On-Line Glossary

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The glossary is arranged in alphabetical order. Click on the appropriate letter or scroll to search.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Accrued Income

Income that has been earned but not yet received. For example, if you buy a compounding Guaranteed Investment Certificate (GIC), interest accrues annually or semi-annually but is paid only at maturity, although it will be taxable each year.

Acquisition Fee

A fee charged when you buy a mutual fund, generally expressed as a percentage of your purchase price. If you pay an acquisition fee, there are usually no charges when you sell your investment. Also called the front-end load, or sales charge.

American Depository Receipt

A certificate representing a given number of shares of stock in a foreign corporation. ADR's are bought and sold in the American securities markets, just as regular stocks are traded. An ADR is issued by a U.S. bank, consisting of a bundle of shares of a foreign corporation that are being held in custody overseas. ADR's can be "sponsored," which means the corporation provides financial and other information to the bank, or "unsponsored." While ADR's have the same currency and economic risks as the underlying foreign shares, they are much more convenient for U.S. shareholders to own.

A.M. Best

An organization that rates the financial stability of insurance companies. Also known as Best's Rating.

Annual Return

The simple rate of return earned by an investment for each year.

Average Annual Compound Return

The annual rates of return, including reinvestment of distributions, averaged over a specified time frame.

Assessment Notice

The summary that you receive from Revenue Canada after you file your tax return. This tells you of any errors made on your return, how much tax you must pay, any refund owing, and how much you can contribute to your Registered Retirement Savings Plan (RRSP) for the current tax year.

Asset Allocation

A term describing the proportion of a portfolio invested among the three main types of investments - cash or short-term equivalents such as Treasury bills (T-bills); longer-term interest-bearing securities such as bonds; and stocks or equities. Your asset allocation strategy depends on your investment objectives, age, time horizon, tolerance to risk, and other factors.

Ask

The price a seller is willing to accept for the security; also called the offer price.

Ask Price

The price a seller is willing to accept for the security; also called the offer price. Sometimes called "The Ask".

Attribution Rules

Legislation under which interest, dividends, or capital gains earned on assets you transfer to your spouse will be treated as your own for tax purposes. Interest or dividends (but not capital gains) stemming from property transferred to children under 18 also will be attributed back to you. However, transfers to children 18 or older are exempt from the attribution rules.

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B

Balanced Fund

A mutual fund that invests in both equities and income-bearing securities. Balanced funds are designed to produce a mix of both capital gains and income, with less variability than equity funds normally exhibit.

Bank Rate

The minimum rate at which the Bank of Canada makes short term advances to the chartered banks and other deposit taking institution. The bank rate is set each week at 25 basis points above the average 3-month treasury bill rate (T-Bill).

Basis Point

Often called a 'beep', it is used to describe the differences in bond yields. One basis point is one one hundredth of a percentage point i.e. 100 basis points = 1%.

Bear Market

A declining stock market over a prolonged period, usually lasting at least six months and normally not more than 18 months. Usually caused by a strong conviction that a weak economy will produce depressed corporate profits.

Beneficiary

A person who benefits from the terms of a trust, a will, an RRSP or other deferred income plan, or an insurance policy.

Best Ask

The lowest quoted offer of all competing Market Makers to sell a particular stock at any given time.

Best Bid

The highest quoted bid of all competing Market Makers to buy a particular stock at any given time.

Bid

An indication by an investor, trader, or dealer of a willingness to buy a security, bond, or commodity. The quoted bid is the price at which a Market Maker is willing to buy a security.

Bid Price

The price a buyer is willing to pay for a security.

Buy Stop

An order to buy a security that is entered at a price above the current offering price and that is triggered when the market price touches or goes through the buy stop price.

Buy Stop Order

An order to buy a security that is entered at a price above the current offering price and that is triggered when the market price touches or goes through the buy stop price.

Blue Chip

Usually a large capitalization, well known and actively traded common stock with a record of continuous dividend payments and other desirable investment attributes.

Bond Fund

A mutual fund that invests primarily in fixed-term debt securities such as government and corporate bonds. In addition to generating interest income, a bond fund may generate capital gains or losses as bond values increase or decrease in response to interest rate changes.

