SO. MANY. FINANCIAL. TERMS.
I’ve tried to simplify them here. You’re welcome.
Auto Insurance – A type of insurance between an individual and the insurance company that protects you against financial loss in the event of an accident or theft. As always, there is a premium involved which differs between individuals depending on a number of factors.
Back-end load/fees or Deferred Sales Charge (DSC) – A commission fee, which can be up to 6%, that is paid to investment advisors, financial planners, and brokers when you sell your mutual fund units or shares. This fee decreases each year you hold onto your mutual fund until there is no fee remaining, which is usually between 5-7 years after purchase.
Bank Fees – Pesky monthly charges some banks make their customers pay just to keep money in their accounts.
Bluechip Stocks – A stock of a well-recognized brand that is financially established (think Coca-Cola or Costco). It is rare for these companies to go bankrupt or be as affected by stock market crashes compared to other companies. They tend to be a safer bet than other stocks on the market, but there are never any guarantees.
Bonds – Governments and companies sell these types of investments so they can raise money for different projects they need to fund. They promise to pay you back in full with regular interest payments.
Budget – A financial tool to keep track of your income minus all of your expenses. End Goal? To ensure you aren’t spending more than you are earning. It keeps you accountable for your spending habits! And of course we can help you with this one-on-one. Feel free to contact us!
Capital Gains – When an investment increases in value from its initial purchase price. Example: If you buy a stock at $10 and sell it at $15, your capital gain is $5.
Capital Loss – When an investment decreases in value from its initial purchase price. If you buy a house for $100,000 and you sell it for $75,000, your capital loss is $25,000.
Chequing Account – A day-to-day banking account that you use for paying bills, making debit purchases, e-Transfers, and more!
Commodities – Raw materials, energy sources or agricultural products that can be purchased and traded. Examples are gold, oil, and coffee.
Compound Interest – This is the sweet stuff… making your money work for you! When you invest, you have the potential to earn interest on your initial investment. When this interest is reinvested back into your original investment instead of being paid out in cash, your money grows faster because you earn interest on that reinvested interest.
Consolidate Credit – Combining all of your debts into a single loan where you only have to worry about one bill as opposed to many. One of the benefits of consolidating credit is the ability to pay off high-interest debts with lower-interest loans, which will decrease the amount of interest that you owe every month.
Credit – It can be a dangerous thing if you aren’t smart about it! Credit is the amount of money a bank or institution is willing to lend you so you can have access to spend it when needed. It is lent based on the fact that you have to pay it back within an agreed amount of time, generally with interest payments.
Credit Union – A non-profit financial cooperative that is locally owned and run by its members (people like you and I who deposit money or invest). They generally offer lower interest rates on loans than banks do, and invest their profits back into the communities where they operate.
Debt – The dark cloud that looms over your head. ‘Nuff said…. Well maybe we should tell you about it. The total amount of money you owe a person, bank or financial institution.
Debt Consolidation – Paying off all of your high interest debt with a lower interest loan.
Deductible (Insurance) – The amount of money that you pay out-of-pocket before your insurance company starts to pay your policy. If your insurance company has a $100 deductible, and you spend $1000 on health expenses, you will have to pay $100 out-of-pocket, and the insurance company will pay the remaining $900 (if they cover that much!).
Disability Insurance – A type of insurance where an individual pays a monthly premium in exchange for income protection should the individual insured be unable to work due to injury or illness.
Dividends – When a company is profitable, they can choose to offer a dividend to their current and potential shareholders as an incentive (think of this as a bonus!). These are normally paid quarterly in either cash, shares of stock, or property.
Equity – The value of a business or property after any negative amounts (debts or liabilities) are owed on it.
Financial Advisor – A registered professional that assists individuals with their personal finances depending on what the client’s needs are. Areas they can advise on are insurance, investments, taxes, and retirement, to name a few.
Financial Institutions – A business that offers cash deposits and withdrawals, currency exchanges, loans, and investments. Examples: banks, credit unions, insurance companies, etc.
Financial Planner – One type of financial advisor, specializing in investments. They assist individuals and organizations to meet their long-term financial goals.
Fixed Expenses – Bills and payments that don’t change throughout the year and can be expected like clockwork. Examples are rent, phone bills, car insurance etc.
