With the market crash in 2008, investors have been looking for a new way to invest. There are many different types of investments that people can choose from, but what’s the best investment?
When it comes to being an investor or entrepreneur, there is frequently a steep learning curve. No matter where you are in your professional career, even if you are a seasoned company owner or investor, you must continue to learn. There’s always a new program or tool to learn, new issues to tackle, and new language or financial terminology to grasp.
To help you comprehend what you’re reading, we’ve compiled a list of the most essential financial terminology and concepts you’ll need to know as an investor or entrepreneur. We hope that this dictionary of words and meanings will assist you in your quest for success as a company owner, investor, or both.
- Account Statement: Details of transactions and their impact on account balances over a period of time.
- Accumulation Plan: A contract that enables a mutual fund investor to purchase shares in smaller or greater amounts.
- Active Investment Strategies: A portfolio management approach that entails making frequent changes and decisions. What to purchase, how to buy, and when to buy are all part of the plan.
- The amount needed to calculate the cost of an investment for tax reasons is known as the adjusted cost base.
- A time when buying or selling products is inappropriate due to adverse market conditions.
- Alpha is the percentage by which a money manager’s performance exceeds that of his or her benchmark index.
- The Alternative Minimum Tax (AMT) is a 1986 tax reform legislation aimed at collecting a portion of the tax from affluent people, companies, estates, and other entities.
- Converting short-term computations into yearly numbers is known as annualization. For a better understanding of the profit, investments with short-term returns are converted to yearly numbers.
- Annuity: An annuity is a kind of financial instrument that provides set and ongoing payments. They are mostly utilized by retirees and are provided by organizations that collect money from people and then provide a monthly stream of payments to assist with day-to-day costs. The annuity is paid for a certain amount of time, referred to as the accumulation period. The annuity starts to pay once the accumulation period has ended, which is known as the annuitization phase.
- Appreciation is a term used to describe the increase in the value of a financial asset.
- Arbitrage is the act of purchasing goods/assets from one market and selling them in another. The goal of this strategy is to benefit from price disparities between two marketplaces caused by currency variations, high/low pricing factors, and so on.
- The lowest price that sellers are willing to pay for a stock is known as the ask price. It’s always higher than the starting offer.
- Asset Allocation: A planned process of dividing a portfolio into different assets such as stocks, bonds, cash, and so on. When allocating assets, factors such as age, portfolio size, risk tolerance, and investment horizon all play a role.
- Asset-Backed Security (ABS) is a kind of collateral used as a form of financial security, such as loans, credit card debts, receivables, royalties, leases, and so on. It may be used to invest in corporate debt as an alternative.
- A collection of assets that are similar in character and follow the same laws and regulations is referred to as an asset class. Stocks, bonds, and cash equivalents are the three most prevalent asset classes. With the passage of time, real estate, futures, cryptos, and commodities have been added to the mix.
- Asset Mix: An asset mix is a percentage-based investment of net assets in several classes of securities at a given period.
- Asset Class Performance: Asset class performance refers to the anticipated future risk and return from asset classes. It is based on past performance criteria and is concerned with how the various classes perform in comparison to one another.
- AMC stands for Asset Management Business, and it is a company that watches after and manages investors’ assets.
- Assets Under Management: Assets Under Management refers to the total amount of all investments that are handled by funds.
- Agents or financial institutions charge an asset management fee for managing your assets. They’re usually expressed as a percentage and vary from one business to the next.
- Investors pay a back end load when they sell mutual fund shares. This charge is based on a percentage of the selling share’s value.
- Back Office: A section of a business managed by administrators and support staff. They don’t interact with customers, but they do take care of things like record keeping, account services, IT services, clearances, and settlements.
- A comprehensive sheet that shows the balance of income and spending over a period of time. Assets, liabilities (debts, etc.) and shareholder equity are the three components.
- A balanced fund is a mutual fund in which the businesses selected come from many areas and sectors. By combining preferred, ordinary stocks, and bonds in a portfolio, it seeks income and growth.
- Bears are investors who think that stock values will fall in the future. They also plan to benefit from a market that is falling.
- Bear Market: A bear market occurs when equities have a significant drop over a lengthy period of time, typically with a loss rate of 20% or more. The decrease is accelerating as a result of widespread pessimism, the recession, and the rising unemployment rate. A bear market is the polar opposite of a bull market.