Bull Market

A rising stock market over a prolonged period, usually lasting at least six months and normally not more than 18 months. Usually caused by a strong conviction that a strong economy will produce increased corporate profits.

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C

Call Option

An investment product that gives you the right to purchase shares at a predetermined price for a limited period of time.

Canada Deposit Insurance Corporation (CDIC)

A federal Crown Corporation that insures certain deposits at member institutions for up to $60,000. The insurance applies to the institution, not to individual investments. Thus, if you have three GICs worth $50,000 each for a total of $150,000 at one bank, you are insured for only $60,000. If they are held at separate banks, each is covered for up to $60,000. However, RRSPs and jointly-held deposits have a separate $60,000 limit at each institution.

Canadian Bond Rating Service

An agency that rates the creditworthiness of debt securities of Canadian corporations and governments.

Capital Gain/Loss

A capital gain is the profit that results when you sell a capital asset for more than its cost. A capital loss arises when you sell for less than its cost. The costs associated with the purchase or sale will reduce your capital gain or increase your loss. Only three-quarters of a capital gain is included in income for tax purposes. Capital losses generally can be used only to offset capital gains, not other income.

Capacity Utilization Rate

Is the percentage of total available industrial capacity in the economy (plant and equipment) that is being used to produce goods.

Capital Gains

A capital gain arises when an investment is sold at a higher price than originally paid. In a mutual fund, capital gains are created when the fund buys and sells securities. These gains are then distributed to unitholders at least annually. Unitholders can also earn capital gains by redeeming their units at higher prices than they originally paid.

CompCorp

The insurance industry equivalent of CDIC. This industry-funded organization provides varying amounts of protection for different types of insurance company products.

Consumer Price Index (CPI)

An index published by Statistics Canada each month measuring changes in the cost of living, or inflation. It's based on the average cost of a "basket" of goods and services across the country. The most familiar CPI figure is the percentage increase (or decrease) over the past 12 months.

Convertible Bond

A bond that may be exchanged, usually for the common stock of the same company as stipulated by the terms of the conversion privilege.

Close

The price of the last transaction for a particular security on a particular day.

Close Position

Getting out of a position in a particular stock or security.

Correction

A market correction is usually a sudden temporary decline in stock or bond prices after a period of market strength. A 10% movement on the downside that lasts no longer than six months is a normal correction.

CPI Consumer Price Index

is used to measure inflation. It monitors the price of a basket of goods to establish the general direction of prices in an economy.

Current Account

The record of all transactions with foreign nations that involve the exchange of goods and services or unilateral gifts.

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D

Day Order

An order to buy or sell a security that automatically expires if not executed on the day the order is placed.

Deferred Load

See redemption fee.

Deflationary

A term used to describe a situation where the general price level of goods and services is declining.

Derivatives

Derivatives are financial instruments whose value is based on the market value of an underlying asset such as stocks, bonds or a commodity. Examples of derivatives are futures contracts, options and forward contracts. Only certain "permitted derivatives" may be used by mutual funds in accordance with policies of the Canadian securities regulatory authorities.

Disability Insurance

Insurance that pays you an ongoing income if you become disabled and are unable to pursue employment or business activities. There are usually limits to how much you can receive, based on your pre-disability earnings. Most policies also have a waiting period before you can begin collecting benefits, typically 30 to 90 days.

Distributions

Payments to unitholders of income realized by the Fund. Distributions can comprise interest, dividends or capital gains. The type and frequency of the distribution is dependent on the fund. Generally, distributions comprise only the "taxable income" of the fund.

Diversification

Investing so that all your eggs are not in one basket. By spreading your investment among different regions (for example, Canada, Europe, and Asia), currencies, and types of securities (for example, both stocks and bonds), you cushion your portfolio against sudden swings in any one area. Mutual funds have become a popular way for average investors to get the benefits of greater diversification. (See also asset allocation.)

Dividend

The amount paid per share, usually quarterly, from a corporation's after-tax profits. Not all shares pay dividends, and companies may reduce or even suspend dividend payments if they are not doing well. Some companies pay dividends in the form of additional shares of the corporation. Dividends from Canadian companies - either in cash or shares - qualify for the Dividend Tax Credit and are taxed at lower rates than other income. Dividend income may be paid to mutual fund unitholders.

