Accrued interest: Interest that has been earned but not received.
Accumulation plan: An arrangement which enables an investor to purchase mutual fund shares regularly in large or small amounts.
Amortization : The gradual reduction of debt over a fixed period of time.
Example, if a mortgage is amortized over 25 years, payments consist of a blend of principal and interest, early payments being mostly interest, later payments mostly principal. The full debt will be retired in 25 years.Annual Report: A financial report sent yearly to a publicly held firm's shareholders. This report must be audited by independent auditors.
Annuitant: A person who receives annuity payments.Annuity: A contract providing for a series of payments to be made or received at regular intervals. For retirement purposes, an annuity is an income vehicle that provides a guaranteed, regular income based on age, the amount you invest, the type of annuity you buy, and interest rates at the time of purchase. See also: cashable annuity, deferred annuities, guaranteed-term life annuity, income-reducing annuity, indexed annuity, insured annuity, joint-and-last survivor annuity, life annuity, prescribed annuity, term certain annuity.
Ask price: A proposal to sell a specific quantity of securities at a named price.
Asset: Any property or investment that has monetary value.Asset allocation: Mixing assets such as, cash, bonds, stocks, etc., in a widely diversified portfolio. Most professional money managers agree that holding the right blend of investments can account for 80 percent or more of gains in the long run.
Back-end load: A sales charge levied when mutual fund units are redeemed.
Balance sheet: A financial statement showing the nature and amount of a company's assets, liabilities and shareholders' equity.Balanced fund: A mutual fund that invests in a balanced portfolio, including interest-bearing securities, such as bonds and mortgages, and equity investments, such as preferred and common shares.
Bank Rate: The rate at which the Bank of Canada makes short-term loans to chartered banks and other financial institutions, and the benchmark for prime rates set by financial institutions.
Bankers' Acceptance: Short-term bank paper with the repayment of principal and payment of interest guaranteed by the issuer's bank.
Bear market: A declining financial market. A steadily falling stock market. A "bear" is a person who believes the market will drop.Beta: A statistical term used to illustrate the relationship of the price of an individual security or mutual fund unit to similar securities or financial market indexes.
Bid price: A proposal to buy a specific quantity of securities at a named price.
Blue chip stocks: Shares of large, well known, established corporations with a history of good earnings and/or dividend payments.
Board lot: A standard number of shares for trading transactions. The number of shares in a board lot varies with the price level of the security, although in most cases a board lot is 100 shares.
Board of directors: A committee elected by the shareholders of a company, empowered to act on their behalf in the management of company affairs. Directors are normally elected each year at the annual meeting.
Bond fund: A mutual fund that invests in a widely diversified portfolio of bonds with varying maturities. A bond fund usually holds bonds issued by governments as well as by major corporations.
Bonds: Bonds are certificates through which governments and large corporations borrow money. They promise to pay the holder a fixed annual rate of interest for a specified term, and to repay the principal at maturity.
Book value: The value of net assets that belong to a company's shareholders, as stated on the balance sheet.
Broker: An agent who handles the public's orders to buy and sell securities, commodities, or other property. A commission is generally charged for this service.Bull market: A steadily climbing stock market. A "bull" is a person who believes the market will rise.
Buying on margin: Purchasing a security partly with borrowed money.
Callable: Preferred shares or bonds that give the issuing corporation an option to repurchase, or "call" those securities at a stated price. These are also known as redeemable securities.
Canada Savings Bonds (CSBs): Savings certificates issued by the Government of Canada for purchase by individual Canadian citizens. The interest rate is set each November.
Capital: Generally, the money or property used in a business. The term is also used to apply to cash in reserve, savings, or other property of value.
Capital cost allowance: A taxation term, equivalent to depreciation, that makes allowance for the wearing away of a fixed asset.Capital gains: Profit realized on the sale of capital assets, such as stocks or property. Only 75 percent is included in your income for tax purposes. The other 25 percent is, in effect, tax free.
Capital loss: The loss that results when a capital asset is sold for less than its purchase price.
