Thursday, January 24th, 2019
Preet Banerjee explains the top 14 investment terms to know. Download this one handy cheat sheet here.
An investing strategy where you're simply trying to match the performance of a market (like the Canadian stock market, or the U.S. bond market, etc.), usually by holding a fund that mimics the makeup of that market. Because replicating the holding of a market requires fewer resources than an investment strategy that tries to outsmart a market, costs are lower. Paying lower costs means more of your money stays invested with the potential to grow.
When you buy a fixed income investment (like a bond), you're essentially lending money to a company or government. The regular interest payments are the "fixed income." Fixed income investments generally have lower risk and lower returns than equities over long periods of time.
a.k.a. stocks. Represents ownership in companies (hence, “equity"). Generally higher risk and higher returns than fixed income over longer time frames (10 years+), but can underperform fixed income over shorter time frames.
The ratio of asset classes in your overall portfolio. Generally, the higher the allocation to stocks (equity), the higher the risk and potential returns. The higher the allocation to bonds (fixed income) or cash, the lower the risk and potential returns. You'll want to choose an asset allocation tailored to your risk profile, time horizon and goals. Someone with a long time horizon and an aggressive risk profile will have a higher allocation to equity than someone with a short time horizon or a more conservative risk profile.
An investment fund that pools together contributions from individual investors to form a large pot of money that's collectively invested on behalf of the individual investors.
A general term used to refer to buyers and sellers of stocks (and other investments) around the world.
An automated series of contributions to an investment or portfolio of investments.
A one-time contribution into an account. You can make multiple lump sum investments, but each requires initiating a separate transaction.
Possibility of a loss in value. Sometimes used interchangeably with “volatility."
Reducing risk by spreading out your money invested into different investments.
Used to mean the phase of life after your last day of work, often around age 65. It's a more fluid concept now.
An account into which you put money, specifically designed for long-term savings and/or investing. Investments inside the account are sheltered from tax. Contributions qualify as income deductions (which can reduce your income tax owing), but withdrawals are added back to your income (which can increase your income tax owing).
Another type of account viewed as more flexible than an RSP. Used for short-term, medium-term, or long-term goals. Despite the name, can also hold investments. Investments inside the account are also sheltered from tax. However, contributions to a TFSA don't reduce tax, but withdrawals are not taxable either.
A fee is generally a cost paid in exchange for a service, such as investment management. All other things being equal, lower fees mean higher returns.