Dollar-Cost Averaging

A way to "smooth out" your investment costs, and possibly reduce your average cost, by investing regularly. For example, instead of investing your $6,000 RRSP contribution in a mutual fund each February, you make monthly contributions of $500 throughout the year, regardless of the mutual fund's unit price. Your $500 buys more units if the unit price is lower, and fewer units if the price has risen. By spreading your purchases, you need not worry about buying at the "right time."

Dow Jones Industrial Average

An index that tracks the daily share value of 30 large U.S. companies listed on the New York Stock Exchange. The Dow Jones generally mirrors the exchange as a whole. The S&P500 index, which tracks 500 companies, is considered to be more representative of the broad U.S. market.

DRIP

Abbreviated as DRIPs or DRPs. Plans offered by many corporations for the reinvestment of cash dividends by purchasing additional shares or fractional shares, on the dividend payment date, occasionally at a discount from market price. Many DRIP's also allow the investment of additional cash from the shareholder, known as an Optional Cash Payment or Optional Cash Purchase (OCP). The DRIP is usually administered by the company without charges or with just nominal fees to the participants, and many allow additional purchases of as little as $10.

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E

Earnings Driven

At certain points in the business cycle, the market concentrates on earnings of companies as opposed to overall market conditions or interest rate factors. At this stage, companies that exhibit strong earnings potential are actively sought. (See Interest Rate Driven)

Earnings Per Share

The after-tax earnings or profits of a company, divided by the number of the company's outstanding common shares. For example, if a company earns $1 million and has 1 million shares outstanding, its earnings per share, or EPS, equals $1. If profits rise and the number of shares remains the same, the company's EPS rises.

Emerging Markets Fund

A mutual fund that invests primarily in countries that are becoming industrialized (also called developing economies). Emerging markets funds tend to be volatile, so values can fluctuate dramatically.

Equity Fund

A mutual fund that invests primarily in equities - that is, shares of corporations and companies sold on the stock market. The objective of an equity fund usually is long-term growth through capital appreciation. However, some income may be earned from dividends, and some interest could be earned when the fund is not fully invested in stocks.

Exchange Rate

The rate at which one currency can be traded for another. The exchange rate we see most often is between Canadian and U.S. dollars. Generally, the larger the amount of currency being traded, the more favourable the exchange rate available.

Ex-Date

Sometimes referred to the ex-dividend date. The first date on which a security is traded without entitling the buyer to receive distributions previously declared. This is the date after which the seller, and not the buyer, of a stock will be entitled to a recently announced dividend.

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F

Face value

The stated value of an investment at maturity. For instance, corporate bonds are usually issued with face values of $1,000, municipal bonds with face values of $5,000, and federal government bonds with face values of $10,000. Life insurance policies, bank notes, currency, some shares, and other securities all have face values.

Fair Market Value

The amount a willing buyer would pay and a willing seller would accept in an open and unrestricted market, assuming that both parties are knowledgeable, are dealing at arm's length, and neither is under any compulsion to act. Stock and bond prices quoted in daily newspapers, for example, are at fair market value.

Fiscal Drag

A term used to describe a situation where there is little government spending to encourage growth in an economy. This usually occurs as a result of high deficits that require a reduction in government spending.

Fiscal Policy

Federal government policy of directing the economy through taxation and government spending.

Fixed Income Security

A preferred stock or debt instrument that has a stipulated interest or dividend rate, e.g. a bond or GIC . This term is often used in reference to an overall investment policy, e.g., fixed income portion of a portfolio.

Fluctuation

A variation in the market price of a security.

Float

The total number of outstanding shares available on the market.

Free Floating Currency

Not fixed or tied to any other currency. It is valued in open markets based on that country's economic and political outlook.

Front-end load

See acquisition fee.

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G

Gross Domestic Product (GDP)

A measure of the production of all goods and services in a country, usually expressed as an annual total. Year-over-year changes in GDP are used to measure the strength or weakness of the economy. A number of more than about 2% (after allowing for inflation) indicates moderate strength, while 4% represents strong growth. Growth of less than 2% a year indicates a weaker economy.

Group insurance

Life and health insurance provided by employers or other organizations to their employees or members. Group insurance is usually inexpensive because of volume discounts.