Front-end load/fees or Initial Sales Charge (ISC) – A negotiable fee that is sometimes charged when you buy units or shares of mutual funds. The fee, which can be up to 5% of the amount invested, is paid to the firm that sells you the fund.
Guaranteed Investment Certificate / GICs – Low risk investments offered by banks and other financial institutions, which lock in your money/investment for a fixed period of time. During this period you receive guaranteed interest payments, which are normally lower than stocks, bonds, & mutual funds.
Home Insurance – A type of insurance (that costs a premium of course!) the covers losses and damages to an individual’s property and to assets in their home. Home insurance also provides liability coverage against accidents that happen in the home or on the property.
Index – A small sample of the market that replicates or tracks the performance of a specific larger market.
Inflation – The increase in prices of goods and services over time. Inflation leads to lower purchasing power and high prices. Example: if you bought a shirt for $10 at your favourite store in 2016 and went back to buy that same shirt in 2017, you’d notice that it would cost more than $10 due to the rate of inflation.
Insurance – A contract where an individual receives financial reimbursement from a company if different types of losses occur.
Interest – The fee that is associated with borrowing or lending money. Interest is calculated as a percentage. Example: When you borrow money from a bank, they will charge you interest. When you lend money to a bank (let’s say through a GIC), they will pay you interest.
Interest Rate (Fixed) – When the interest rate on a loan doesn’t change during the set time period of the loan. This allows the borrower/lender to know how much their payments will be when they come due.
Interest Rate (Variable) – When interest rates on a loan change throughout the set time period of the loan. As the market interest rates change, so will your scheduled payment amounts.
Investments – The act of purchasing something that you believe/hope will make more money from your initial purchase. Examples of investments can be stocks, bonds, mutual funds, GICs, real estate, prized items (collectables, paintings, precious metals and gems) with the hopes of reselling them for a profit.
Insurance Policy – A contract between the insurance company and the individual being insured, which determines the amount that the company is legally required to pay if a claim is made.
Insurance Premium – A monthly or yearly payment that an individual or business must pay for an insurance policy. After an insurance policy period ends, a premium may increase depending on if claims were made, or if the type and/or cost of providing insurance has increased.
Irregular Expenses – Bills and payments that pop up every now and again, sometimes very unexpectedly, like vet bills, health expenses, and vehicle maintenance.
Leverage – Borrowing money (a loan) to make an investment with the hopes that the payoff/profits will be greater than the interest on the loan.
Line of Credit – A loan from a bank or financial institution that gives you access to a pre-approved amount of money. It allows for flexibility in spending because you are only charged interest on the amount of money that you spend, not the entire amount of money you were approved for. The interest rates for these accounts are much lower than other types of credit and loans.
Life Insurance – A type of insurance where an individual will pay a monthly premium in exchange for a lump-sum payment (or death benefit) that will go to the beneficiaries upon the insured’s death. The two main categories of life insurance include; term insurance (protection for a certain number of years), and permanent insurance (protections for your lifetime).
Loan – When money is lent with an agreement that it will be paid back in full, generally with interest payments.
Low load/fees or Low Sales Charge (LSC) – Low load mutual funds charge up to 3% when you buy your units or shares, and up to 3% when you sell them. If you hold your mutual fund for at least 3 years, you probably won’t have to pay the selling fee.
Management Expense Ratios / MERs – A cost to investors associated with investing in mutual funds. MERs include management fees, day-to-day operating expenses (marketing, administration, legal costs, etc), and HST.
Management Fees – These are included within the MER. They are regular commission fees paid to the advisor for selling a mutual fund to a customer.
Matching Contribution – An added benefit some employers offer their employees for their retirement. The employee has the option to have money from their paycheck automatically contributed to their RRSP. Their contribution will be matched by their employer at an agreed upon rate.
Maturity Date – The date the initial investment is paid back and all interest and/or dividend payments stop being paid.
Minimum Payment Amount – The lowest amount of money that you are required to pay on your credit card statement each month to avoid late fees. All credit cards calculate the Minimum Payment Amount differently, which can be found in the terms and conditions.