Capital stock: All ownership shares of a company, both common and preferred.
Capitalization: The total amount of all securities, including long-term debt, common and preferred stock, issued by a company.
Cash equivalent: Assets that can be quickly converted to cash. These include receivables, Treasury bills, short-term commercial paper and short-term municipal and corporate bonds and notes.
Cash surrender value: The amount of cash a person may obtain by voluntarily surrendering a life insurance policy.
Cashable annuity: Most annuity decisions are irrevocable, but the law has allowed cashable annuities since 1986. Not many companies offer this option, but most will at least consider paying an annuitant the "commuted value" of a term-certain annuity because it can be easily calculated at any time.
Certificate: A document providing evidence of ownership of a security such as a stock or bond.
CDIC: The Canada Deposit Insurance Corporation, a Crown Agency that provides insurance to banks and to most trust companies to protect individual depositors against losses of up to $60,000 on specific deposit investments.
Closed-end fund: A fund company that issues a fixed number of shares. Its shares are not redeemable, but are bought and sold on stock exchanges or the over-the-counter market.
Commercial paper: A negotiable corporate promissory note with a term of a few days to a year. It is generally not secured by company assets.
Common shares: Also known as common stocks or equities, they represent a portion of ownership in a corporation. If the corporation is public, the shares can be bought or sold on a stock exchange.
Commutation payment: A fixed or single lump-sum payment from an annuity equal to the current value (the "commuted value") of all or part of your future annuity payments.
Compounding: The process by which income is earned on income that has previously been earned. The end value of the investment includes both the original amount invested and the reinvested income.
Consumer price index: A statistical device that measures the change in the cost of living for consumers. It is used to illustrate the extent that prices have risen or the amount of inflation that has taken place.
Contractual plan: An arrangement whereby an investor contracts to purchase a given amount of a security by a certain date and agrees to make partial payments at specified intervals.
Convertible: A security that can be exchanged for another. Bonds or preferred shares are often convertible into common shares of the same company.
Corporation: A legal business entity created under federal or provincial statutes. Because the corporation is a separate entity from its owners, shareholders have no legal liability for its debts.
Coupon rate: The annual interest rate of a bond.
Current asset: An asset that could be converted into cash within 12 months.
Current liability: A liability that has to be paid within 12 months.
Current yield: The annual rate of return that an investor purchasing a security at its market price would realize. This is the annual income from a security divided by the current price of the security. It is also known as the return on investment.
Custodian: A financial institution, usually a bank or trust company, that holds a mutual fund's securities and cash in safekeeping.
Debenture: A bond unsecured by any pledge of property. It is supported by the general credit of the issuing corporation.
Debt: An obligation to repay a sum of principal, plus interest. In corporate terms, debt often refers to bonds or similar securities.Deemed disposition: Assets, including RRIFs, can pass tax free to a spouse upon death. However, when the surviving spouse dies, Revenue Canada's "deemed disposition" rules consider all the assets as, in effect, having been sold, and taxes must be paid in that year on RRSPs and RRIFs, and on capital gains in stocks, a business, or a cottage. However, new rules introduced in 1999 now allow RRSP and RRIF assets to be passed on after death to dependent children or grandchildren, and to be taxed as assets in their hands.
Deferral: A form of tax sheltering that results from an investment that offers deductions during the investor's high-income years, and/or postpones capital gains or other income until after retirement or during another period when the income level is expected to change.
Deferred annuities: You can buy an annuity to provide income in the future, rather than at the date of purchase. Such deferred annuities cannot begin any later than the month of January of the year in which you turn 70, but can be put in place as much as 10 years in advance. This makes sense only at times when interest rates are high and you want to lock them in ahead of time.
Deferred Profit Sharing Plans (DPSPs): Employer-sponsored pension plans, registered by Revenue Canada, where the employer shares the profits of a business with all employees or a designated group.
Defined Benefit pension plans: The type of pension plans most employees have, which provide pensions generally calculated on the basis of earnings and years of service. Under such plans, you know exactly what your pension payments will be.