- Bearish: It indicates that stock values are trending downward.
- Quartile Ranking by Bell Charts: A method of comparing a fund’s performance to that of other mutual funds in Canada. The majority of the funds have similar investing objectives.
- A bellwether security is one that predicts a market’s trajectory.
- Benchmark: When comparing performance, it is a common practice to use an unmanaged index as a benchmark.
- A person who benefits from an investment is referred to as a beneficiary.
- The term “beta” relates to a method of calculating volatility:
- The number one denotes neutrality.
- More than one indicates that the situation is more volatile.
- A value of less than one indicates a lower level of volatility.
- Blue Chip: A phrase for big, well-established businesses with a lengthy track record of excellent performance. It’s a high-quality investment with a low-risk profile. The phrase “blue chip” comes from the game of poker, where the most valued chips are blue.
- A governing body or a group of elected individuals who establish organizational policy is known as a board of trustees.
- A bond is an IOU or a loan issued by a company, the United States government, or a municipality. The individual on the receiving end agrees to pay back the whole amount plus interest on a specific data set at regular periods. Sovereign governments and organizations often utilize them to finance initiatives.
- Bond Fund: A bond fund is a mutual fund that mainly invests in bonds.
- Bulls are investors that think stock prices will rise in the future. They are enthusiastic about the market and want to take advantage of it.
- A bull market is one in which the market is thriving due to an increase in the number of buyers and sellers. Prices may potentially rise as a result of these circumstances. A bull market is the polar opposite of a bear market.
- Capital refers to assets that are held in cash. Machineries, equipment, real estate, and other items are all examples of the word. Anything that has a monetary worth and can be turned into cash is considered capital.
- Profit made by selling an asset at a higher price than when it was acquired. However, depending on where you reside, a portion of the money is taxed.
- Long-Term Capital Gains: The profit made over time by selling an asset for a greater price than when it was acquired.
- Short-Term Capital Gains: Profit made in a short period of time (less than a year) by selling an asset for a greater price than it was bought for.
- Capital Loss: The loss incurred when an asset is sold for less than its original purchase price.
- A cash advance is a short-term loan obtained from a bank or other lending institution. It also refers to the credit limit provided by credit cards. Cash advances may be costly owing to high interest rates, but they are simple to get.
- Capitalization is calculated by multiplying the share price by the number of outstanding shares. It also refers to a company’s long-term debt, retained profits, and stocks in finance. Furthermore, in accounting, it refers to how the expenses of acquiring an item are expensed over a lengthy period of time rather than the period during which the cost was spent.
- Cash Equivalent: A cash equivalent is any kind of instrument that can be readily liquidated into cash. It may be a treasury bill or a buyback agreement.
- Closed-End Fund: A closed-end fund is a funding business that provides a non-redeemable fixed number of shares that may be purchased and sold on the stock market. It is also available for purchase/sale over the counter.
- Common Stock: A word used to describe stock ownership in a company with voting rights in its operations.
- CDSC (Contingent Deferred Sales Charge): A back end sales charge is imposed as a fee when a fund is redeemed. This is known as a contingent deferred sales charge, and it may go down over time.
- A corporate bond is a long-term bond issued by a company to obtain funds from investors.
- Nation Breakdown: A portfolio’s security breakdown based on a country.
- Custodian: A financial institution that takes custody of a customer’s asset or security for security concerns.
- Cut-Off Point: This is the point at which an investor decides whether or not to purchase a certain asset. It’s a personal thing that varies from person to person.
- Dealer: A dealer is a broker who acts as the principal in all transactions.
- Diversification is a risk management technique that entails investing in a variety of securities or assets in order to reduce risk. It is based on the age-old adage of avoiding placing all of your eggs in one basket.
- Dividends are a portion of a company’s earnings that is distributed to preferred and ordinary stockholders. Dividends are the sums of money given to shareholders by a business from its earnings. They may be paid yearly or according to the agreed-upon conditions.
- Dollar Cost Averaging is the practice of investing a certain amount of money at regular periods regardless of the share price. When prices are low, you receive more shares, and when prices are high, you get fewer shares. This phenomenon aids in lowering the average cost of investment.
- Earnings Per Share (EPS) is the amount of money earned per outstanding share of common stock during a certain period of time.
