Financial Terms for Investors

What is an equity fund?
A fund that invests in equities (stocks), rather than bonds, GICs or other investments. Often the goal is to provide long-term growth through capital gains.

What is a bond fund?
A fund that invests in bonds and other debt securities. Bond funds typically pay regular dividends that include interest payments plus periodic realized capital gains.

What is a mutual fund?
An investment that pools money from many people and invests it in a mix of investments such as equities and bonds. A professional manager chooses investments that match the fund’s goals for risk and return.

What is a portfolio?
A collection of different investments held by investors, which may include equities, fixed-income investments like bonds, and cash.

What is asset allocation?
The way money in your portfolio is allocated across different investments. Different investments outperform and underperform at different times. The goal of asset allocation is to lower risk and smooth out the fluctuations in your portfolio by choosing a target mix of investments that fits your objectives.

What is rebalancing?
A strategy to periodically “reset” the asset allocation of a portfolio back toward its target mix. This is done by selling investments in asset classes that have grown faster than others and reinvesting the proceeds in asset classes that have fallen below their target weight.

What is a Registered Retirement Savings Plan (RRSP)?
An account that lets you save for retirement while lowering your income taxes. Your contributions to certain limits are tax deductible in the year you make them. You don’t pay tax on any money in your account until you take it out.

What is a spousal RRSP?
An RRSP for a spouse or life partner where one spouse (typically the higher earner) puts money in the plan and claims the tax deduction themselves. Withdrawals are taxed in the hands of the other spouse. The goal is to split income and pay less tax as a couple.

What is a Registered Retirement Income Fund (RRIF)?
A plan that holds your retirement savings from an RRSP and provides income after you retire. It works like an RRSP in reverse because you withdraw money instead of saving. There are rules about how much you must take out each year.

What is a Tax-Free Savings Account (TFSA)?
A registered savings plan that helps you save for any goal. Contributions up to certain limits grow tax free in the plan. You can take money out whenever you want, for any reason, without tax.

What is a Registered Education Savings Plan (RESP)?
A special savings plan that helps you save for a child’s post-secondary education. Contributions attract government grants to certain limits and grow tax for Investors deferred in the plan. Withdrawals are eventually taxed in the student’s hands, presumably at a low tax rate.

What is a Registered Disability Savings Plan (RDSP)?
A government savings plan that helps parents and others save for the long-term financial security of a person who is eligible for the disability tax credit. Contributions attract government money and grow tax free in the plan. All earnings and government contributions are taxed when eventually withdrawn by the beneficiary.

What is a capital gain?
The money you make when you sell an investment or some other asset for more than you paid for it (less certain eligible expenses).

What is a dividend?
Part of a company’s profits that it pays to shareholders. Preferred shares earn a set amount; for common shares, the amount varies.

What is a mutual fund distribution?
Mutual funds earn dividends, interest and capital gains income and pay out these earnings to unit holders on a regular basis as “distributions.”

What is a growth fund?
An equity fund that invests primarily in stocks that the portfolio manager expects will achieve above-average growth over a period.

What is a value fund?
An equity fund that primarily holds stocks that the portfolio manager believes are undervalued in price and likely to pay dividends.

What is a small capitalization fund?
A fund that invests in companies whose total share value is small. Typically describes newer businesses that are fast growing and more volatile.

What is dollar cost averaging?
A strategy where you arrange to buy a set dollar amount of the same investment at regular intervals (e.g., monthly). When the price falls, you will automatically acquire more units with your fixed investment. Over time, this may help you “average down” the per-unit cost of your investment and potentially increase returns.

Source: Most definitions are from the Investor Educator Fund

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This guide was written with the assistance of Talbot Stevens, a financial educator, speaker and industry consultant.

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