Defined contribution pension plan: A registered pension plan that does not promise an employee a specified benefit upon retirement. Benefits depend on the performance of investments made with contributions to the plan.
Denomination: The principal amount, or value at maturity, or a debt obligation. Also known as the par value or face value.
Depreciation: Charges made against earnings to write off the cost of a fixed asset over its estimated useful life. Depreciation does not represent a cash outlay. It is a bookkeeping entry representing the decline in value of an asset that is wearing out.
Discount: The amount by which a bond sells on the secondary market at less than its par value or face value.
Discretionary investment management: A service provided by most financial institutions that takes the management of your investment portfolio off your shoulders and onto those of a professional money manager. Generally speaking, this service makes sense for those with $200,000 or more in their portfolios.
Distributions: Payments to investors by a mutual fund from income or from profit realized from sales of securities.
Diversification: Spreading risk by investing in a broad range of securities. A diversified portfolio would include both short- and long-term interest-bearing securities, as well as common or preferred stocks. A diversified portfolio usually would include investments in different industry sectors as well as countries.
Dividend: Payment, as a share of profit, made to holders of common or preferred shares of corporations, or distributions of dividend mutual funds. These are eligible for the dividend tax credit (if held outside a registered plan such as a RRIF) and, now that the $100,000 lifetime capital gains exemption has been abolished, they are the most tax effective way to receive investment income in Canada.
Dividend fund: A mutual fund that invests in common shares of senior Canadian corporations with a history of regular dividend payments at above average rates, as well as preferred shares.
Dividend tax credit: An income tax credit available to investors who earn dividend income through investments in the shares of Canadian Corporations.
Dollar Cost averaging: Buying securities (e.g., a mutual fund) with investments spread out over a period of time, usually monthly, so as to ensure the lowest average purchase price during that period. Also, the technique of using market corrections as bargain hunting opportunities, adding to a portfolio at reduced prices. This generally lowers the average cost of securities in a portfolio over time.
Earned income: For tax purposes, earned income is generally the money made by an individual from employment. It also includes some taxable benefits. Earned income is used as the basis for calculating RRSP maximum contribution limits.
Earnings statement: A financial statement showing the income and expenses of a business over a period of time. Also known as an income statement or profit and loss statement.Equities: Another way of referring to common shares or stocks. An equity mutual fund, for example, is one that invests entirely in such shares.
Equity: The net worth of a company. This represents the ownership interest of the shareholders (common and preferred) of a company. For this reason, shares are often known as equities.
Equity fund: A mutual fund whose portfolio consists primarily of common stocks.
Executor/Executrix: The person or institution named in your will to represent you after death, to act on your behalf and carry out your wishes. Your executor not only distributes your estate, but also administers any trusts you may have set up.
Face value: The principal amount, or value at maturity, of a debt obligation. Also known as the par value or denomination.
Fair market value: The accepted buying and selling price in an open market at any given time.
Fiduciary: An individual or institution occupying a position of trust. An executor, administrator or trustee. Hence, "fiduciary" duties.
Financial dependent: A person is generally considered financially dependent on a deceased annuitant if, prior to death, they ordinarily resided with and depended on the annuitant, and their net income was below a certain level. If, prior to the annuitant's death, the dependent lived away from home while attending school, they are considered to have resided with the annuitant.
Fiscal policy: The policy pursued by government to manage the economy through its spending and taxation powers.
Fixed assets: Assets of a long-term nature, such as land and buildings.
Fixed dollar withdrawal plan: A plan that provides the mutual fund investor with fixed-dollar payments at specified intervals, usually monthly or quarterly.
Fixed liability: Any corporate liability that will not mature within the following fiscal period. For example, long-term mortgages or outstanding bonds.
Fixed income investments: Investments that generate a fixed amount of income that does not vary over the life of the investment.
Fixed-period withdrawal plan: A plan through which the mutual fund investor's holdings are fully depleted through regular withdrawals over a set period of time. A specific amount of capital, together with accrued income, is systematically exhausted.