- Equity is the amount of money that would be given to shareholders if all of the company’s debts were paid off and all of the company’s assets were liquidated.
- A mutual fund that invests mostly in equities is known as an equity fund. They are also divided into groups based on the size of the business, its location, and the investing strategy of its assets.
- A marketplace where commodities, securities, derivatives, and other financial instruments may be traded fairly.
- Exchange Privilege refers to the ability to move money from one mutual fund to another within the same fund family.
- Expense Ratio: This is the proportion of a mutual fund’s average net asset value to its yearly operating costs.
- Additional Dividend: An extra dividend is a kind of payment given by a business to its shareholders. These are bigger, one-time payments made in cash.
- Bonds are purchased as investments in a fixed income fund or portfolio. Furthermore, there is no set maturity date or assurance of repayment.
- A security that pays a predetermined rate of interest and principal payments on a regular basis is known as a fixed income security. It’s a kind of debt instrument that pays out at the end of its term.
- An investment fund is a collection of money invested by a group of people as a whole. A individual (money manager) or a financial institution may be in charge of it.
- GAAP: A set of recognized accounting rules that organizations, accountants, and businesses must follow while preparing financial accounts. GAAP standards must be followed by all publicly listed businesses.
- A group annuity is a retirement or pension scheme in which a group of individuals receives premium monthly payments. A life insurance company often issues the contract, which includes tax-qualified retirement plans. Employees hold just units in the fund, not full shares.
- Growth Investing: A technique for identifying companies whose profits are anticipated to increase at a faster pace than the market average. It focuses on capital appreciation and may include stock purchases that seem to be overvalued based on price-to-earnings ratios.
- Hedge Fund: A hedge fund is a kind of investment that utilizes pooled money to generate alpha for investors by using a range of techniques. They are usually handled aggressively, although some make use of leverage and derivatives to increase returns. They vary from other investing choices like mutual funds in that they are subject to less restrictions. They may, however, be limited to authorized investors.
- Historical Volatility: Changes in the stock price over a period of time.
- Index Fund: A mutual fund that tracks a certain index to match returns.
- Interest is the additional expense of borrowing and utilizing someone else’s money. It is measured in percentage and may be paid or earned.
- Interest Coverage Ratio: A debt ratio that indicates how quickly a business can pay off an outstanding debt’s interest.
- Joint And Survivor Annuity: A two-person (combined) insurance policy that continues to pay both participants even if one of them dies.
- Bonds with a credit rating of BB or below (greater risk of loss) are classified as junk bonds. They are high-yield bonds for which a good credit history is not required.
- KYC (Know Your Client) is a regulation that requires financial advisers to learn about an investor’s investing objectives and appreciate their advice.
- Last Price: The most recent price at which a buyer or seller agrees to do business.
- Late Fee: A fee that a client must pay after the due date has past in order to make the minimum payment on a credit card.
- Leverage is an investing technique that includes financing assets using borrowed money and one’s own cash. The goal is to enhance the overall value return. It is, however, a hazardous investment.
- A leveraged buyout is a financial transaction in which debt and equity are used to purchase a business. The company’s own cash flow was utilized as security in this transaction.
- Liability: The amount owed to a creditor by people or businesses for previous transactions. On the balance sheet, it is often used alongside the term payable.
- Life Annuity: A plan in which the annuitant receives set payments for the remainder of his or her life.
- Limit Order: A purchase or sell order for a certain asset or security at a specific price.
- Liquidity refers to the process of turning securities into cash. Treasury bills, bank checks, and other similar documents fall under this category.
- Management Charge: The fee paid to the manager or adviser of an investment firm to oversee your portfolio and handle associated activities.
- Marginal Trading: When a user borrows money from a broker, he or she may purchase additional stocks. The advantage of this deal is that the investor may purchase a stock for just 30% to 50% of the transaction value.
- Market Capitalization: A company’s total market value stated in dollars.
- Market Neutral Funds: By holding half of their assets in short and long stock positions, these funds help to minimize market risk.
- The present market price of an asset, i.e. the price at which it may be purchased.
- Market risk refers to the chance that a specific investment may fail to succeed and profit. It can be found in virtually every investment.
- Market timing is a trading technique that includes moving in and out of a financial market or switching between asset classes.
