Elemental Wealth Financial Glossary

An investment strategy where portfolio managers make specific investment decisions to try to outperform a benchmark index. Typically has higher fees than passive management.

The excess return of an investment relative to its benchmark index. Positive alpha suggests the investment outperformed its expected return given its risk level.

Investments outside traditional stocks, bonds, and cash, such as private equity, hedge funds, real estate, commodities, or collectibles. Often less liquid and may require higher minimum investments.

Anything of value that you own, including cash, investments, real estate, vehicles, and personal property.

How your investments are divided among different asset classes (stocks, bonds, real estate, cash). The most important factor in determining your portfolio's risk and return characteristics.

A category of investments with similar characteristics and market behaviors. Main classes include equities (stocks), fixed income (bonds), cash equivalents, and real estate.

The geometric mean return of an investment over multiple years, accounting for compounding. More accurate than simple average for long-term performance.

A mutual fund or ETF that invests in a mix of stocks and bonds, providing both growth potential and income in a single investment. Typical allocations range from 40/60 to 60/40 stocks/bonds.

One one-hundredth of a percentage point (0.01%). Used to describe small changes in interest rates or investment returns. Example: 25 basis points = 0.25%.

A market condition where prices fall 20% or more from recent highs, typically accompanied by widespread pessimism. Opposite of bull market.

A standard used to measure investment performance. For Canadian equity funds, the S&P/TSX Composite Index is a common benchmark.

A measure of an investment's volatility relative to the overall market. Beta of 1 means it moves with the market; above 1 means more volatile; below 1 means less volatile.

Shares of large, well-established, financially sound companies with a history of reliable performance. Often pay regular dividends.

A loan you make to a government or corporation in exchange for regular interest payments and the return of your principal at maturity. Generally considered lower risk than stocks.

A mutual fund or ETF that invests primarily in bonds. Provides diversification and professional management for fixed-income investments.

A market condition characterized by rising prices and investor optimism, typically defined as a 20% or more increase from recent lows.

An investment strategy of purchasing securities and holding them for the long term, regardless of short- term market fluctuations.

Financial assets or resources available for investment or production. Can refer to money, property, or other wealth.

The profit (gain) or loss when you sell an investment or property for more or less than you paid. In Canada, 50% of capital gains are taxable (subject to change based on legislation).

Securities representing ownership in a corporation, typically with voting rights and variable dividends. Shareholders can benefit from capital appreciation and dividends.

The rate of return required for an investment to grow from its beginning balance to its ending balance over a specified period, assuming profits are reinvested.

Interest calculated on both the initial principal and accumulated interest from previous periods. The foundation of long-term wealth building.

A statistical measure of how two investments move in relation to each other. Low or negative correlation helps improve diversification.

The annual interest rate paid on a bond, expressed as a percentage of the bond's face value.

A type of bond not secured by physical assets or collateral, backed only by the creditworthiness of the issuer.

A fee charged when you sell certain mutual funds within a specified period. Decreases over time and eventually disappears. Being phased out in Canada.

A brokerage firm offering lower commissions but minimal or no investment advice. Suitable for self- directed investors.

Spreading investments across different asset classes, industries, sectors, and geographic regions to reduce risk. The closest thing to a "free lunch" in investing.

A portion of a company's profits distributed to shareholders, typically quarterly. Canadian dividends receive preferential tax treatment through the dividend tax credit.

An option to automatically reinvest cash dividends into additional shares of the company, often without paying commissions. Accelerates compound growth.

Annual dividends per share divided by the current share price, expressed as a percentage. Indicates the income return from a stock investment.

Investing fixed amounts at regular intervals regardless of market conditions. Reduces the risk of investing a large sum at the wrong time and removes emotion from timing decisions.

A U.S. stock market index tracking 30 large publicly-owned companies. Often referenced but not particularly relevant for Canadian investors.

The decline from a peak to a trough in the value of an investment or portfolio. Maximum drawdown measures the largest peak-to-trough decline.

A company's net profit divided by the number of outstanding shares. A key metric for evaluating profitability.

A mutual fund or ETF that invests primarily in stocks. Can focus on specific market segments, industries, or investment styles.

An investment fund that trades on stock exchanges like individual stocks. Often tracks an index and typically has lower fees than mutual funds. Growing rapidly in popularity among Canadian investors.

The annual fee expressed as a percentage of assets that covers fund management, administration, and other operating costs. Lower is generally better.

The nominal or dollar value of a bond, typically $1,000. The amount paid to the bondholder at maturity.

An investment strategy targeting specific drivers of returns, such as value, momentum, size, quality, or low volatility.

The monetary wealth and investments you've accumulated, as distinguished from human capital (your earning potential). Over your working life, you gradually convert human capital into financial capital through saving and investing. Your total wealth is the sum of your human capital and financial capital. Early in your career, human capital dominates; in retirement, you rely primarily on financial capital.