Foreign content: The international portion of an RRSP or RRIF. As of the taxation year 2000, you are allowed to hold up to 25 percent in non-Canadian securities. Up from 20% in prior years.
Front-end load: A sales charge levied on the purchase o mutual fund units.
Fundamental analysis: A method of evaluating the future prospects of a company by analyzing its financial statements. It may also involve interviewing the management of the company.
Growth stocks: Shares of companies whose earnings are expected to increase at an above-average rate. Growth stocks are often typified by their low yields and relatively high price/earnings rations. Their prices reflect investors' belief in their future earnings in growth.
Guaranteed Investment Certificates (GICs): Investment certificates issued by banks and trust companies, GICs repay principal and interest according to an agreed term and interest rate. An investor's money is generally locked in for the term. GICs are backed by the issuing institution and may also be insured by the CDIC.
Guaranteed-term life annuity: Life annuities can be purchased with a guarantee of a minimum number of payments commonly ranging between 5 and 20 years, but going up to a maximum of age 90. The decision on term must be made at the time of purchase. Any payments remaining (or their "commuted value" - the equivalent lump sum of future payments) under the guarantee period upon your death are paid to your spouse or other beneficiary. Payments do not stop at the end of the guaranteed period if you are still alive - they continue on until your death, or that of your spouse in the case of a joint-and-last-survivor annuity.
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Impaired annuity: If you have a medical condition that could result in a lower life expectancy, you may qualify for an annuity (in the case of life annuities only) that will pay out as if you were of an older age. Such impaired annuities result in higher payments because the actuarial tables used by life insurance companies project a shorter than normal life span.Income-reducing annuity: This form of joint-and-lastsurvivor life annuity provides higher monthly payments until the death of one spouse. Payments to the surviving spouse are then reduced. The rationale for this reduction is that one person will not require as much income as two.
Income fund: Mutual fund that invests primarily in fixed-income securities such as bonds, mortgages and preferred shares. Their primary objective is to produce income for investors, while preserving capital.
Income splitting: The spreading of income among family members.
Index fund: A mutual fund constructed to follow the basic stock markets, such as the Toronto 300 (TSE 300) or 35 Index (TSE 35) and the U.S. Standard and Poor's 500 (S&P 500). They usually rank in the upper 30 percent of performance, and generally mirror market performance.
Indexed annuity: Annuities structured to provide protection from inflation in return for lower payments - in the beginning anywhere from 30 percent to 45 percent less. Payments then increase every year, based on one of four formulas.
Individual Pension Plan (IPP): A registered pension plan designed for a specific individual, usually an owner/manager of a company.
Inflation: Annual cost-of-living increases, usually defined as changes in the Consumer Price Index (CPI), a Statistics Canada measurement of such changes.
Insured annuity: This combines two insurance products, a life annuity with no guarantee period, and a Term-to-100 life insurance policy. This product offers annuity payments with the additional feature of preserving capital for your estate. However, you must be in good enough health to qualify for the life insurance (able to pass a medical examination).
Interest: Payments made by a borrower to a lender for the use of the lender's money. A corporation pays interest on bonds to its bondholders.
Interest income: By far the most common source of investment income in Canada, from bonds, GICs, CSBs, deposit accounts, and other interest-bearing investments. Such income receives no tax advantage. An investor pays tax at his or her marginal rate (the rate paid on their last dollar).
International fund: A mutual fund that invests in securities of a number of countries.
Intrinsic value: The amount by which the price of a warrant or call option exceeds the price at which the warrant or option may be exercised.
Investment adviser: Investment counsel to a mutual fund. Also may be the manager of a mutual fund.
Investment company: A corporation or trust whose primary purpose is to invest the funds of its shareholders.
Investment counsel: A firm or individual which furnishes investment advice for a fee.
Investment dealer: A securities firm.
Investment fund: A term generally interchangeable with "mutual fund."
Investment Funds Institute of Canada (IFIC): The mutual fund industry trade association set up to serve its members, co-operate with regulatory bodies, and protect the interests of the investing public that use mutual funds as a medium for their investments.
