After-tax rate of return
The rate of return after applicable taxes are subtracted from an investment's gain. It can be calculated by subtracting taxes from the before-tax rate of return.

Annual yield
The amount of interest or dividends paid over a year, usually calculated as a percentage of the principal invested.

Asset allocation
The process of apportioning investment funds among different categories of assets such as stocks, bonds, cash and tangible assets such as real estate, precious metals and collectibles.

Asset allocation fund
A MUTUAL FUND / UNIT TRUST (known in some countries as unit trust) that allocates investments across various asset classes, including shares, bonds, and cash and equivalents. Asset allocation funds are generally differentiated by the way they allocate their investments between these asset classes. Relatively conservative funds tend to place a larger proportion of their investments in asset classes with historically lower risk/lower return whereas aggressive funds tend to place a greater emphasis on asset classes with higher risk/higher return potential.

Asset classes
Categories of investments that offer differing levels of overall risk and return. The three main classes are cash and equivalents, fixed income, and shares. Cash and equivalents often offer liquidity and safety of principal, but with the lowest expected return. Fixed-income assets can provide income, and generally involve a moderate degree of risk to principal. Shares can offer the best potential for growth, yet can carry the greatest risk to principal.

B

Back-end load
Redemption charge an investor pays when withdrawing money from an investment.

"Bid" or "Sell" Price
The price at which a mutual fund/unit trust’s shares are redeemed (bought back) by the mutual fund/unit trust.

Bank deposit
Money invested in a bank account such as a current account, savings account, bank money-market account, or time deposit.

Bank money-market account
Interest-bearing bank account that pays money-market interest rates. It usually permits up to six pre-authorised withdrawals (or transfers) per month (with no more than three by cheque).

Before-tax rate of return
The rate of return on your investments or savings before applicable taxes are subtracted. See also After-tax rate of return, rate of return.

Blue Chip Stock
The stock of an established, high quality company.

Bond fund
Bond funds are mutual funds/unit trusts that invest primarily in bonds and provide diversification by investing in a variety of bonds according to guidelines set in the funds' prospectuses. Bond funds are usually categorized by the types of bonds they invest in, for example: municipal, government, corporate, and international. As with individual bonds, the value of bond funds typically falls when interest rates rise, and rises when interest rates fall. A bond fund's dividends will vary. Bond funds involve risk to principal.

Bond
Tradable, short and long-term debt raised by a borrower (corporation or government) who agrees to pay interest at specified rates on specified dates, and to redeem the bonds, in other words repay the principal, on a specified date. Examples are Corporate Bonds, Long-term Government and Corporate Bonds, and International Bonds. As with Bond Funds, the value of individual bonds typically falls when interest rates rise, and rises when interest rates fall. A bond's dividends will vary. Bonds involve risk to principal.

C

Call date
The earliest date that a bond issuer can redeem a bond prior to its stated maturity date. Bonds are often called when interest rates have fallen and the lender wants to issue new, lower-rate bonds to replace the higher-rate bonds outstanding. Generally, the bond-holder receives a small premium over the bond's face value for early repayment.

Call price
The price a bond-issuer will have to pay when redeeming a bond prior to its stated maturity date. Generally, the bond-holder receives a small premium over the bond's face value for early repayment. Early payback usually happens when interest rates fall and the lender wants to reduce interest payments by replacing existing bonds with lower coupon-rate bonds.

Capital Gain/Loss
The difference between an asset’s purchase price and selling price. When the difference is positive it is a gain and negative difference implies a loss.

Cash and equivalents asset class
Assets that are readily convertible to cash. Examples include a cheque account, Savings Account, Bank Money-Market Account, or Time Deposit. Others are BANK MONEY-MARKET MUTUAL FUNDS, Treasury bills, and Commercial Paper. These investments are typically low risk, but can involve principal risk.

Checking account
A US term (coming into use in British English) for a current account. Such accounts usually allow unlimited withdrawals. Some pay interest but the rate is usually lower than on a Savings Account or Bank Money-Market Account.

Closed end mutual funds
Closed end fund has a fixed number of shares and is usually listed on a major stock exchange. Unlike open-end funds, closed-end funds usually do not stand ready to issue and redeem shares on a continuous basis.

Collectibles
Collectibles are decorative or useful items, ranging from dolls to sculptures to phone cards, for which there is a demonstrated secondary market. Items no longer in production, and for which there is clear demand, may be investment possibilities. But items currently or recently produced do not necessarily appreciate in value, even in a limited edition.

Commodities
Bulk goods such as grains, metals and foods. Usually traded on a commodities exchange.

Commercial Paper
Unsecured promissory notes generally issued by financially-strong, large corporations to cover short-term debt, usually paying money-market interest rates and having an initial maturity of 60 days or less.

Common stock
A US term for Equity Share.

