Glossary

Plain-language definitions of the terms Canadian investors run into.

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A

Adjusted Cost Base (ACB)

The average cost of your investment, used to calculate how much tax you owe when you sell.

All-in-One ETF

A single ETF that holds a complete diversified portfolio (stocks and bonds, global).

Annuity

A financial product that pays you a guaranteed income stream, usually purchased with retirement savings.

Asset Allocation

How you divide your portfolio between stocks, bonds, and other types of investments.

Asset Location

The strategy of placing different investments in specific account types to minimize the tax you pay.

B

Bank of Canada Rate

The policy interest rate set by the Bank of Canada, which influences borrowing costs, savings rates, and mortgage rates across the country.

Bear Market

A market decline of 20% or more from recent highs, often driven by economic slowdown or rising fear.

Benchmark

A standard index used to measure whether your investments are performing well or falling behind.

Beneficiary Designation

A named person who receives the assets in your account when you pass away, often bypassing your will entirely.

Bid/Ask Spread

The difference between what buyers are willing to pay and what sellers are asking for an investment.

Blue Chip Stock

A large, well-established company with a long track record. Think banks, telecoms, railways.

Bond

A loan you make to a government or company in exchange for regular interest payments.

Book Value vs. Market Value

Book value is what you paid for an investment. Market value is what it's worth right now.

Brokerage

A company that lets you buy and sell investments like stocks, ETFs, and bonds.

Bull Market

A sustained period where stock prices are rising, usually defined as a gain of 20% or more from a recent low.

C

Canada Education Savings Grant (CESG)

A government grant that matches 20% of annual RESP contributions, up to $500 per year per child.

Capital Gains

The profit you make when you sell an investment for more than you paid for it.

Capital Gains Inclusion Rate

The portion of your capital gains that gets added to your taxable income. Currently 50%.

Capital Loss

The loss you take when you sell an investment for less than you paid for it.

CDIC (Canada Deposit Insurance Corporation)

The federal agency that insures eligible bank deposits up to $100,000.

CIPF (Canadian Investor Protection Fund)

Protection that covers your investments if your brokerage goes bankrupt.

Commuted Value

The lump-sum dollar amount that represents the current value of a future pension income stream.

Compound Interest

Earning returns on your returns, so your money grows faster the longer you stay invested.

Contribution Room

The amount you're allowed to put into a registered account like a TFSA or RRSP.

Correction

A market decline of 10-20% from recent highs. Less severe than a bear market, and they happen regularly.

Couch Potato Investing

A passive investing strategy using low-cost index funds, popularized in Canada by Dan Bortolotti.

CPP (Canada Pension Plan)

A mandatory government pension that most working Canadians contribute to through payroll deductions.

CRA (Canada Revenue Agency)

The federal agency that collects taxes and administers registered accounts like TFSAs and RRSPs.

Currency Hedging

A strategy funds use to reduce the impact of exchange rate changes on your returns.

D

Deemed Disposition

When the CRA treats you as having sold an investment even though you didn't actually sell it.

Defined Benefit vs. Defined Contribution Pension

Two types of workplace pensions. One guarantees a specific retirement income, the other depends on how your investments perform.

Distribution

A payment from a fund to its investors, which can include dividends, interest, capital gains, or return of capital.

Diversification

Spreading your investments across different assets so a single bad outcome doesn't sink your entire portfolio.

Dividend

A payment companies make to shareholders from their profits, deposited directly into your account.

Dollar-Cost Averaging

Investing a fixed amount on a regular schedule, regardless of whether the market is up or down.

DRIP (Dividend Reinvestment Plan)

A plan that automatically reinvests your dividends to buy more shares instead of paying you cash.

E

Eligible vs. Non-Eligible Dividends

Two types of Canadian dividends taxed at different rates, with eligible dividends receiving a more favourable tax credit.

Emergency Fund

Cash set aside to cover unexpected expenses or income loss, so you don't have to sell investments at a bad time.

ESG Investing

Choosing investments based on environmental, social, and governance criteria.

Estate Freeze

A tax strategy that locks in the current value of assets for tax purposes and shifts future growth to the next generation.

Exchange-Traded Fund (ETF)

A basket of investments that trades on stock exchanges like a regular stock. Fees and risk vary widely depending on what's inside.

Expense Ratio vs. MER

Two ways to express fund fees. MER is the Canadian term and includes more costs.

F

Financial Advisor

A professional who helps you manage your money, investments, and financial plan. Several types exist in Canada with different fee structures.

First Home Savings Account (FHSA)

Canada's newest registered account designed to help first-time homebuyers save for a down payment, tax-free.

Foreign Exchange Fee

The markup your brokerage charges when converting between currencies, like CAD to USD for U.S. stock trades.

Fractional Shares

Owning a piece of a share instead of a whole one, letting you invest small amounts.

Front-End and Back-End Load

Sales charges some mutual funds charge when you buy (front-end) or sell (back-end).

G

Guaranteed Investment Certificate (GIC)

A fixed-term deposit that guarantees your principal and pays a set interest rate.

H

High Interest Savings Account (HISA)

A savings account that pays a higher interest rate than a regular bank account, with easy access to your money.

Home Buyers' Plan (HBP)

A program that lets you withdraw up to $60,000 from your RRSP to buy your first home, tax-free.