Intestate: Dying without a will, where upon provincial regulations determine the distribution of the estate.Issued shares: The number of securities of a company outstanding. This may be equal to or less than the number of shares a company is authorized to issue.
Joint-and-last-survivor annuity: A variation on the life annuity theme, this pays between 10 percent and 15 percent less per month than a straight life annuity, but payments continue until the surviving spouse dies. This is most often the annuity option of choice for married couples.
Laddered annuities: Laddered, or staggered maturities, can be useful in a low interest rate environment. The process involves buying GICs (or bonds) where 20 percent of the total matures every year. The maturing principal is then reinvested each year for a new five year term. This enables the investor to benefit from any future increase in interest rates, and have money rolling over into the best interest rate available at the time.Letter of intent: An agreement whereby an investor agrees to make a series of purchases of mutual fund units.
Leverage: The financial advantage of an investment that controls property of greater value than the cash invested. Leverage is usually achieved through the use of borrowed money.
Liabilities: All debts or amounts owing by a company in the form of accounts payable, loans, mortgages and long-term debts.
Life annuity: Sold only by life insurance companies, this type of annuity has monthly payments - the highest of all annuities - that continue as long as the annuitant lives but stop the day the annuitant dies.
Life expectancy adjusted withdrawal plan: A plan through which a mutual fund investor's holdings are fully depleted while providing maximum periodic income over the investor's lifetime.
Life Income Fund (LIF): A special kind of RRIF for proceeds from locked-in RRSPs and LIRAs, with specific limitations. As with all RRIFs, a minimum amount must be withdrawn each year, but there is also an annual ceiling on how much can be withdrawn up to age 80. The remaining money stays locked in, just as with a pension or locked-in RRSP. In many provinces, you must buy a life annuity with the remaining balance of funds in a LIF by December 31 of the year in which you turn 80 (with a 60 percent survivor benefit, unless waived by your spouse).
Liquidity: Refers to the ease with which an investment may be converted to cash at a reasonable price.
Load: Commissions charged to holders of mutual fund units. (See sales charge.)
Locked-In Retirement Account (LIRA): See Locked-In RRSP.
Locked-In RRSP: When a person leaves a company and opts to take their pension plan dollars along, the funds must be rolled or transferred directly into a Locked-In RRSP, termed a Locked-In Retirement Account (LIRA) in certain provinces. The funds are exactly that "locked in" and, unlike ordinary RRSPs, cannot be withdrawn for any purpose, not even financial disaster, until retirement. At that point, you must buy a Life Income Fund (LIF) or an annuity.
Long-term asset: A mutual fund that charges a commission to purchase its shares.
Long-term debt: Debt that becomes due after more than one year.
Management company: The entity within a mutual fund complex responsible for the investment of the fund's portfolio and/or the administration of the fund. It is compensated on a percentage of the fund's total assets.
Management expense ratio: A measure of the total costs of operating a fund as a percentage of average total assets.
Management fee: The sum paid to the investment company's adviser or manager for supervising its portfolio and administering its operations.
Margin: An investor's equity in the securities in his or her account. The margin purchaser puts up a portion of the value of the securities, borrowing the remainder from the investment dealer.
Marginal tax rate: A taxpayer's highest rate - that which he or she pays on the last dollar earned in a given year.
Market correction: A term used to describe a drop in value in a market that has been rising for some period of time.
Market index: A vehicle used to denote trends in securities markets. The most popular in Canada is the Toronto Stock Exchange 300 Composite Index (TSE 300).
Market price: In the case of a security, market price is usually considered the last reported price at which the stock or bond is sold.
Market-Linked GICs: Similar to regular GICs in that full security of the original amount invested is guaranteed, but, instead of your return being based on a set interest rate, it's linked to how well a particular stock market performs over a specific period, generally two or three years.
Maturity: The point in time at which principal and all interest owing on a debt or an obligation become due.
Money market: A sector of the capital market where short term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold.
Money market fund: A mutual fund that invests exclusively in money market securities, those involved in the short- term lending and borrowing of money.