Consumer price index
One method governments use to measure the general level of inflation. The CPI represents the cost of a basket of goods and services used by the average consumer. The annual percentage change in their cost is one way to express the annual Inflation Rate.

Corporate bonds
Corporate bonds are debt securities issued by a corporation. Like all bonds, their value typically falls when interest rates rise, and rises when interest rates fall. They involve principal risk.

Coupon
The periodic, fixed interest payable on a bond.

Current account
A British-English term for the American checking account. Such accounts usually allow unlimited withdrawals by cheque, ATM or transfer. Some pay interest, but the rate is usually lower than on a savings account or bank money-market account.

D

Diversification
The investment strategy of spreading money into a number of different investments in order to reduce overall investment risk. The aim is to offset losses in one or more investments by gains in others.

Dividend
Periodic distribution of earnings to shareholders usually in the form of money or stock. The amount is decided by the board of directors.

Dollar Cost Averaging
A long-term strategy, in which, a fixed amount of money is invested on a regular schedule, regardless of market fluctuations. The investor buys more shares of an investment when the price is low and fewer shares when the price is high; the overall cost is lower than it would be if a constant number of shares were bought on a regular schedule.

E

Equity
Synonymous with Share or Stock.

Equity Fund
Mutual fund /unit trust that invests primarily in Stocks. Offers diversification by investing in a number of different companies or industries, according to guidelines set in the fund's prospectus. Equity funds are usually categorized by the types of stocks in which they invest. Examples: Growth Funds, Small Capitalization Funds and Global Funds. Equity funds involve risk to principal.

F

Fixed Deposit
Deposits in bank accounts that lock in funds for a specific period, usually at a specific rate of interest, with a penalty for early withdrawal. Also known as Time Deposit.

Fixed-income asset class
Includes bonds, other income-producing debt securities, and BANK TIME DEPOSITS due in more than one year. Generally, they constitute a promise by the borrower (issuer of the security or bank) to pay the investor a specified amount of interest and to return the principal within a specified period. They involve principal risk.

Floating Rate Note
Debt instrument with a variable interest rate. Interest adjustments are made periodically and are tied to a money-market index such as Treasury Bill rates.

Front- end load
Sales charge applied to an investment at the time of initial purchase.

Futures Contract
Agreement to buy or sell a specific amount of a commodity or financial instrument at a particular price in a stipulated future month.

Future dollars
The future cost of a goal, product or service after it has been adjusted to reflect projected inflation.

Future value
The expected value on a specified date in the future of an account, security, investment, lump sum of money, or a series of payments.

G

Growth Fund
Mutual funds/unit trusts that invest in growth stocks. The goal is to provide capital appreciation for the fund’s shareholders over the long term.

Growth and income funds
Mutual fund / unit trusts (also known as unit trusts) that combine the growth of earnings or value-orientation strategy (as growth funds do) with an income requirement for either level or rising dividends and/or an absolute dividend rate greater than that of a particular unmanaged stock index. Funds utilising the growth strategy generally invest in companies whose earnings are expected to grow faster than the average earnings growth of the major unmanaged market indices. Funds that utilise the value strategy generally invest in companies whose shares are either trading at a price that is relatively low compared to the historical trading range, or compared to prices of companies in similar industries.

I

Index
An economics term meaning a statistical measure of change. A stock index, for instance, measures the changes in selected stock prices.

Index Fund
Mutual fund/Unit trust whose portfolio matches that of a broad-based index and whose performance therefore mirrors the market as a whole.

Inflation rate
The rate of increase in the price of goods and services, over a given period of time.

Inflation risk
Synonymous with Purchasing Power Risk.

Interest rate
The percentage of a deposit that a bank pays periodically to the depositor in return for use of the depositor's money; the percentage of a loan that a borrower pays periodically to the lender in return for use of the lender's money; or the percentage of a bond's face value that the issuer pays periodically to the holder in return for the holder's money.

Intermediate-term fixed income funds
Mutual fund / unit trusts (unit trusts) that invest in a portfolio of securities with an average maturity range from two to 10 years.

Intermediate-term government and corporate bonds
Issued by governments or corporations, these have maturities ranging from two to 10 years. Like all bonds, their value typically falls when interest rates rise, and rises when interest rates fall. However, the shorter a bond's maturity, the less sensitive it is to changes in interest rates. Since bonds with shorter maturities tend to offer more price stability, they also tend to offer lower returns than bonds with longer maturities.

International bonds
Usually issued by foreign (non-US) governments or corporations. Like all bonds, their value typically falls when interest rates rise, and rises when interest rates fall. In addition, the value of international bonds is also subject to fluctuations in foreign exchange (currency) rates. If the value of a foreign currency rises versus the dollar, so does the value of that country's bonds in dollars, all other factors being equal, and vice versa.