A registered savings account for first-time home buyers introduced in 2023. Combines the best features of RRSPs and TFSAs: contributions are tax-deductible (like RRSPs) and withdrawals for purchasing a first home are tax-free (like TFSAs). Lifetime contribution limit of $40,000 with annual limit of $8,000.
Unused annual contribution room carries forward (maximum $8,000 per year). Qualifying withdrawals must be used within 15 years of opening or by age 71. Can be used in combination with the Home Buyers' Plan (HBP) from your RRSP. If not used for a home purchase, funds can be transferred tax-free to an RRSP or RRIF, or withdrawn as taxable income. One of Canada's most powerful savings vehicles for first-time buyers. Also listed under Tax & Estate Planning for its tax-deduction benefits.

Investments held outside of Canada. No longer subject to limits in registered accounts (restriction removed in 2005).

A sales commission charged when you purchase certain mutual funds. Reduces the amount actually invested.

A mutual fund that invests in other mutual funds rather than directly in stocks or bonds. Provides broad diversification but may have layered fees.

An investment strategy focusing on companies expected to grow earnings faster than the market average, often paying little or no dividends.

Shares of companies expected to grow earnings at an above-average rate. Typically reinvest profits rather than paying dividends.

An investment designed to reduce the risk of adverse price movements in an asset. Like insurance for your portfolio.

A bond with a lower credit rating and higher risk of default, offering higher interest rates to compensate investors.

The present value of your future earning potential over your working life. Your most valuable asset when young, gradually converted to financial capital through saving and investing. Factors affecting human capital include education, skills, health, career trajectory, and years until retirement. Protecting human capital through disability insurance is critical early in your career.

A statistical measure tracking the performance of a group of securities. Examples include S&P/TSX Composite (Canadian stocks) and S&P 500 (U.S. large-cap stocks).

A mutual fund or ETF designed to track the performance of a specific market index. Generally has lower fees than actively managed funds and forms the backbone of many passive investment strategies.

The first sale of stock by a company to the public. Allows private companies to raise capital by becoming publicly traded.

The length of time you expect to hold an investment before needing the money. Longer horizons generally allow for more risk-taking and equity exposure.

A document outlining your investment goals, risk tolerance, time horizon, constraints, and strategy. Acts as a roadmap for your investment decisions and helps prevent emotional reactions.

Shares of companies with large market capitalizations, typically over $10 billion. Generally more stable than smaller companies.

Using borrowed money to invest, amplifying both potential gains and losses. Can be risky and is not appropriate for most individual investors.

A type of locked-in retirement income account in some provinces (Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Newfoundland and Labrador, Nova Scotia) that holds pension funds and provides retirement income. Similar to a RRIF but with both minimum and maximum annual withdrawal limits to ensure funds last a lifetime. Maximum withdrawals are based on age and a prescribed percentage. Funds originate from employer pension plans or locked-in RRSPs/LIRAs. Provincial rules vary on withdrawal flexibility and conversion to life annuities. Also listed under Tax & Estate Planning for its tax treatment.

An order to buy or sell a security at a specific price or better. Provides price certainty but execution is not guaranteed.

How quickly and easily an asset can be converted to cash without significant loss of value. Cash is perfectly liquid; real estate is relatively illiquid.

A registered account holding pension funds that have been transferred from an employer pension plan. "Locked-in" means you cannot withdraw funds until retirement (with limited exceptions for financial hardship or small balances in some provinces). Grows tax-deferred like an RRSP but with stricter withdrawal rules. Must be converted to a LIF, LRIF, or life annuity by age 71. Provincial regulations vary on rules and exceptions. Different from regular RRSPs which offer more flexibility. Also listed under Tax & Estate Planning for its tax-deferred status.

A retirement income vehicle available in Newfoundland and Labrador for locked-in pension funds. Similar to LIF but with more flexible maximum withdrawal rules allowing higher withdrawals in some cases. Must provide minimum annual income like RRIFs while protecting funds from depletion.
Provincial legislation determines specific rules. Also listed under Tax & Estate Planning for its tax treatment.

Owning a security with the expectation that it will increase in value. The standard investment approach.

The total value of a company's outstanding shares, calculated by multiplying share price by number of shares. Used to categorize companies by size.

An order to buy or sell a security immediately at the best available current price. Provides execution certainty but not price certainty.

Attempting to predict market movements to buy low and sell high. Notoriously difficult and generally unsuccessful even for professionals.

The date when a bond's principal is repaid to investors. Maturities can range from days to decades.

Shares of companies with medium market capitalizations, typically between $2 billion and $10 billion. Often offer growth potential with less risk than small-caps.

A strategy of buying securities that have been rising and selling those that have been falling, based on the belief that trends persist.