Guaranteed Investment Certificate (GIC)

An interest-bearing deposit with a term usually from one to five years, although longer terms may be available. Interest on a GIC may be paid periodically (monthly, quarterly, semi-annually, annually), or may compound and become payable on maturity. The interest income is taxable every year regardless of whether it is actually received.

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I

Income fund

A generic term for funds that invest primarily in fixed-term securities such as mortgages, bonds, and Treasury bills. The objective of most income funds is to earn a steady stream of interest, although capital gains could be realized as well from time to time. Some income funds also invest in shares of preferred and high-quality stocks.

Income splitting

The tax-planning strategy of arranging for income to be transferred to family members who are in lower tax brackets than the one earning the income, thus reducing taxes. Although attribution rules limit income splitting, there are still a number of legitimate ways to do so, such as through the use of spousal RRSPs (see definition).

Index fund

A mutual fund that mimics the index of a stock exchange, such as the Toronto Stock Exchange 300 Composite Index (see definition). The fund buys the same shares as are in the index, in proportions that reflect their weightings in that index.

Inflation

Increases in the general price level of goods and services; i.e., your dollar won't buy as much as it used to. Inflation is commonly reported using the Consumer Price Index (CPI) as a measure. Inflation is one of the major risks to investors over the long term as savings may actually buy less in the future if they are not invested with inflation as a consideration.

Interest Rate Driven

Refers to a point in the business cycle when interest rates are declining and bond prices are rising. This is usually enough to inspire a stock market rally as money shifts from interest rate instruments to equity based instruments. (See Earnings Driven)

Initial Public Offering (IPO)

Also known as "going public", it’s the first sale of stock by a company inviting the public to subscribe in its shares. IPOs are often smaller, newer companies seeking equity capital to expand their businesses.

International Finance Corporation Investable Index (IFCI)

A benchmark against which portfolios invested in emerging markets can be compared. "Investable" means it accounts for foreign ownership restrictions that are in place in various countries.

Insider

Any person who has or has access to material nonpublic information about a corporation. Insiders include directors, officers and stockholders who own more than 10% of any class of equity security of a corporation.

Inverted Yield Curve

A situation where short term interest rates are higher than long term rates. Normally, lenders earn higher yields when committing money for longer periods; this is a positive yield curve. Inverted yield curves occur when surging demand for short term credit drives up short term rates. Usually a sign of increased inflation accompanied by low levels of confidence in the economy. Historically, this has preceded a recessionary period.

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J

Joint and last survivor annuity

Annuity payments that are guaranteed to continue (usually on a monthly basis) until the death of the second annuitant.

Joint and last survivor insurance

A type of insurance that covers two people, typically a husband and wife, in which benefits are paid on the death of the second person. Also called a "last to die" policy.

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K

Kill

Cancel a trade or order that has been placed but not filled.

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L

Leverage

The practice of investing with borrowed money to increase potential profit. Example, you invest $5,000 and earn a 20% return, your profit is $1,000. If you invest $5,000 and borrow another $5,000 for a total of $10,000, you earn $2,000 (minus interest costs). But leverage works both ways - if your investment loses money, leverage can magnify your losses.

Limit Order

An order placed with a brokerage to buy or sell at a specified price or better than the specified price. Limit orders also allow an investor to limit the length of time and order can be outstanding before cancelled.

Liquidity

The ease with which an asset can be converted to cash in the marketplace. A large number of buyers and sellers and a high volume of trading activity provide high liquidity.

Life annuity

A contract promising periodic payments while the recipient is alive. A life annuity may have a guarantee period with payments that continue to your heirs should you die before the end of the period. Annuities on a single life with no guarantee period provide the highest payments, but are riskiest because payments cease immediately upon death. RRSP funds can be used to purchase annuities.

Life Income Fund (LIF)

A type of Registered Retirement Income Fund (RRIF) that holds accumulations from locked-in RRSPs (the type of RRSP to which company pension plan benefits can be transferred). With a LIF, you can make all the investment decisions. Amounts in the LIF are tax-sheltered until withdrawn, but you must withdraw between a minimum and maximum amount each year after you reach retirement age. A LIF must be converted to a life annuity (or "annuitized") by the time you reach 80. (The exception is where pension laws of Alberta or Saskatchewan apply - see LRIFs below.)