International shares
Shares (US: stocks) of companies based outside the US. Examples are LARGE CAPITALISATION STOCKS (shares) and Small Capitalisation Stocks (shares).They fluctuate in value daily. Also, the value of international shares is subject to fluctuations in foreign exchange (currency) rates. If the value of a foreign currency rises versus the dollar, so does the value of that country's shares in dollars, all other factors being equal, and vice versa.

International stock funds - global
Mutual fund / unit trusts (British English: unit trusts) that invest their assets in securities whose trading markets are spread throughout the world including the United States.

Investable assets
The sum of money an investor has available to invest or has already invested.

Investment Company
Company that invests the pooled funds of investors in securities appropriate for its stated investment objectives, for a management fee. It offers investors more diversification, liquidity, and professional management service than would normally be available to them as individuals.

Investment Manager
The investment professional responsible for managing the securities portfolio of a mutual fund/unit trust. The portfolio manager is charged with making prudent buy and sell decisions for the portfolio to meet the fund’s specified investment objectives

Investment planning
The process of determining how to invest current assets and future savings based on your financial goals, your attitude towards risk and your current financial position.

Investment risk
The potential for fluctuation in the value of an investment, which could result in loss of principal. Some causes of investment risk are: general market fluctuations, industry-specific market fluctuations, trends in interest rates and foreign exchange rates, company-specific factors. Higher risk is usually associated with the potential for higher long-term rates of return.

L

Liquidity
The ease of selling, and the ability to convert investments to cash at anytime.

Liquidity need
The level of importance an investor places in the ability to convert investments to cash without a substantial loss of principal.

Long-term government and corporate bonds
Issued by governments or corporations, these have maturities ranging from 10 to 30 years. Like all bonds, their value typically falls when interest rates rise, and rises when interest rates fall. In addition, the longer a bond's maturity, the more sensitive it is to changes in interest rates. Since the price of long-term bonds tend to be less stable than that of intermediate-term bonds, long-term bonds tend to offer higher returns to compensate investors for the instability.

Long-term time horizon
See Time Horizon. 

M

Management Fee
Fee charged against investor assets for managing the portfolio of a fund as well as for such services as shareholder relations and administration. The fee, as disclosed in the prospectus, is a fixed percentage of the fund’s total asset value.

Marginal tax bracket
The rate of income tax applied to your next dollar earned.

Market risk
Synonymous with Investment Risk.

Maturity date
The date on which a loan, bond, debenture, or time deposit comes due; both principal and any accrued interest must be paid.

Money Market Fund
Open-ended fund that invests in commercial papers, government securities, certificates of deposits, and other highly liquid and safe securities. Unlike all other types of funds whose share prices fluctuate, money market funds attempt to maintain a stable share price.

Mutual Fund/Unit Trust
Fund operated by an investment company that pools money from shareholders and invests in a variety of securities including stocks, bonds, and money market instruments. These funds offer investors the advantages of diversification and professional management.

N
Net Asset Value The market value of a fund share, synonymous with bid price.
O

Offer Price
Price at which someone who owns a security offers to sell it. Also known as the Asked Price.

Open-end Mutual Fund
An open-end mutual fund is an investment company that pools shareholder funds and invests in a diversified securities portfolio having a specified objective. It provides professional management and stands ready to sell new shares and redeem outstanding shares on a continuous (open-end) basis.

Options
The right to buy or sell securities/property that are granted in exchange for an agreed upon sum. If the right is not exercised after a specific period, the option expires and the option buyer forfeits the money.

Ordinary share
Unit of security companies issue in return for high-risk capital.

P

Portfolio
Total investment holdings (all securities and other investments) owned by an investment company or an individual.

Preference share
(US: preferred stock.) A share that pays a stated dividend and generally does not carry voting rights. A company that has issued preference shares must pay dividends to the owners of the shares at the promised rate before any dividends can be paid to the owners of common shares. Most people buy them primarily for the promised dividend (income) and only secondarily for capital appreciation.

Preferred stock
Synonymous with Preference Share.

Present value
The value today of a future payment. For investment purposes, a calculation can be made on how much should be invested today in order to obtain a given sum of money later.

Principal
In investment, principal refers to the amount invested in a security. In a loan or mortgage, it is the outstanding debt.

Principal risk
Synonymous with Investment Risk.

Professional management
The practice of having financial professionals invest money or monitor securities and returns on behalf of individual investors, investment companies or institutions.

Prospectus
A formal written offer to sell securities. This document contains information on fund's or company's investment objectives, policies, services and fees. A prospectus, which is a legal document published in accordance with the regulations of the country in which it is published, should be read carefully before an investment is made.

Purchasing power risk
Synonymous with inflation risk. The risk that the return on an asset will not exceed the inflation rate.

