Properties of a group are considered to be identical if each property in the group is the same as the others. The most common examples of identical properties are shares of the same class of the capital stock of a corporation or units of a mutual fund trust. You may buy and sell several identical properties at different prices over a period of time. If you do this, you have to calculate the average cost of each property in the group at the time of each purchase to determine your ACB (dispositions of identical properties do not affect the ACB). The average cost is calculated by dividing the total cost of identical properties purchased (this is usually the cost of the property plus any expenses involved in acquiring it) by the total number of identical properties owned.

Return of an investment after income tax deductions.

A percentage rate of change calculated to show what the change would be over one year. Whether an annualized rate for a short period would be indicative of average growth over the coming year depends on how much the variable in question is subject to short-term changes, such as seasonal factors or special developments. Barring any short-term changes, if economic growth in the first quarter of a year were 1 per cent, the annualized rate would be about 4 per cent. (It would slightly exceed 4 per cent because of compounding.)

Annuity (rente viagère)

Price a seller is ready to sell a security or other financial instrument on a recognized market.

The process of repositioning assets within a portfolio to maximize returns for a given level of risk. This process is usually done using the historical performance of the asset classes within sophisticated mathematical models.

A specific category of investment, such as: cash, bonds, equities and real estate. Assets within the same class generally exhibit similar characteristics, behave similarly in the marketplace, and can be subject to the same laws and regulations.

The examination of the accounting and financial documents of a firm by an objective professional. The audit is done to determine the records’ accuracy, consistency and conformity to legal and accounting principles.

The minimum lending rate of the Bank of Canada. It is applied to advances to institutions that are members of the Canadian Payments Association, and to purchase and resale transactions with key investment dealers in the money market. It is also the primary indicator of the Bank of Canada’s monetary policy. The bank rate is an important tool because it is seen as the trend-setter for other short-term interest rates. Changes in the bank rate often lead to changes in the prime rate, which is the rate of interest that commercial banks charge to their lowest-risk customers. Other rates can be affected including those for mortgages, cars and business loans, as well as rates paid to savers on deposits and investment certificates.

Short-term negotiable commercial paper issued by a non-financial corporation but guaranteed by a bank.

One one-hundredth of a percentage point. Thus, 100 basis points equal 1 percentage point and 25 basis points equal one quarter percentage point. If the bank rate decreases from 5.45% to 5.35%, it went down 10 basis points.

Market in which prices are generally declining and the underlying sentiment reinforces that decline.

Price a buyer is ready to pay for a given asset (e.g. stocks, bonds). The bid-offer spread is the difference between the bid and offer prices.

Value of a corporation or of a corporate asset according to accounting records, which is determined by dividing the number of issued shares into a company’s net assets.

Rising market, or a market in which further price increases are expected, due to strong demand.

A savings product for individual Canadians, introduced by the Government of Canada in 1998. It offers a higher interest rate compared to the Canada Savings Bond and is redeemable once a year on the anniversary of the issue date or during the 30 days thereafter without penalty.

CSBs are currently offered for sale by most Canadian financial institutions to individual Canadians. CSBs pay a competitive rate of interest that is guaranteed for one or more years. They may be cashed at any time and, after the first three months, pay interest up to the end of the month prior to encashment.

The difference between the sale and the purchase price of a capital asset such as a share, bond, etc. If the difference is positive, there is a capital gain. If the difference is negative, there is a capital loss. For example, if a share is bought at $26 and sold at $30, there is a capital gain of $4; the taxable capital gain is equal to half this amount, or $2, and must be included in the taxpayer’s revenue.

The generic term for goods such as grains, foodstuffs, livestock, oils and metals (which are traded on national exchanges. These exchanges deal in both “spot” trading (for current delivery) and “futures” trading (for delivery in future months).

Market where short-term assets are borrowed, invested or exchanged by means of financial instruments such as Treasury bills, bankers’ acceptance, commercial paper and bonds with a maturity of one year or less.

Sale or purchase price of one unit of a mutual fund. The net asset value is calculated by dividing the market value of the fund’s assets by the number of units issued and outstanding.

A market outside an organized exchange in which transactions are conducted among dealers through telecommunications.

A class of equity capital that ranks ahead of common shares in respect of dividends and distribution of assets upon the dissolution or winding up of a company. Preferred shares may have certain restrictions, for example with respect to voting rights.

Price of a stock (usually at the end of a fiscal period) divided by the earnings per share of the stock for the same period.

Market for new issues of securities.

A document required by securities laws to be filed and made available to potential investors in the context of a public securities offering. The prospectus must contain full, clear and plain disclosure of all material facts about the securities and the issuer.

A contributory, earnings-related social insurance program which ensures a measure of income protection to contributors and their families against the loss of income due to retirement, disability or death. The plan operates only in Quebec; throughout the rest of Canada a similar program (the Canada Pension Plan) is in effect.

The nominal interest rate minus the inflation rate, i.e., the rate of interest excluding the effects of inflation. All else being equal, the higher the current inflation rate, the higher nominal interest rates will be. With a nominal interest rate of 7 per cent on a loan and inflation at 2 per cent, the real interest rate is 5 per cent (7 – 2 = 5). Lenders will often use predicted inflation rates to calculate the expected real interest rate for a given nominal interest rate. The creditworthiness of the borrower and the perceived risk of the investment are other major factors affecting interest rates.