Money-purchase pension plans: These allow whatever pension income the accumulated contributions and return on investment in a Registered Pension Plan (RPP) will buy at retirement. Rather than receiving a predetermined pension cheque, employees make the decision - in the same way as with an RRSP - with regard to retirement income options.
Mortgage fund: A mutual fund that invests in mortgages. Portfolios of mortgage funds usually consist of first mortgages on Canadian residential property, although some funds also invest in commercial mortgages.
Mortgage-backed securities: Certificates that represent ownership in a pool of mortgages. The holders of these securities receive regular payments of principal and interest.
Mutual fund: A mutual fund pools money from many individuals and invests, according to its specific mandate, in a broad range of securities. Mutual funds are managed by professional money managers and provide extensive diversification.
Net asset value: The value of all the holdings of a mutual fund, less the fund's liabilities.
Net asset value per share: Net asset value of a mutual fund divided by the number of shares or units outstanding. This represents the base value of a share of unit of a fund and is commonly abbreviated to NAVPS.
No-load fund: A mutual fund that does not charge a fee for buying or selling its shares.
Odd lot: Any number of securities that represents less than a board lot.
Open-end fund: An open-end mutual fund continuously issues and redeems units, so the number of units outstanding varies from day to day. Most mutual funds are open-ended.
Option: The right or obligation to buy or sell a specific quantity of a security at a specific price within a stipulated period of time.
Over-the-counter market: A securities market that exists for securities not listed on stock exchanges. Bonds, money market securities and many stocks are traded on the over-the-counter market.
Overcontribution allowance: The amount of excess contribution permitted to RRSPs to provide a margin for error without incurring the overcontribution penalty of 1 percent per month. The 1995 federal budget reduced this allowance from $8,000 to $2,000, from 1996 forward.
Par value: The principal amount, or value at maturity, of a debt obligation. It is also known as the denomination or face value. Preferred shares may also have par value, which indicates the value of assets each share would be entitled to if a company were liquidated.
Pension adjustment: An amount that reduces the allowable contribution limit to an RRSP based on the benefits earned from the employee's pension plan or deferred profit sharing plan.
Pension plan: A formal arrangement through which the employer, and in most cases the employee, contribute to a fund to provide the employee with a lifetime income after retirement.
Permanent life insurance: Life insurance coverage for which the policyholder pays an annual premium, generally for a fixed period of time or the lifetime of the insured. This type of policy features a fund (the Guaranteed Cash Surrender Value) that allows for the setting of a fixed, level premium for the life of the contract. It is often, incorrectly, referred to as a savings component, due to it's similarities, but there are significant differences.Portfolio: The total of an individual's investments, including stocks, bonds, GICs, cash, etc.
Preferred shares: Preferred shares usually have a prior claim over common shares to the assets of the corporation. They pay dividends at specific rates and these must be paid before any dividends are paid on common shares. Preferred shares are usually bought for dividend income while common shares are bought for capital growth.
Premium: 1) The amounts paid to keep an insurance policy in force.
2) The amount by which a bond's selling price exceeds its face value.
Prescribed annuity: A prescribed annuity can only be purchased with non-registered funds - the money cannot come from an RRSP. Payments consist of principal and interest, and only the interest portion received during a calendar year is taxable. This effectively spreads the tax impact out over the life of the contract by keeping the taxable portion - the interest - at the same level throughout the life of the annuity. It can make sense at times to use such an annuity in combination with a RRIF
Present value: The amount of money that, if invested at today's interest rates, would grow to a future amount in a specific time period.
Price earnings ratio: The market price of a common share divided by its earnings per share for 12 months.
Primary distribution: A new security issue, or one that is made available to investors for the first time.
Prime rate: The lowest interest rate charged by chartered banks at a given time. Usually this rate is available only to a bank's largest customers. The prime rate is used as the basis for all other lending rates, including consumer loans, mortgages, and business loans.
Principal: The person for whom a broker executes an order, or a dealer buying or selling for his or her own account. Also, an individual's capital or the face amount of a bond.
