This page is to be a growing glossary of terms that are used in the pages of In Search of Salt. It is not meant to be a full list of terms on investing, but rather a list of terms that I have used in posts. Nor is each definition to be exhaustive by any means. Instead, it is meant to give a brief definition for basic understanding.
I Hope you find it useful.
Actively Managed Fund - A mutual fund where the manager of the fund actively trades securities. These funds have higher expenses than passively managed index funds due to trading expenses, and the payments made to the fund manager.
Arbitrage - The act of buying a security on one exchange and selling it on a different exchange to take advantage of price differences and exchange rates.
Automatic Withdrawal – A system whereby a person sets up a pre-determined amount of money to be taken out of their account at certain intervals. Ex. You set up your account so that $100 dollars is transferred from your chequing account to your high interest savings account on the 20th of each month.
Bank Run – When several clients of a bank withdrawal their deposits at said bank simultaneously. This happens in severe economic stress when the clients lose faith in the bank’s ability to keep their money safe. It happened to many banks during the Great Depression, and to a few banks during the Great Recession.
Book Value (Corporation) – The theoretical value of a business, should all of its assets be sold at the value calculated on its balance sheet. In reality, the book value of a company is seldom the same as the amount that could actually be achieved should the company be liquidated.
Book Value (Security) - The amount (including commission) that is paid for that security. Ex. Purchasing 100 shares of ISO Salt Corp. for $10 per share plus $29.95 commission would result in a book value of $1029.95.
Capital Gain – The positive difference in cash that results from selling a security at a higher price than it was purchased for.
Capital Loss – The negative difference in cash that results from selling a security at a lower price than what it was purchased for.
Cash-Back Credit Card – A normal credit card with the exception that a certain percent of the annual purchases will be credited back to the account . Ex: A person has a 1% cash-back card and spends $10,000 throughout the year. The person will receive a credit of $100 on the card.
Credit Reporting Agency – Currently there are two in Canada: Equifax and Transunion. These agencies collect information on a consumer’s use of credit, collate it into an easily digestible report, and assign a score. The information gathered by these companies is used by lenders to assess the credit worthiness of a particular consumer when deciding whether to grant or extend credit to that person.
Credit Report – A file that has lists a consumer’s use of credit over time. Credit reports include a consumer’s use of credit cards, bank loans, mortgages, student loans etc. It also shows if the loans have been paid back on time, late, or not at all. Bankruptcies within the past 7 years will also be shown.
Credit Score – A numerical representation of your credit report and history. It is calculated by reporting agencies, taking into consideration your payment history, debt ratio, credit history, types of credit and the inquiries made on your report recently. Canadian scores range from 300 to 900 points.
Delivering Institution - The bank or institution from where securities were transferred. Ex. You transfer 100 shares of ISO Salt Corp. from your TD Waterhouse account to your RBC Direct Investing account… TD Waterhouse is the delivering institution.
Direct Investing – The online brokerage arm of the Royal Bank of Canada.
Dividend – An amount of money paid out to a shareholder of a company. In theory, it is paid from profits and is meant to spread the earnings of the company among the many shareholders. In practice, however, some companies pay dividends even when operating at a loss because shareholders have come to expect them.
Dollar Cost Averaging – The act of buying the same security at certain intervals over time. This has the effect of smoothing out the purchase price, as more shares or units are purchased when the price is low, and less when it is high.
Earmarked – When money is set aside for a specific future purpose.
Factual Resident of Canada – A person who does not currently reside in Canada, but is considered a resident for tax purposes. To be considered a resident for tax purposes, financial, family or property ties must be demonstrated. Advantages include receiving RRSP contribution room on world income, and the ability to open a TFSA.
Flash Crash - A market phenomenon that occurred on May 6, 2010 causing stock prices to fall drastically. Though not fully understood, it seems to have been triggered by a mistake on a sell order, and was exacerbated by high frequency trading computer programs.
G.I.C. - Short for Guaranteed Investment Certificate. A security offered by banks and other institutions that pay interest on the amount invested. They are often for one to five years in duration. The interest and principal are guaranteed to be repaid at maturity. There are available with different features.
Greenback – A slang term for U.S. dollars.
Index – A measure of a certain aspect of the total market. Several stocks or bonds will be included in the index to gauge what is happening in the market. A single index may then be broken into several sub-indexes that track a certain industry. The S&P TSX Composite Index, for example is made up of several stocks that are available in the Canadian marketplace.
Index Fund – A mutual fund that tracks the index that it is mimicking. Expenses are low, as these funds are not actively managed. Due to their makeup, they will never do much better or worse than the index itself. They are considered the foundation of passive investing.
Maple – A slang term for Canadian dollars.
Market Value – The current value of a particular security or portfolio, calculated by what market participants consider fair value for that security.
RESP - Short for Registered Education Savings Plan, this is a tax deferred plan that allows you to save for a child’s education. The federal government will contribute 20% of your contributions, up to $500 per year.
RRSP – Short for Registered Retirement Savings Plan, this is a tax deferral plan available to Canadians. Contributions are deducted from annual earnings. The tax on those earnings are deferred until the funds are removed from the plan, theoretically throughout the retirement years.
Spread – The difference between the buy and sell price. This term is often used when talking about exchange rates or bond prices. Ex. A bank sells $1.00 U.S. for $1.05 Canadian, but will only pay you $1.03 for the same U.S dollar. Therefore, there is a 2 cent spread.
Strip Bond - A bond whose interest payments and principal amount are sold separately at a discount to par. See here for a more in-depth explanation.
TFSA - Short for Tax Free Savings Account, this system is almost the opposite of the RRSP. Contributions are made with after-tax dollars, and can grow tax-free while held within the account. Currently contributions are limited to $5000 per year, but will increase should inflation move above a certain threshold.
Gender Imbalance – Having a large difference in the numbers of boys to girls in an area.
Withholding Tax – The tax paid to foreign governments on investment income abroad. Ex. A Canadian investor buys an American stock that pays a dividend and holds it in a non-registered account. When the dividend is paid, 15% will be withheld by the U.S. government.
World Income – The amount of money earned in other countries, reported in Canadian dollars. This is mostly of importance to factual residents of Canada, or those with overseas earnings. It is calculated using the average exchange rate throughout the tax year.
Zero-Coupon Bond – See “Strip Bond.”