A mutual fund investing in short-term, high-quality debt securities. Considered very low risk with modest returns, used for cash management.

An investment vehicle that pools money from many investors to purchase a diversified portfolio of securities. Managed by professional portfolio managers and priced once daily at net asset value.

A firm licensed to sell mutual funds. Representatives must be registered with provincial securities regulators and typically work on commission.

The per-share value of a mutual fund, calculated by dividing total assets minus liabilities by the number of shares outstanding. Funds are priced at NAV at the end of each trading day.

A mutual fund that doesn't charge sales commissions when you buy or sell. All of your money is invested.

A trade of fewer than 100 shares. May incur higher commission rates at some brokerages.

The potential benefit you miss out on when choosing one alternative over another. Every financial decision involves opportunity cost.

An investment strategy seeking to match, rather than beat, market returns by tracking an index. Typically implemented through index funds or ETFs.

The collection of all your investments held together. A well-diversified portfolio is fundamental to managing investment risk.

Adjusting your investment portfolio back to your target asset allocation by buying or selling assets. Helps maintain your desired risk level and can enhance returns by systematically buying low and selling high.

A class of stock with preferential rights to dividends and assets in liquidation, but typically no voting rights. Dividends are usually fixed.

The current value of a future sum of money or stream of cash flows given a specified rate of return. The foundational concept for understanding that money today is worth more than the same amount in the future due to its earning potential. For example, receiving $10,000 today is more valuable than receiving $10,000 in 10 years because you can invest it and earn returns. Essential for comparing investment options, valuing pensions, and making financial tradeoffs. The opposite of future value.

A valuation metric calculated by dividing a stock's current price by its earnings per share. Helps assess whether a stock is overvalued or undervalued relative to its earnings.

The original amount of money invested or borrowed, before interest, returns, or fees.

Investment in companies not publicly traded on stock exchanges. Typically requires high minimum investments and long commitment periods.

A legal document describing an investment's objectives, risks, fees, and past performance. Required reading before investing in mutual funds or new securities offerings.

Investments eligible to be held in registered accounts like RRSPs, TFSAs, and RESPs. Includes most stocks, bonds, GICs, and mutual funds.

A company that owns, operates, or finances income-producing real estate. REITs trade on stock exchanges and must distribute most of their income to shareholders. Provides real estate exposure without direct property ownership.

A registered account that holds your RRSP investments and provides retirement income through scheduled withdrawals. RRSPs must be converted to RRIFs (or annuities, or withdrawn) by December 31 of the year you turn 71. Minimum withdrawals are required annually, starting the year after the RRIF is established, with percentages increasing with age (starting at 5.28% at age 71). No maximum withdrawal limit. Withdrawals are fully taxable as income. Investments within the RRIF continue to grow tax- deferred. You can have multiple RRIFs and can base withdrawal calculations on your age or your younger spouse's age to minimize required withdrawals. Also listed under Tax & Estate Planning for its tax treatment.

A registered investment account designed for retirement savings. One of Canada's most powerful wealth- building tools. Contributions are tax-deductible, reducing current taxable income. Investments grow tax- deferred (no tax on interest, dividends, or capital gains while inside the plan). Annual contribution limit is 18% of previous year's earned income up to a maximum ($31,560 for 2024), minus any pension adjustment. Unused contribution room carries forward indefinitely. Withdrawals are taxable as income.
Can hold various investments including stocks, bonds, mutual funds, ETFs, GICs. Must be converted to RRIF, annuity, or withdrawn by age 71. Can be used for Home Buyers' Plan ($60,000) or Lifelong Learning Plan ($20,000) with specific repayment rules. Also listed under Tax & Estate Planning for its tax benefits.

A federally-regulated retirement income account for locked-in pension funds that provides a unique one- time unlocking opportunity. Similar to a LIF with the same minimum and maximum annual withdrawal limits designed to ensure funds last until age 90. The key distinguishing feature: holders aged 55 or older can unlock up to 50% of the funds transferred into the RLIF within 60 days of deposit, transferring this amount to an RRSP or RRIF for unrestricted access. This is a one-time option - if you unlock less than 50%, you cannot access the remainder later under this provision. The remaining funds stay locked-in and subject to annual minimum/maximum withdrawal rules like a regular LIF. Can receive transfers from federally-regulated pension plans, LIRAs, or LIFs. Investments continue to grow tax-deferred.
Withdrawals are fully taxable as income. Particularly valuable for those who want partial access to locked-in funds while maintaining retirement income discipline for the balance. Federal pension legislation only - provincial locked-in funds follow different rules. Also listed under Tax & Estate Planning for its tax-deferred treatment and unlocking provisions.

See Portfolio Rebalancing.

The gain or loss on an investment over a specific period, including both income and capital appreciation, expressed as a percentage.