Liquidity

The ability to sell securities at a reasonable price with relative ease in order to raise cash. This is a major and often overlooked aspect of an individual's investment strategy. Liquidity is a concern for any monies that may be required on short notice, whether for emergencies or for planned purchases.

Locked-in Retirement Income Fund (LRIF)

LRIFs are basically the same as LIFs, but with no requirement to "annuitize" at age 80. Individuals whose locked-in RRSP funds are subject to Alberta or Saskatchewan law may buy an LRIF rather than a LIF (see definition).

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M

Management fee

A fee charged by a mutual fund company for managing the fund investments. It is expressed as a percentage of the fair market value of the total assets. The management fee may change, but is always disclosed to, and must be approved by, investors. This fee is charged directly to the fund.

Marginal tax rate

The top rate of income tax that is charged to individuals on their last dollar of earnings. The rate also indicates how much tax you would save on each dollar of income that does not need to be reported on your tax return. For example, if your marginal tax rate is 40%, and you contribute $1,000 to your RRSP, you will save $400 in tax.

Market weighted

When a portfolio sector- or stock- weighting matches the weighting held by a market index, we say that the Fund is "market weighted" in that sector or stock. For example, at December 31, 1994, the Equity Fund was "market weighted" in Financial Services, in comparison to the TSE 300.

Margin

The use of borrowed money to purchase securities, referred to as "buying on margin". It is the amount of equity contributed by a customer as a percentage (maximum of 50%) of the current market value of the securities held in a margin account.

Market Order

An order to buy or sell a stock immediately at the best available current price. A market order is the only order that guarantees execution. Also known as unrestricted order

Maturity value

Similar to face value (see definition), except that maturity value may include accumulated income. Compounding GICs, for instance, have a maturity value that includes the compound interest.

Monetary Policy

Federal government policy pursued by the Bank of Canada to control interest rates and the supply of money.

Money market fund

A mutual fund that invests exclusively in short-term (less than one year) debt instruments and other highly liquid and safe securities. Treasury bills issued and guaranteed by federal and provincial governments are common investments. Money market funds are managed so that their units usually have a fixed value of $1 or $10. Their performance is measured by the rate of interest they earn.

Money Market Instruments

Debt instruments such as Treasury bills or corporate paper with a maturity of less than one year, that are easily converted to cash.

Mortgage Backed Securities

Like a bond, $5,000 units with five year maturities backed by a share in a pool of home mortgages insured under the National Housing Act. The securities pay interest and a small portion of principal on a monthly basis.

Mutual fund

A fund managed by an investment company that raises money from individuals and invests it in stocks, bonds, options, commodities, or money market securities. Your investment in a mutual fund is represented by shares or units. The value of your units depends on the value of assets owned by the mutual fund, less expenses incurred by the fund.

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N

NAFTA

North American Free Trade Agreement.

NASDAQ

The National Association of Security Dealers Automated Quotation System, an index of US Over The Counter issues.

NATO

North Atlantic Treaty Organization.

Net Asset Value (NAV) per unit

The current fair market value of each unit in a mutual fund, as determined by the total value of the fund's investments plus other assets, less liabilities. This total value is divided by the number of units outstanding, to arrive at NAV per unit.

Net worth

Total assets minus total liabilities. Banks look carefully at your net worth when lending you money, because it gives an indication of your ability to repay the loan. Net worth also is a measure of how well you have done financially over the years, and how well you are preparing for retirement.

New Issue

An offering of stocks or bonds sold by a company for the first time.

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O

Odd Lot

An amount of a security that is less than the normal unit of trading for that security. Generally, an odd lot is fewer than 100 shares of stock or five bonds.

Open Order

An order to buy or sell a security that remains in effect until it is either canceled by the customer or executed.

Over-The-Counter (OTC)

A security, which is not traded on an exchange, usually due to an inability to meet listing requirements. For such securities, broker/dealers negotiate directly with one another over computer networks and by phone, and the NASD monitors their activities. Also called unlisted.

Outstanding Shares

Shares that are currently owned by investors

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P

Permanent life insurance (or Whole Life)

Life insurance with level premiums that provide coverage for your whole life. Cash values increase over time and usually you can borrow against them, although you can't cash them in unless you cancel the policy.