- Maturity refers to the amount of time a loan has left to pay off. Bond maturity, for example, is the period of time between when a bond is issued and when it matures. The majority of assets only pay off after they have reached maturity. Trying to sell an asset before it matures may be expensive.
- Maturity Date: The date by which a loan must be paid off in full.
- The market capitalization (number of outstanding shares multiplied by market price) of the companies in a portfolio’s median market cap.
- Mid Cap: The stock market capitalization of companies with market values ranging from $3 billion to $10 billion.
- Money Market Mutual Fund: A fund that invests only in high-liquid assets such as treasury bills in order to preserve the principle and generate income.
- Mortgage: A mortgage is a loan instrument backed by real estate. The borrower must repay the loan amount, plus interest, according to the terms of the contract. Businesses and individuals often utilize mortgages to invest in real estate. They usually last many years. Until the mortgage is paid off, the borrower does not completely own the property. They’re also known as ‘liens against property,’ since the lender may choose to foreclose.
- Mortgage-Backed Security (MBS): A loan backed by mortgages. Its goal is to lower bank risk and increase liquidity.
- A mutual fund is a collection of investments established by a group of people who pool their money to purchase a variety of assets. The fund manager selects these assets to create the greatest possible portfolio. The acquired assets are subject to a management charge of 0.5% to 2% each year. A mutual fund may invest in stocks, real estate, bonds, and other assets. It enables investors to spread their money across various assets, lowering their risk.
- NAVPS stands for net asset value per share, which is the market value of a single share or one unit of a mutual fund.
- Net income is the profit remaining after expenditures and costs have been deducted from an investment.
- No-Load Fund: A mutual fund that allows you to purchase and sell stocks without incurring any fees.
- Non-registered account: A non-registered account is an open account that is not tax-sheltered.
- Number Of Holdings: The number of individual securities included in a portfolio is referred to as the number of holdings.
- Overweight is one of the three-tiered grading systems used in the stock market. The other two are underweight and in the same weight range. When a stock is overweight, it implies it provides greater value for money than other accessible stocks.
- Over The Limit Fee: An over the limit cost is a fee imposed when a balance exceeds the credit limit.
- Par Value: Par value refers to the face value of a bond that determines its maturity date.
- Passive Investing: A mutual fund that follows a market index, such as the S&P/TSX. The advantage of this kind of investment is that it needs less portfolio administration, resulting in a reduced management cost.
- Dividend payout ratio: A percentage of a company’s profits distributed to shareholders in the form of dividends. It is the amount of the company’s profits expressed as a percentage.
- PEG Payback: A ratio used to calculate the length of time it would take for a business to double its money.
- Penny Equities: These are low-cost stocks with a share price of less than $1.
- Pension Plan (Canadian): A pension plan in Canada that pays out a portion of the contributor’s wages to the contributor’s family or the contributor himself after retirement, disability, or death. It’s also known as CPP.
- Price to Earnings Ratios: The amount of money an investor may put into a business in exchange for one dollar of earnings. To put it another way, it’s the ratio of a company’s share price to its earnings per share.
- Qualified Access: This is a kind of fund that only allows specific investors to invest. The limitations may be religious, membership-based, or otherwise.
- The quick ratio is a measurement of a company’s capacity to meet short-term commitments using its liquid assets. In other terms, it is the difference between the company’s total current assets (excluding inventory) and total liabilities (current).
- Rebalance: Buying and selling assets to rebalance the asset allocation of the original mix.
- A period of economic decrease in commerce or industrial activity is known as a recession.
- When an investor’s capital is returned in a fixed income instrument, this is known as redemption.
- Redemption Fee: A redemption fee is a fee paid when an investor’s shares in a fund are sold. This charge is sent into the fund company’s account and is also known as a “exit fee.”
- RRSP: A Canadian contract that provides retirement payments to Canadians that is registered under section 146 of the Income Tax Act. The advantage of an RRSP over other savings accounts is that it grows tax-free.
- A stock is a kind of equity investment that allows you to own a portion of a business. It’s a long-term investment option that offers purchasers ownership of a company but not necessarily the ability to make business choices. There are many different kinds of it.
- Common Stock: This represents residual ownership and is governed by a board of directors, which means that the stockholder has little influence over the stock.
- Preferred Stock: This kind of stock has a higher priority than ordinary stocks since the owner receives a set dividend. Preferred stock, on the other hand, has a greater claim on assets than ordinary stock.