I

In-Kind Transfer

Moving investments from one account or brokerage to another without selling them first.

Index Fund

A fund that tracks a market index like the S&P 500 or S&P/TSX, rather than trying to pick winning stocks.

Inflation

The gradual increase in prices over time, which reduces what your money can buy.

IPO (Initial Public Offering)

When a private company sells shares to the public for the first time, allowing anyone to invest in it.

L

Life Income Fund (LIF)

A registered retirement income account you convert a LIRA into, with minimum and maximum annual withdrawal limits.

Lifelong Learning Plan (LLP)

A program that lets you withdraw up to $20,000 from your RRSP to pay for full-time education, tax-free.

Liquidity

How quickly and easily you can sell an investment without affecting its price.

Locked-In Retirement Account (LIRA)

A registered account that holds pension money from a former employer, with restrictions on when and how you can withdraw it.

M

Management Expense Ratio (MER)

The annual fee a fund charges you, expressed as a percentage of your investment.

Management Fee

The annual fee a fund company charges to manage an ETF or mutual fund, before other costs are added.

Margin Account

An investment account that lets you borrow money from your brokerage to buy more investments than you could with your own cash.

Marginal Tax Rate

The tax rate applied to your next dollar of income, which is different from your overall average tax rate.

Market Capitalization

The total value of a company's outstanding shares, used to classify companies as large-cap, mid-cap, or small-cap.

Market Order vs. Limit Order

Two ways to buy or sell: at whatever the current price is, or only at a price you set.

Market Timing

The strategy of trying to predict when markets will rise or fall in order to buy low and sell high.

Mutual Fund

A pooled investment managed by a professional. Fees vary widely, from low-cost index options to expensive actively managed funds.

N

Net Asset Value (NAV)

The per-unit price of a mutual fund or ETF, calculated from the total value of everything the fund holds.

Net Worth

The total value of everything you own minus everything you owe.

Non-Registered Account

A regular investment account with no special tax benefits. Also called a taxable account or cash account.

Norbert's Gambit

A technique for converting CAD to USD (or vice versa) cheaply by buying and selling a dual-listed stock.

O

Old Age Security (OAS)

A monthly payment from the federal government to Canadians 65 and older, regardless of work history.

P

P/E Ratio (Price-to-Earnings)

A stock's price divided by its earnings per share, used to gauge whether it's expensive or cheap relative to its profits.

Passive Income

Money earned from investments or assets that doesn't require active work, like dividends, interest, or rental income.

Phantom Distribution

A taxable distribution from a fund that gets reinvested automatically, so you owe tax on money you never actually received as cash.

Portfolio

The complete collection of investments you own, across all your accounts.

Preferred Shares

A type of stock that pays fixed dividends and gets priority over common shares if a company goes under.

Prescribed Rate Loan

An income-splitting strategy where a higher-income spouse lends money at the CRA's prescribed interest rate to a lower-income spouse to invest.

Probate

The legal process of validating a will and distributing a deceased person's estate, which can involve fees and delays.

R

Rebalancing

Adjusting your portfolio back to your intended mix after market movements shift the balance.

Recession

A significant decline in economic activity, usually defined as two consecutive quarters of negative GDP growth.

Registered Account

Any investment account registered with the CRA that gets special tax treatment (TFSA, RRSP, FHSA, RESP).

Registered Disability Savings Plan (RDSP)

A Canadian savings plan that helps people with disabilities and their families save for long-term financial security, with generous government grants.

Registered Education Savings Plan (RESP)

A tax-sheltered account for saving for a child's post-secondary education, with government grants that boost your savings.

Registered Retirement Savings Plan (RRSP)

A Canadian registered account where contributions lower your taxable income now, but withdrawals are taxed later.

REIT (Real Estate Investment Trust)

A company that owns and operates income-producing real estate, traded like a stock.

Return of Capital

When a fund pays you back some of your own invested money instead of actual earnings.

Risk Tolerance

How much your portfolio can drop before you start losing sleep or feel the urge to sell.

Robo-Advisor

An automated investing service that builds and manages a portfolio for you based on your risk profile.

RRIF (Registered Retirement Income Fund)

The account your RRSP converts to by age 71, requiring you to withdraw a minimum amount each year.

S

Self-Directed Investing

Managing your own investments through a brokerage account without relying on a financial advisor to make decisions for you.

Short Selling

Betting that a stock's price will go down by borrowing and selling shares you don't own, then buying them back later.

Smith Manoeuvre

A Canadian strategy that converts your mortgage into a tax-deductible investment loan by borrowing against your home equity to invest.

Spousal RRSP

An RRSP you contribute to in your spouse's name to split retirement income and potentially lower your combined tax bill.

Stock Split

When a company divides its existing shares into more shares at a lower price per share, without changing the total value.

Stop-Loss Order

An order that automatically sells your investment if it drops to a certain price, meant to limit your losses.

Superficial Loss Rule

A CRA rule that disallows a capital loss if you buy back the same investment within 30 days.

U

Unrealized Gain/Loss

The profit or loss on an investment you haven't sold yet. It only becomes 'real' when you sell.

V

Volatility

How much an investment's price moves up and down over a given period of time.

W

Withholding Tax

Tax automatically deducted from investment income paid to you from a foreign country, like US dividends.

Y

Yield

The income an investment generates, expressed as a percentage of its price.