number of shares of a company’s stock at an agreed-upon price within a certain period of time in the future.
Stock Quote: The price at which a stock is trading or was traded. Stock quotes are often listed in newspapers as well as online. They can also include the volume at which the stock is trading or has traded as well as its fifty-two week high and low price. See also Real-Time Quote and Delayed Quote.
Stock Split: An increase in the number of shares of a company accompanied by the reduction of its share price. For example, a single share of XYZ company stock is trading at $250 and the company decides to split it into five smaller units, or $50 a share. Even though the number of shares increase, the market capitalization of the firm remains the same. It is used to make the stock price more attractive and affordable for new investors.
Stop-Limit Order: A stop order that is executed at a target price (limit price) rather than the market price.
Stop-Loss Order: An order to sell a stock or security when its market price reaches or falls below a specified price, or stop price.
Stop Order: A form of market order which instructs a broker to buy or sell a stock once it hits a specified target price.
Tax Treaty (a.k.a. Double-Taxation Treaty): A bilateral agreement by which two countries ensure that individuals and businesses are not taxed twice on the same income, profit, or gain.
Technical Analysis: A way of analyzing a security by examining things such as recent price quotes, demand, volume traded, chart patterns, and market trends.
Term to Maturity: The time that is remaining before a bond matures.
Ticker Symbol (a.k.a. Ticker or Stock Symbol): An abbreviation that is used to represent a given security on a particular exchange. For example, the ticker symbol for Apple Computer is “AAPL”.
Trade: An agreement between a buyer and a seller to exchange a given security, commodity, or other item of investment value at an agreed-upon price.
Trading Commission: A fee charged by a broker or securities dealer to clients who place trades with them.
Trading Date: The date on which a security is bought or sold.
Trading Volume: The number of shares traded for a given security during a period such as one day.
Treasurys: United States treasury bonds.
Trust: An agreement by which a designated party (the trustee) manages assets on behalf of another party or parties.
Value Stock: A stock that appears to be undervalued or under-priced, mostly due to temporarily poor financial performance of the firm. Those who invest in value stocks anticipate a possible financial turnaround of the company as well as its share price.
Yield to Maturity: (for bonds) The total return (interest payments + face value) to be received upon maturity of a bond.