- A shareholder is a person who owns a share of a company’s stock. They are entitled to a portion of the company’s profits, assets, and income, as well as fresh shares and voting rights.
- Technical analysis is a kind of financial study that gathers market data in order to verify stock price forecasts using historical stock data. It examines previous pricing, transactions, and so on. Reading stock price charts, looking at trading volume, and filtering out small price changes are all ways to accomplish it. This aids an investor in making an informed choice.
- Transfer Fee: A transfer charge is a fee that must be paid when units are transferred internally from one fund to another.
- Tax-Exempt Income: Tax-exempt income is the amount of money that is not subject to taxes.
- TFSA: A Canadian government program that exempts Canadians from paying taxes on interest earned on designated savings accounts. Let’s suppose you establish a normal savings account and a TFSA account, both with $5,000 and a 5% interest rate and a marginal tax rate of 28%. Assume that both accounts are valued $5,250 after one year. This implies that the ultimate amount in a normal savings account will be $5,180 owing to interest tax, while with a TFSA, which is a tax-free account, you would get the entire $5,25.
- Top ten holdings: A portfolio’s ten largest holdings based on asset value.
- Top 10 long and short positions: In each position category, the top 10 holdings are ordered by their market value. There are both long and short positions involved. An investor who takes a long position buys stock with the hopes of profiting as the stock price rises. A short position entails an investor selling borrowed stock shares. The aim is to profit from a drop in the stock price.
Mutual Funds: What Are They and How Do They Work?
- Canadian Equity Funds: These funds invest in Canadian equity securities including common stocks.
- Canadian Resource Equity Fund: To invest in Canadian resource centers such as mining, forestry, and natural gas companies, among other things.
- U.S. Equity Funds: These funds invest in US equity securities and common equities.
- North American Stock Funds: These funds invest in both Canadian and American businesses, as well as Mexican equity instruments.
- Global Equity Funds invest in foreign and Canadian issuers’ equity instruments and common stocks (not limited geographically).
- International Equity Funds invest in overseas issuers’ common stocks and equity securities, but not in Canadian securities.
- Asia-Pacific Rim Equity Funds: These funds invest in equity securities and common stocks with a focus on the Asia-Pacific area.
- European Equity Funds: These funds invest in equity securities and common stocks with a primary focus on Europe.
- Dividend Funds: These funds invest in high-dividend-paying Canadian stocks.
- Canadian Bonds And Income Funds: Investing in Canadian government and business fixed income assets.
- Bond and income funds in the United States and abroad: Investing in Canadian, international, and US corporate securities.
- Investing in commercial and residential mortgages via mortgage funds.
- Canadian Balanced Funds: These funds invest in a variety of Canadian bonds and equities, but each has a minimum holding requirement.
- Asset Allocation Funds: These funds invest in a variety of securities such as bonds, stocks, and other products that fluctuate with the economy. It does not require any upkeep for small properties.
- Short-term government bonds, Treasury bills, certificates of deposit, commercial papers, and other assets in the Canadian market are included in money market funds.
- Real Estate Trust Funds (RETFs) are mutual funds that invest in real estate or commercial property.
- Specialty Funds: These funds invest in niche markets. For instance, high-quality metals, commodities, and so forth.
- Valuation is the process of estimating a company’s worth or value. An analyst monitors the company’s management, capital structure composition, future earnings prospects, market value of securities and assets, and other factors. It has a significant effect on investments since it aids in the determination of an asset’s fair value.
- Value Stock: A worth stock is one that is traded at a discount to its inherent value. Dividends, sales, profits, and so forth are examples of these.
- Withholding tax is a kind of tax that is deducted at the point of origin.
- The year-to-date total return on an investment is referred to as the YTD total return.
- Yield: The annual percentage rate of return on capital.
The investment terms and conditions are a set of rules that an investor or entrepreneur must abide by. They can be complicated, but it is important to know the terminology.
Frequently Asked Questions
What financial skills does an entrepreneur need?
An entrepreneur needs to be able to start a business, be creative and have the ability to think outside of the box.
What are the basic financial terms?
The basic financial terms are the return on an investment.
What an investor needs to know?
An investor should be aware of the risks involved with investing in a start-up company, as well as the potential for high returns.
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