Money Market – IOU’s that are issued by the government, financial institutions, and large corporations that are short-term cash investments with low-interest rate returns. Money market securities are relatively safe, offering investors a significantly lower return than most other securities.
Mutual Funds – A collection of investments such as stocks, bonds, or other securities, where your money is pooled with other investors to buy units/shares of a specific fund. Mutual funds are managed by professionals who decide when to buy/sell investments depending on the fund’s objective.
No load/fee – A mutual fund that has zero fees when you buy or sell its units or shares. Make sure to compare the MER and performance of each fund before choosing as it may not always be a better deal than a load fund.
Non-Registered Accounts – A type of investment account that can be used for short or long-term growth. There is no contribution or withdrawal limit, and any gains/losses that are made within these accounts are taxable at the end of the year.
Overdraft Protection – When you don’t have enough money in your chequing account, overdraft protection will kick in and allow you to make purchases even if there are insufficient funds in the account. There is often a monthly fee for overdraft protection and is something that you need to opt-in to.
Pension Plan – An added benefit some employers offer their employees for their retirement. The employers regularly contributes money to an investment plan that is managed and invested on behalf of the employee.
Portfolio – The collection of all of your investments including stocks, mutual funds, bonds, etc.
Registered Accounts – Government regulated accounts such as TFSA, RRSP, and RESP’s. These accounts have rules surrounding how much you can contribute, withdraw, and what tax benefits your may receive.
Registered Education Savings Plan / RESP – A registered savings account with the Government of Canada that allows you, your friends, and family, to save towards your child’s post-secondary education. Within this account you can invest in stocks, bonds, mutual funds, etc.
Registered Retirement Investment Fund / RRIF – A registered account with the Government of Canada, which acts as a sequel to your RRSP. Investments held within your RRSP are transferred over to a RRIF (some are automatic and others require contacting the financial institution) so that you can withdraw funds as retired income.
Registered Retirement Savings Plan / RRSP – A registered savings account with the Government of Canada that allows you to save towards your retirement. Within this account you can invest in stocks, bonds, mutual funds, etc.
Savings – The left over money from your income after all expenses are paid.
Savings Account – A bank account that is a safe way to store your money while earning a small amount of interest.
Securities – A term used to describe a broad category of investment options including traditional investments (stocks, bonds, etc) and alternative investments (hedge funds, REITs, etc).
Short-Term Trading Fee – A fee (sometimes referred to as a redemption fee) that is charged when an investor trades mutual funds within a specified number of days. This fee is meant to discourage investors from short-term trading, and is charged by mutual funds companies.
Stocks – A type of investment that an individual can buy where they own a portion of a company. Stocks are traded (bought and sold) on the stock market and their price fluctuates based on many variables.
Tax Deductible / Deductions – Expenses or investment contributions that reduce your taxable income. Ultimately, they reduce the amount of money you owe the government at tax time. Examples include RRSP contributions, expenses if you work from home (% of your rent/hydro), etc.
Tax-Free Savings Account / TFSA – A registered savings account with the Government of Canada that allows you to invest in stocks, bonds, mutual funds, etc. Any money that is earned inside the account is generally tax-free even when you withdraw it.
Taxable Income – The amount of money you earn in a year (gross income) minus all your tax deductions (RRSP contributions, charitable donations, etc.). You pay tax on this amount when you file your income tax return.
Term – an agreed upon period of time an investment or loan is locked in.
Trailing Commission / Trailer Fee – A commission that is paid by the fund management company to the firm for the services and advice that was provided to you.
Trading Expense Ratios / TERs – A cost to investors associated with investing in mutual funds. Simply put, it is the cost for all the buying and selling of investments inside the fund.
Treasury Bills (T-Bills) – Short-term risk-free investments (under 1 year) with a guaranteed return. T-Bills are similar to GIC’s and are issued by the provincial or federal government.
Toronto Stock Exchange / TSX – A Canadian financial trading platform that you can buy and sell stocks, bonds, mutual funds, currency, and commodities.
Variable Expenses – Your daily spending that can change on a day-to-day basis. Examples are groceries, coffee, buying clothes, playing a round of golf, etc.
Yield – The income return on an investment, often made from dividends or interest. The yield is often expressed as a percentage.