Government of Canada RRBs pay semi-annual interest based on a real interest rate. Unlike standard fixed-coupon marketable bonds, interest payments on RRBs are adjusted for changes in the consumer price index.

RPPs are pension plans for employees sponsored by employers or unions and usually funded through contributions by both employees and employers. RPPs must satisfy certain conditions and be registered for the purposes of the federal Income Tax Act. Contributions to RPPs are tax deductible, the investment income in them is tax-deferred and payments from them are taxable.

RRIFs are funds for individuals, established at financial institutions and registered under the Income Tax Act, that provide income in retirement. RRIFs are established by directly transferring monies from registered retirement savings plans or from lump-sum payments from registered pension plans. Amounts withdrawn from RRIFs are taxable. A minimum amount must be withdrawn from a RRIF each year, beginning in the year after the RRIF is established.

RRSPs are savings plans for individuals, including the self-employed, that have been registered for the purposes of the federal Income Tax Act. RRSP contribution limits are based on earned income. RRSPs provide retirement income at retirement based on accumulated contributions and return on investment in the plan. Contributions to an RRSP are tax deductible, the investment income in it is tax-deferred and payments from it are taxable. Annual contributions are limited to 18 per cent of earnings up to a maximum determined by the federal Income Tax Act. The deduction limit for each individual is shown on the Notice of Assessment issued by Revenue Canada after the individual has submitted his yearly income tax return. RRSP contributors may also belong to a registered pension plan (RPP), but their RRSP contribution limits are reduced by the amount of a pension adjustment that is a standardized measure of the RPP contributions made by and on behalf of the RPP member. Unused RRSP contribution room may be fully carried forward to future years.

In general terms, a lump sum payment made by an employer to an individual upon termination of employment.

A retiring allowance rollover can be transferred to a registered retirement savings plan (RRSP) to defer tax. This is in addition to the normal limits for RRSP contributions. A portion of a retiring allowance may be transferred to an RRSP. An individual may transfer up to $2,000 for each year of service before 1996 plus up to $1,500 for each year of service before 1989 in which no pension or deferred profit-sharing plan benefits were earned.

The return on an asset or a portfolio of assets, adjusted to reflect a specific risk level.

Degree to which an investor is unwilling to assume a risk.

The process of measuring risk and developing strategies to manage it. In the field of investments, it means controlling the likelihood and potential severity of negative returns. Strategies include, among others, diversification, either at the security, asset class or geographic level and management style diversification.

A market where securities are bought and sold subsequently to original issuance, which took place in the primary market.

Interest rate applying on money lent for a period of less than three years.

A statistical measure of the volatility of a portfolio, usually computed with at least 36 monthly returns. Standard deviation is compared to the annual rate of return of an investment to measure the portfolio’s volatility. A stable portfolio generally has low standard deviation.

Diversification strategies designed to maximize a portfolio’s risk adjusted returns. These strategies include, among others: security, asset class, geographic or management style diversification.

Portion of the capital gains accumulated during the year which must be included in a taxpayer’s revenue (an amount equivalent to half the net capital gains). For example, if a share is purchased at $26 and sold at $30, there is a capital gain of $4. The taxable capital gain is equivalent to half this amount, or $2, and must be included in the taxpayer’s revenue.

The range of taxable income that is taxed at a certain rate. Brackets are expressed by their marginal rate.

Tax credits, the most appealing type of tax deductions, are subtracted directly, dollar for dollar, form your income tax bill.

Interest, dividends or capital gains that grow untaxed in certain accounts or plans until they are withdrawn.

Any investment sold on the basis that the buyer receives accelerated deductions or credits. Flow-through shares are examples of tax shelters.

An approach to investing in stocks in which a stock’s past performance is mapped onto charts. These charts are examined to find familiar patterns to use as an indicator of the stock’s future performance.

A trust generally created by a will which takes effect upon the death of the testator (author of the will). Under the terms of the will, the deceased’s property is managed on behalf or distributed to the beneficiaries by a trustee in accordance with the deceased’s instructions.

The total of all earnings from a given instrument, including dividends, interest and any capital gain.

Government of Canada T-bills are issued in denominations ranging from $1,000 to $1,000,000. New issues are sold by public tender at a discount. T-bills with terms to maturity of 3, 6 or 12 months are auctioned on a bi-weekly basis, typically on Tuesday for delivery on Thursday. From time to time, shorter-term cash management bills are also auctioned. The difference between the purchase price and the face amount represents the return to the investor.

An arrangement under which money or other property is held by one person or company, often a trust company, for the benefit of another person or persons. These assets are administered according to the terms of the trust agreement. Each province has a trustee act, which regulates the kinds of investments that can be made by the trustees of a trust fund.

Volatility refers to the amount of uncertainty or risk about the size of changes in a portfolio’s value. A high volatility level means that the market value of the portfolio can change dramatically over a short time period in either direction. A low volatility level means that a portfolio’s value does not fluctuate dramatically, but changes in value at a steadier pace over a period of time.

A legal document that declares a person’s wishes concerning the disposition of property, the guardianship of children, and the administration of the estate after death.

In general, the yield is the amount of current income provided by an investment. For stocks, the yield is calculated by dividing the total of the annual dividends by the current price. For bonds, the yield is calculated by dividing the annual interest by the current price. The yield is distinguished from the return, which includes price appreciation or depreciation.

This type of bond makes no periodic interest payments but instead is sold at a steep discount form its face value. Bondholders receive the face value of their bonds when they mature.