Policyholder dividend

An annual refund of premiums on "participating" insurance, paid by the insurer out of its net income. These dividends are not guaranteed. If the insurance company has a year with excessive claims, a smaller dividend may result or no dividends may be paid. The dividends are usually reinvested to purchase additional insurance, although some insurers may offer other options.

Portfolio

A term for describing all the investments you own - stocks, bonds, mutual funds, GICs, and so on. A diversified portfolio contains a variety of investments.

Preferred Shares

Shares that carry a fixed dividend rate which the company is obliged to pay before it distributes dividends to common shareholders. Such shares rank ahead of common stock, and after the debenture holders, on the dissolution of a company.

Prime rate

The interest rate banks charge their most creditworthy customers. All interest rates charged by banks, including credit card rates, are based on the prime rate. Some rates are expressed as "prime plus" one, two, or more percentage points.

Principal

The amount of a loan, excluding interest, or the amount you invest, excluding income. Loan repayments are usually a blend of principal and interest. Also referred to as investment "capital."

Private Placement

The underwriting of a security and its sale to a few buyers, usually institutional, and in larger amounts....

Put Option

An investment product that gives you the right to sell shares at a predetermined price for a limited period of time.

Prospectus

A document that must be provided to investors before they buy mutual funds or certain other investments. The prospectus describes the product for sale, the investing objectives, past performance, management, potential risks, tax considerations, fees, and other data to help you make an informed investment decision.

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R

Range

A security's low price and high price for a particular trading period, such as the close of a day's trading, the opening of a day's trading, or a day, month or year. Also known as opening range.

Real Yield

The nominal yield received minus the percentage change in the Consumer Price Index (i.e., the rate of inflation).

Recession

Two consecutive quarters with a decrease in economic output.

Record date

This is the date, that all unitholders on a companies books are entitled to receive the dividend to be declared. If you become a unitholder after the record date, you are not entitled to the recent dividend.

Redemption fee

A charge applied when you sell (redeem) mutual fund units. Also referred to as "deferred," "back-end," or "rear-end" load. It is expressed as a percentage of market value at the time of sale. A redemption fee often declines over a number of years until it is eliminated. This encourages investors to hold on for the long term. When a redemption fee is charged, there is often no front-end load.

Registered Retirement Income Fund (RRIF)

A way to generate income for retirement. RRIFs enable you to continue sheltering your retirement savings from tax after you collapse your RRSP. You cannot make contributions to a RRIF (other than from RRSPs), and must withdraw a minimum amount each year after the year you open the plan. With RRIFs, you can make your own investment choices.

Registered Retirement Savings Plan (RRSP)

A way of saving for retirement that shelters your earnings from income tax. Within prescribed limits, contributions to an RRSP are tax-deductible, and income earned within the RRSP escapes tax until it is withdrawn. This tax deferral allows you to save much faster than you otherwise might. Withdrawals from the RRSP, usually at retirement, are taxed at regular rates. (See also spousal RRSP.)

Rights Issues

A security which allows the owner to purchase additional units of that security directly from the company concerned.

Risk tolerance

A term describing how much investment risk or variability you are willing to accept.

Round Lot

The normal unit of trading of a security, which is generally 100 shares of stock or five bonds.

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S

Secondary Offering

The redistribution of a block of stock sometime after it has been sold by the issuing company.

Sell

To convey ownership of a security or other asset for money or value. This includes giving or delivering a security with or as a bonus for a purchase of securities, a gift of assessable stock, and selling or offering a warrant or right to purchase or subscribe to another security.

Selling Short

A bet by an investor that a stock will go down in price. The investor borrows the stock from a broker, sells it, and eventually buys it back on the market to return the borrowed shares to the broker. If the stock declines in price between the time the investor sells the shares and buys them back, a profit is realized.

Share Repurchase

A company's own plan to buy back its own shares from the marketplace, reducing the number of outstanding shares, and typically an indication that the company's management thinks the shares are undervalued.

Short Interest

The total number of shares of a security that have been sold short (see "Short Selling") by customers and securities firms.

Short Sale

A market transaction in which an investor sells borrowed securities in anticipation of a price decline.

Short Term Investment Horizon

An investment period of one year or less. An investor in this time frame should be most concerned about capital preservation as the monies will be required shortly.