Prospectus: The document by which a corporation or other legal entity offers a new issue of securities to the public.
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Ratio withdrawal plan: A type of mutual fund withdrawal plan that provides investors with an income based on a percentage of the value of units held.
Real estate fund: A mutual fund that invests primarily in residential and/or commercial real estate to produce income and capital gains for its unit holders.
Real estate investment trust: A closed-end investment company that specializes in real estate or mortgage investments.
Redeemable: Preferred shares or bonds that giver the issuing corporation an option to repurchase securities at a stated price. These are also known as callable securities.Registered Education Savings Plan (RESP): A vehicle through which parents or grandparents can save for a child's post- secondary education. Any money deposited into the plan is not tax deductible, but the earnings are sheltered from tax until drawn out for the child's education, and then taxed at the child's marginal rate.
Registered Pension Plan (RPP): The basic company private pension plan for employees, sponsored by employers or unions, usually jointly funded by workers and the company. Contributions to RPPs are tax deductible; payments received from the resulting pensions are taxable.
Registered Retirement Income Funds (RRIFs): A RRIF is basically a continuation of your RRSP, providing the same tax sheltering of principal and earnings, with one key difference. Instead of making contributions, you have to take out a minimum amount every year, based on age. The withdrawal rate increases annually before leveling off at 20 percent for those age 94 and older. In effect, a RRIF takes the accumulated savings of an RRSP and spreads the income over retirement years, while at the same time investing the monies not being used.
Registered Retirement Savings Plans (RRSPs): Tax-sheltered retirement savings plans for individuals, including the self-employed. RRSP contribution limits are based on earned income, and provide retirement income based on what the accumulated contributions and earnings will buy at conversion. This must take place no later than December 31 of the year in which you turn 69. Contributions to RRSPs are tax deductible, and withdrawals are taxable. RRSP contributors may also belong to an RPP, but their RRSP contribution limits are reduced by the amount of a pension adjustment, a measure of the benefits provided in the RPP. RRSPs set up to receive funds transferred from RPPs on the condition they be used solely for retirement income purposes are called locked-in RRSPs.
Retained earnings: The accumulated profits of a company. These may or may not be reinvested in the business.
Retiring allowance: A lump-sum payment made by an employer to an employee on termination, or an amount received on or after retirement in recognition of long service. This includes payment for unused sick leave as compensation for loss of employment. Such payments can be rolled over, or transferred, to an RRSP to defer tax, but only for years prior to 1996. Allowable amounts are up to $2,000 for each year of service, plus up to $1,500 for each year before 1989 in which no pension or DPSP benefits were earned - in addition to the normal limits for RRSP contributions. However, the 1995 federal budget eliminated this rollover provision for years of service after 1995, drastically reducing the amount of such a lump sum a person facing this situation will be able to shelter from taxes in the future.
Retractable: Bonds or preferred shares that allow the holder to require the issuer to redeem the security before the maturity date.
Reverse mortgage: A reverse mortgage allows people to generate income through the equity in their homes. The cash from such a mortgage can be invested or used to purchase an annuity that will pay a regular income. No payments are required on the mortgage. When the owner dies, the mortgage loan and interest are paid and the rest of the proceeds, if any, become part of the owner's estate. A reverse mortgage should usually be considered only by those in their 70s and 80s.
Rights: Options granted to shareholders to purchase additional shares directly from the company concerned. Rights are issued to shareholders in proportion to the securities they may hold in a company.
Risk: the possibility of loss; the uncertainty of future returns.
Sales charge: In the case of mutual funds, these are commissions charged to holder of fund units, usually based on the purchase or redemption price. Sales charges are also known as "loads."
Securities Act: Provincial legislation regulating the underwriting, distribution and sale of securities.Segregated funds: Investment vehicles offered by life insurance companies, similar to mutual funds but with several interesting differences. In a way, they combine the growth aspects of a mutual fund with the guarantees of a GIC.
Shares: A document signifying part ownership in a company. The terms "share" and "stock" are often used interchangeably.