R

Rate of return
The gain or loss generated from an investment over a specified period of time. It is also referred to as total return, and it includes the change in the value of a security plus all interest, dividends and capital gains from holding that security.

Rebalancing
The process of changing the investment holdings in a portfolio in order to return its composition to a desired investment mix.

Redemption
Cashing in shares by a shareholder: the mutual fund/unit trust buys back the investor’s shares.

Retirement planning
The process of establishing a retirement income goal and gathering information about your potential sources of retirement income. The information can then be used to determine if your projected retirement cash flow is adequate to fund your projected retirement income needs.

Return
See Rate of Return.

Return expectations
An investor's anticipated returns from investments. Desire for returns must be weighed against other factors such as safety, liquidity, capital preservation, and income.

Risk averse
Describes an investor who has a low level of tolerance to possible loss of principal through investing. This investor is willing to accept lower returns in order to avoid possible investment losses.

Risk/Return Ratio
The balance between how much risk an investor is prepared to take in return to potential profits.

Risk tolerance
An investor's level of comfort with fluctuations in the value of investments and the potential for loss.

S

Sales Charge or Commission
Fee paid to the fund company or distributor of the fund, by a buyer of shares in a load fund.

Savings account
Bank or other financial institution deposit that usually allows unfettered withdrawals. These accounts are very liquid.

Settlement date
The date on which you must pay for securities (if you have agreed to buy them) or the date on which you are due to be paid (if you are a seller). This is often several days after your order to purchase or sell securities has been executed. Generally, you do not begin to earn interest on a bond that you have purchased or dividends on a share until the settlement date.

Share
A unit of ownership in a mutual fund/unit trust or company held by a shareholder.

Shareholder
The owner of shares in a mutual fund/unit trust or company.

Short-term investment
Investment that generally has a maturity of less than one year.

Small-capitalisation stock (small-cap)
Stock of relatively small companies. Small-caps tend to involve more risk than large-caps, but as a group have historically offered investment returns better than large-caps over the long term.

Staying power
The degree to which an investor wishes to continue with an investment plan despite short-term market volatility.

Stock
US term for share.

Stock fund
Mutual fund / unit trust (British English: unit trust) that invests primarily in Stocks (British English: Shares). Offers diversification by investing in a number of different companies or industries, according to guidelines set in the fund's prospectus. Stock funds are usually categorised by the types of stocks in which they invest. Examples are: Growth Funds, Small Capitalisation Funds and International Funds. Stock funds involve risk to principal.

Stocks asset class
Includes common stock and stock funds. Stocks (British English: Shares) involve risk to principal.

Sub-asset class
A more in-depth classification of the general asset-class categories. Examples are: large-capitalization stocks, Small-Capitalization Stocks, and International Stocks.

Switching
Moving assets from one mutual fund to another, either within a family of funds or between different fund families.

T

Tax bracket
See Marginal Tax Bracket.

Time deposit
Deposits (including certificates of deposit) in bank accounts that lock in funds for a specific period, usually at a specific rate of interest, with a penalty for early withdrawal.

Time horizon
The amount of time an investor is willing or able to hold an investment. Less than three years may be considered a short-term time horizon; three years or longer, a long-term time horizon.

Today's dollars
The cost of a goal, product or service expressed in terms of what it costs today, instead of what it might cost in the future.

Treasury Bill
Short-term debt instrument used by central banks to raise money and control interest rates. They are sold at less than face value, then the buyer receives face value on maturity.

Treasury Note
The US Treasury's form of intermediate (two years or more) debt.

V

Variable annuity
Contract issued by an insurance company. Variable annuities give the investor flexibility by offering a variety of investment fund options. The value of these investments may vary. There is also an insurance feature associated with annuities.

Volatility
Fluctuations – up and down movements of a security’s value.

Y

Yield to call
Yield to call is the same as Yield to Maturity with one exception. The yield to call calculation assumes that the bond will be redeemed by the issuer on the first call date and at the specified call price.

Yield to maturity
A standard measure of a bond's expected average annual rate of return. Yield to maturity simplifies the comparison of different investment choices by converting a bond's price, redemption value, time to maturity, coupon rate and frequency of payments into a single measure. One assumption in the calculation is that all cash flows are reinvested at the same rate of interest. Other factors that must be evaluated before including a particular bond in a portfolio include the bond's credit quality, tax status, maturity date, call date and current yield. See also Yield to call.

Z

Zero-coupon bond ("zeros")
Debt securities that mature at a stated face value after a stated number of years, and make no periodic payments of interest. Typically, they are sold at a substantial discount from face value, reflecting the lack of periodic interest payments. Like all bonds, the value of zero-coupon bonds typically falls when interest rates rise, and rises when interest rates fall, but zero-coupon bonds will generally fluctuate more than comparable interest-paying bonds, and therefore involve more risk to principal if sold prior to maturity.