A distribution from an investment that represents a return of your original investment rather than income or capital gains. Not immediately taxable but reduces your adjusted cost base.

A measure of corporate profitability calculated by dividing net income by shareholders' equity. Indicates how effectively a company uses shareholder capital.

The gain or loss on an investment relative to the amount invested, expressed as a percentage. A fundamental measure of investment performance.

The possibility of losing some or all of an investment, or the variability of returns. Different types include market risk, credit risk, inflation risk, and liquidity risk.

Investment return considering the amount of risk taken to achieve it. Important for comparing investments with different risk profiles.

The additional return investors demand for taking on additional risk compared to risk-free investments like Government of Canada bonds.

Your ability and willingness to withstand investment losses in pursuit of higher returns. Influenced by time horizon, financial situation, emotional comfort, and financial knowledge.

An RRSP where one spouse makes contributions to a plan owned by the other spouse (the annuitant). The contributing spouse uses their own RRSP contribution room and claims the tax deduction, but the funds belong to the annuitant spouse. Powerful income-splitting strategy for retirement when one spouse expects to be in a lower tax bracket. Attribution rules apply: if funds are withdrawn within three calendar years of the last spousal contribution, the income is taxed back to the contributor. Both spouses can have their own RRSPs plus spousal RRSPs. Must convert to RRIF by age 71 based on the annuitant's age, not the contributor's. Also listed under Tax & Estate Planning for its income-splitting benefits.

An online investment platform providing automated portfolio management based on algorithms. Typically charges lower fees than traditional advisors. Canadian examples include Wealthsimple, Questrade Portfolio IQ, and BMO SmartFolio.

A U.S. stock market index tracking 500 large companies. Widely considered the best gauge of large-cap U.S. equities.

A group of companies in the same industry or with similar business activities. Examples include financial services, energy, technology, and healthcare.

Financial instruments representing ownership (stocks), debt (bonds), or the right to ownership (options). Tradable financial assets.

An insurance product similar to mutual funds but offering maturity and death benefit guarantees. Only available through insurance companies. Provides creditor protection and can bypass probate.

A measure of risk-adjusted return, calculated by dividing excess return over the risk-free rate by standard deviation. Higher is better.

Selling borrowed securities with the intention of buying them back at a lower price. Extremely risky and not appropriate for most individual investors.

Shares of companies with small market capitalizations, typically under $2 billion. Higher growth potential but also higher risk and volatility.

A statistical measure of volatility showing how much an investment's returns vary from its average. Higher standard deviation indicates higher volatility.

A security representing ownership (equity) in a corporation. Stockholders have claims on the company's assets and earnings.

A marketplace where securities are bought and sold. Canada's main exchange is the Toronto Stock Exchange (TSX).

When a company increases the number of shares outstanding by issuing more shares to current shareholders. Reduces share price proportionally without changing total value.

Your long-term target mix of asset classes based on your goals, time horizon, and risk tolerance. Reviewed and adjusted periodically but not based on market conditions.

Regular, automatic purchases of investments (like dollar-cost averaging). Removes emotion and builds discipline.

Making short-term adjustments to asset allocation based on market conditions or economic outlook. Requires skill and timing; more appropriate for sophisticated investors.

A fund that automatically adjusts its asset allocation to become more conservative as a target date (typically retirement) approaches.

An investment approach starting with macroeconomic analysis, then selecting sectors and individual securities expected to benefit. Contrast with bottom-up.

The complete return on an investment including capital appreciation, dividends, interest, and distributions over a given period.

An ongoing commission paid by mutual fund companies to advisors who sell their funds. Embedded in the MER. Subject to increasing regulatory scrutiny and restrictions.

A short-term government debt security with maturity of one year or less, sold at a discount and redeemed at face value. Considered virtually risk-free.

How frequently a fund's holdings are bought and sold. Higher turnover can lead to higher transaction costs and potential tax consequences.

A security trading below its intrinsic value based on fundamental analysis. Value investors seek undervalued securities.

An unincorporated investment fund similar to a mutual fund, commonly used in Canada for real estate and resource investments.

An investment strategy focusing on undervalued companies trading below their intrinsic worth, popularized by Benjamin Graham and Warren Buffett.

Shares of companies believed to be undervalued based on fundamental analysis. Often characterized by low P/E ratios and higher dividend yields.

The degree of variation in investment prices over time. Higher volatility means greater potential for both gains and losses. Measured by standard deviation.

The income return on an investment, expressed as a percentage of the investment's cost or current market value. For bonds, current yield = annual interest / current price.

A graph showing the relationship between bond yields and time to maturity. Normal curve slopes upward; inverted curve (short-term rates higher than long-term) may signal recession.

The total return anticipated on a bond if held until maturity, accounting for current price, par value, coupon rate, and time to maturity.