Below are some commonly used terms in the investment industry, as well as an explanation.
This list of terminology used in the financial services industry is intended for educational purposes only.
Real Rate of Return
The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. For example, if you had a savings account with an interest rate of 3% and the inflation rate is currently 2% per year, the real rate of return on your savings today would be 1%.
A recession is a normal part of the business cycle. It is characterized by a significant decline in activity across the economy, lasting longer than a few months. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s Gross Domestic Product (GDP).
The return of an investor’s principal in a fixed income security, or the sale of units in a mutual fund.
Registered Education Savings Plan (RESP)
A plan that enables a contributor to accumulate assets on behalf of a beneficiary to pay for a post secondary education.
Registered Retirement Income Fund (RRIF)
A maturity option available for Registered Retirement Savings Plans to provide a stream of income at retirement, while leaving the remaining assets tax-sheltered.
Registered Retirement Savings Plan (RRSP)
A retirement savings plan to hold amounts deducted from taxable income, within certain limits, in a tax deferred state. There are various investment options and a tax deferral on investment income and gains.
Return of Capital (ROC)
A return from an investment that is not considered income. Some or all of the money an investor has in an investment is paid back to them, thus decreasing the value of the investment.
A type of mortgage in which a homeowner can borrow money against the equity in their home. No repayment is necessary until the borrower passes away or the house is sold, as the home serves as collateral. Interest is charged on a reverse mortgage and tends to be higher than a traditional mortgage.
The gain or loss on an investment at a particular period.
This can refer to transferring money from one retirement plan to another without tax consequences. It can also refer to reinvesting funds from an investment that has matured into a similar security.
A market where investors purchase securities or assets from other investors versus the issuing company. Once a security has been issued on the primary market, it is traded on the secondary market. The major stock exchanges (i.e. Nasdaq, TSX) are the most visible examples of a secondary market.
A contract that is assigned a value and traded between investors. It could include a stock, preferred share, bond or any other financial asset.
New Brunswick legislation that provides for the regulation of the securities industry in this province.
Shareholders also known as Stockholder
Any person, company or other institution that owns at least one share (also known as stock) in a company. They have the potential to profit if the company does well, but it also comes with the potential to lose if the company does poorly.
Shares also known as Stock
A unit of ownership interest in a corporation or financial asset. The two main types of shares are common stock and preferred stock.
Provides capital that “rides” or invests alongside an angel group or other investor. Traditionally, sidecar funds co-invest with investors after the investor has conducted the due diligence. Once investors have agreed to invest, the sidecar fund then follows and accepts the same terms and conditions. Sidecars may provide matching or provide a fraction of the funds invested by the angel. Also known as co-investment fund
Simple interest charges are always based on the original principal, so interest charged on interest is not included. Simple interest ignores the effects of compounding. Simple interest is determined by multiplying the interest rate by the principal by the number of periods (e.g.: monthly).
An abbreviated and simplified prospectus distributed by mutual funds to purchasers and potential purchasers of units or shares (see prospectus).
Small and Medium Enterprise (SME)
Businesses with revenues or a number of employees below a certain standard.
New Brunswick Small Business Investor Tax Credit (SBITC)
A non-refundable personal income tax credit of up to $75,000 provided by the government of New Brunswick to eligible investors who invest in eligible small businesses in New Brunswick.
A term used to refer to companies with the total value of their shares being between $300 million and $2 billion.
The difference between the rates at which money is deposited in a financial institution and the higher rates at which the money is lent out. Also, the difference between the bid and the ask price in a quotation for a security.
Standard & Poor’s 500 Index (S&P 500)
An index of 500 stocks chosen for market size, liquidity and industry grouping among other considerations. It is meant to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap companies.
Standard & Poor’s TSX Composite Index (S&P/TSX)
An index of the stock prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. Canada has a high concentration of natural resources, therefore the S&P/TSX Composite Index is more correlated to the fluctuation in commodity prices than the S&P 500.
Standard & Poor’s TSX 60 (S&P/TSX 60)
The S&P/TSX 60 is a stock index of the 60 largest companies listed on the Toronto Stock Exchange (TSX).
Standard deviation is applied to the annual rate of return of an investment to measure the investment’s volatility.
A bond from which the coupons (i.e. interest payments) have been removed. The holder of the strip bond is entitled to its par value at maturity, but not the annual interest payments.
SEDAR (System for Electronic Document Analysis and Retrieval)
The electronic system for the filing and public dissemination of documents of reporting issuers in Canada.
SEDI (System for Electronic Disclosure by Insiders)
The electronic system that facilitates the filing and public dissemination of “insider reports”. An “insider report” is filed by an insider to disclose any direct or indirect beneficial ownership or control over securities of that issue.
An amount that can be deducted from total income before the amount of income tax payable is calculated.
Tax Free Savings Account (TFSA)
A Tax Free Savings Account (TFSA) is a registered savings account that allows individuals to save money tax-free. Tax-free savings accounts allow investors to contribute up to a certain amount each year and pay no tax on investment income or growth earned in the account. Additionally, withdrawals can be made at any time without tax implications.
Toronto Stock Exchange (TSX)
The largest stock exchange in Canada. It was established in 1852 and is located on Bay Street in Toronto, Ontario.
TSX Venture Exchange (TSX V)
The TSX V is a stock exchange that provides venture companies with effective access to capital. It contains small-cap Canadian stocks and a few debenture issues.
When measuring performance, the actual rate of return on an investment or a pool of investments over a given evaluation period. It includes interest, capital gains, dividends and distributions realized over a given period of time.
Treasury Bill (T-Bill)
A short-term debt obligation issued by the Government with a maturity of less than one year.
An instrument which places the holding or management of property in the name of one person, called a trustee, for the use and benefit of some other person, the beneficiary.
The process of determining the current worth of an asset or company.
An investment strategy where an investor selects stocks that trade for less than their intrinsic value. Value investors seek companies that they believe the market has undervalued.
Funds made available for early-stage firms and small businesses with exceptional growth potential. Managerial and technical expertise is often also provided. Also called risk capital.
In pension terms, the process by which an employee with a qualified retirement plan becomes entitled to the benefits of the plan, even if he or she no longer works at the company.
The amount of uncertainty or risk about the size of fluctuations in a security’s value.
The right of a shareholder to vote on corporate matters. Votes often relate to decisions such as who will make up the board of directors, issuing securities and making substantial changes in the corporation’s operations.
The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on an investment’s cost, its current market value or its face value.
Yield to Maturity
The rate of return an investor would receive if a bond were held to maturity.
A graph that demonstrates the relationship between interest rates, at a set point in time, of bonds of equal credit quality but different maturity dates. The shape of the yield curve is frequently watched as it helps give an indication of future interest changes and economic activity.