Shareholders' equity: The amount of a corporation's assets belonging to its shareholders (both common and preferred) after allowance for any prior claim.
Short selling: The sale of a security made by an investor who does not own the security. The short sale is made in expectation of a decline in the price of a security, which would allow the investor to then purchase the shares at a lower price in order to deliver the securities earlier sold short.
Simplified prospectus: An abbreviated and simplified prospectus distributed by mutual funds to purchasers and potential purchasers of units or shares (see prospectus).
Specialty fund: A mutual fund that concentrates its investments on a specific industrial or economic sector or a defined geographical area.
Spread: 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 ask price for a security.
Spousal RRSP: An RRSP to which contributions are made by the plan holder's spouse.
Spouse: This term applies to a legally married or a common-law spouse. A common-law spouse is a person of the opposite sex who is living with you in a common-law relationship, which means that he or she is your child's natural or adoptive parent (legal or in fact); or has been living with you in such a relationship, for at least 12 continuous months, or previously lived with you in such a relationship for at least 12 continuous months (including any period of separation of less than 90 days).
Staggered Maturities: See Laddered Annuities .
Stock options: Rights to purchase a corporation's stock at a specified price.
Strip bonds: The capital portion of a bond from which the coupons have been stripped. The holder of the strip bond is entitled to its par value at maturity, but not the annual interest payments.
Successor annuitant: A designation used to ensure that a RRIF passes to your spouse undisturbed. Instead of naming your spouse the beneficiary of your RRIF, you can designate them as the "successor annuitant" - either in the fund itself or in your will. In this way, the RRIF will remain exactly the same, except that the name of the payee will be changed to his or hers. If you name the spouse as beneficiary of the RRIF, the assets may be cashed in and the proceeds rolled over into your spouse's RRIF Tax forms must be filed, and investments must be made anew.
Systematic withdrawal plan: Plans offered by mutual fund companies that allow unit holders to receive payment from their investment at regular intervals.
Tax credit: An income tax credit that directly reduces the amount of income tax paid by offsetting other income tax liabilities.
Tax deduction: A reduction of total income before the amount of income tax payable is calculated.
Technical analysis: A method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns.Term insurance: Temporary life insurance that covers the policyholder for a specific time.
Term to 90 annuity: An annuity that pays a fixed amount each year until it is exhausted in the year that the annuitant turns 90.
Term-certain annuity: Provides a fixed monthly income until you turn age 90. If you die earlier, payments continue t your surviving spouse until what would have been your 90th birthday. If your spouse is younger, you can base this type of annuity on their age, thereby extending the payment schedule. If you don't have a surviving spouse, the remaining payments are cashed out according to the insurance company's "commuted value" formula and are paid to your estate. In addition to life insurance companies, term-certain annuities are also offered by banks and trust companies.
Timing the market: This is where you attempt to guess when markets will go up or down and investing accordingly.
Trade: A securities transaction.
Treasury bill (T-bill): Short-term government debt. Treasury bills bear no interest, but are sold at a discount. The difference between the discount price and par value is the return to be received by the investor.
Trust: A legal arrangement under which title to property or assets is given to a third party, called a trustee, who manages it for the benefit of a beneficiary or beneficiaries.
Underwriter: An investment firm that purchases a security directly from its issuer for resale to other investment firms or the public or sells for such issuer to the public.
Unit trust: An unincorporated fund whose organizational structure permits the conduit treatment of income realized by the fund.
Universal life insurance: A life insurance term policy that is renewed each year and which has both an insurance component and an investment component. The investment component invests excess premiums and generates returns to the policyholder.
Variable life annuity: An annuity providing a fluctuating level of payments, depending on the performance of its underlying investments.
Vesting: In pension terms, the right of an employee to all or part of the employer's contributions, whether in the form of cash or as a deferred pension.
Voluntary accumulation plan: A plan offered by mutual fund companies whereby an investor agrees to invest a predetermined amount on a regular basis.
Zero coupon bond: A bond that pays no interest and is initially sold at a discount.