Simple Rates of Return

The percentage change in the net asset value of a fund over a certain period of time, usually in terms of 1 month to 1 year periods.

Specialty fund

A mutual fund that invests in a particular type of investment such as gold, real estate, or natural resources. Specialty funds can be very volatile because they invest in a narrow sector of the economy, without as much diversification as other mutual funds.

Spot Price

The actual price at which a particular commodity can be bought or sold at a specified time and place.

Spousal RRSP

An RRSP that is owned by your spouse, to which you can contribute. However, spousal contributions reduce the amount you can contribute to your own RRSP. Provided no money is withdrawn within two years after the year of your last contribution, the money will be taxed in your spouse's hands upon withdrawal. Spousal RRSPs are used by many couples to improve the tax effectiveness of their retirement planning.

Standard and Poor's (S&P) 500

An index of the 500 largest, most actively traded stocks on the New York Stock Exchange. It provides a guide to the overall health of the U.S. stock market. The S&P 500 is a much broader index than the Dow Jones Industrial Average, and reflects the stock market more accurately.

Stripped bonds and stripped coupons

Bonds with the interest coupons removed. Also called "zero-coupon bonds." Strips are the interest coupons themselves. Since neither actually pays interest (they are merely redeemable on maturity at face value), they sell at a discount to face value. The size of the discount depends on current interest rates and the length of time to maturity.

Stock Split

A unique symbol assigned to a security. NYSE and AMEX listed stocks have symbols of three characters or less. NASDAQ-listed securities have four or five characters. If a fifth letter appears, it identifies the issue as other than a single issue of common stock or capital stock.

Stop-Limit Order

An order placed with a broker to buy or sell at a specified price or better after a given stop price has been reached or passed.

Stop-Loss Order

An order placed with a broker to buy or sell when a certain price is reached; designed to limit an investor's loss on a security position

Stop Order

Stop-Loss or Stop-Limit Order. An order to sell a stock when its price falls to a particular point to limit an investor's losses.

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T

Term certain annuity

An annuity providing guaranteed income to you or to your estate, for a specified term.

Tick

A minimum upward or downward movement in the price of a security.

Toronto Stock Exchange (TSE) 300 Composite Index

An index that tracks the 300 largest and most actively traded issues on the Toronto Stock Exchange. A weighting is assigned to each stock, so larger firms have more influence on the index value than do smaller stocks.

Total Return Index

Measures the performance of a stated index assuming reinvestment of all dividends and distributions over a period of time.

TRAC

An organization that rates the financial stability of Canadian insurance companies.

Treasury bill (T-bill)

A short-term discounted security issued by a government, with a maturity generally from 30 to 364 days. T-bills have a face value and sell at a discount based on current interest rates.

Trust

A legal vehicle entity through which you can transfer ownership of assets to trust beneficiaries - typically a spouse or children - without giving up control of those assets. You also may act as a trustee of the trust, which means you administer the assets, arrange for distributions, file tax returns, and otherwise ensure that the terms of the trust are met.

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U

Universal life insurance

Life insurance with an investment component as well as a death benefit. The policyholder has the flexibility to increase or decrease the investment amount.

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V

Volume

The number of shares trading in a period, of a single security, or an entire market.

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W

Warrant

A security that gives the holder the right to purchase securities from the issuer of the warrant at a specific price. Warrants are usually considered long-term instruments, expiration dates are typically years in the future.

Will

A legal document detailing how you want your assets to be distributed upon your death. A will may also cover other wishes, such as who should take care of your children. You should always enlist professional help when drafting a will. If you die without a will ("intestate"), your assets will be distributed according to provincial law.

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Y

Yield

The total proceeds from an investment. The yield may be fixed - 8% payable on a GIC - or may vary. The current yield of a bond, for example, depends on its purchase price. As a bond's price falls, its yield rises, and vice versa.

Yield Curve

A curve on a graph that plots the interest rate (yield) of a bond on the vertical axis and the length of time until maturity on the horizontal axis. Their relationship is frequently referred to as the yield curve. Three basic types of curves exist. A normal curve is when interest yields are higher for longer term bonds and lower for shorter term bonds. A flat curve is when yields are about the same for longer term and shorter term bonds. Finally, an inverted curve is when the short term yields are higher than the yields on longer term bonds.

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