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The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

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Freedom 55 Financial is a division of The Canada Life Assurance Company and the information you requested can be found here.

Investing glossary

Key takeaways

  • Learn more about some of the terms you’ll come across when investing.

Investing glossary

Adjusted cost base (ACB) — The cost used to calculate your capital gain or loss for tax purposes. The ACB represents the total cost of stock, including commissions and certain other costs. For real estate, the ACB can include maintenance expenses, property taxes, property manager fees, etc.

Annuity — Mostly used as an income stream for retirees, an annuity is a financial product that pays a fixed stream of payments to an individual.

Asset allocation — Diversification in a single fund. This type of fund consists of a mix of investments and fund managers.

Asset class — A group of similar investments based on how the group is invested or how it earns a return. Asset classes include asset allocation, cash and equivalent, fixed income, balanced and equity.

Asset mix — The recommended distribution of your investments among asset classes.

Balanced — A fund consisting of a diversified mix of investments. It can be a combination of equities, bonds, mortgages and cash-equivalent investments.

Bear market — When stock prices have generally decreased by at least 20% since a market upturn. It follows a bull market in a market cycle.

Blue chip stocks — Stocks issued by reliable, well-established companies which tend to be less volatile even under challenging economic conditions and can pay relatively high dividends. The name blue chip comes from poker where blue chips are worth more than red and white chips. 

Bond — An investment that acts like a loan issued by a corporation, municipality, or government. The bond issuer promises to repay the full amount of the loan to the investor on a specific date plus a specific rate of return for the use of the money.

Bond fund — A mutual fund that invests only in bonds.

Bull market — When stock prices have generally increased by at least 20% since a market downturn. A bull market can last for years or decades. It follows a bear market in a market cycle.

Canadian equity — An investment fund consisting mostly of stocks of Canadian corporations.

Capital gain or loss — The increase/decrease in value of stocks, mutual funds and real estate since the time of purchase. A capital gain or loss is “realized” when the asset is sold.

Cash and equivalents — Short-term, interest-bearing investments, such as money market funds, with investments that mature in less than 1 year. This asset class isn't usually used for long-term investing.

Compound interest — This means the stated interest rate will be applied to both the original amount invested and the accumulated interest earned. Interest is compounded on a set schedule—daily, weekly, quarterly or annually. For investments, compound interest can help your savings grow faster, as you earn interest on your original investment and the interest it earns.

Diversification — An investment technique intended to minimize risk by investing in  different funds.

Dividends — These are payouts of cash or more stock made by some public companies to distribute part of their profits to shareholders. Company boards decide the dividend amount and when they’ll be distributed: monthly, quarterly or annually. Some mutual funds and ETFs also offer dividends to investors.

Dollar-cost averaging — Buying a fixed amount of a particular investment at regular intervals, usually each month. Dollar-cost averaging, over time, should help even out the effects of market fluctuations.

Equity asset classes — These funds are made up of many different stocks in companies that are traded on stock markets, both foreign and domestic.

Exchange-traded fund (ETF) — A security that mimics an index, sector or commodity. For example, an ETF that tracks the S&P 500 holds shares in some or all of the companies on that index. ETF shares are purchased and sold on a stock exchange like regular stocks, and they can include stocks, bonds, commodities or a mix of these. Investors purchase ETFs because of their low purchase fees, low expense ratios, low or no commission fees, access to various industries through one ETF, and the ability to easily build a diverse portfolio.

Fixed income — Income-bearing investments, such as bonds or mortgages. Corporations and governments issue bonds to get money they need today, knowing they'll have to pay the money back with interest. In effect, you lend money to the seller by buying a bond. A mortgage fund invests in mortgages and earns money on the interest paid on those mortgages.

Foreign equity — An investment fund consisting mostly of stocks of non-Canadian corporations.

Guaranteed investment certificate (GIC) — When you buy a GIC, you’re really lending your money to a financial institution for a specific term, usually 1 month to 10 years. When the GIC term expires (also called the maturity date), you get your money back plus interest. Usually, the longer the term, the higher the interest rate. GICs often require a minimum investment. If you try to cash in a GIC before maturity, you may have to pay a penalty.

Index funds — These are mutual funds or exchange-traded funds (ETFs) designed to closely track the performance and characteristics of an index which measures how a group of securities or assets performs. For instance, the S&P 500 is a stock market index that includes about 500 large public companies in the U. S. An index fund tracking the S&P 500 holds shares in some or all its listed companies.

Inflation — The steady rise in the price of goods and services in an economy over time.

Investment manager — A person or organization responsible for investing a fund’s portfolio, also known as the money manager or fund manager.

Investment management fee (IMF) — A fee paid to the investment manager for professional services, including the daily management of each fund.

Life income fund (LIF) — A LIF is a financial product that converts pension plan savings into retirement income.

Liquidity — The ability to have ready access to invested money.

Load — Fees charged to investors to buy (front end) or sell (back end) units in a fund.

Management fee — The amount paid by a mutual fund to the advisor for services.

Management expense ratio (MER) — An ongoing fee most mutual funds charge. You don’t pay the MER directly. It’s paid by the fund itself for costs related to the fund like client statements and the advice you get from your advisor.

Market bubble — This occurs when prices increase quickly to new levels and then quickly fall again. Market bubbles get bigger as a buying frenzy caused by fear of missing out, pushes prices higher and higher. Market bubbles end when attitudes change, sellers outnumber buyers by a wide margin and prices collapse. Examples include the 1990s dotcom stock market bubble and the U.S. housing bubble that burst in 2008.

Market cap or market capitalization — The total market value of a company’s outstanding shares. To calculate market cap, multiply the number of shares by the market price of 1 share. The investing community uses market cap to value a company and compare it to others in the same industry or sector.

Market timing — Trying to buy and sell securities by anticipating whether market performance is going to rise or fall.

Market volatility — Refers to ups and downs in the performance of financial markets.

Non-registered account — An investment account that provides no tax-sheltering or tax-deferral. All investment income earned in a non-registered account is subject to income tax. Non-registered accounts typically do not have any contribution or withdrawal rules.

Portfolio - A collection of investments owned by 1 organization or individual, managed with specific goals in mind.

Price-to-earnings ratio (P/E ratio) – Used to value a company. It measures the company’s current share price relative to its earnings per share (EPS). The P/E ratio formula is earnings per share divided by market value per share. P/E ratios help investors compare different stocks and companies and determine if a company is over- or undervalued.

Rate of return – The measurement of an investment’s performance over a specified time period.

Real estate investment trust (REIT) – A company that pools investor capital and owns income-generating commercial real estate like malls, hospitals, warehouses, hotels and office buildings. REIT investors can earn dividend income by investing in real estate, without taking on landlord or management responsibilities. REITs are publicly traded and considered to be very liquid investments.

Registered education savings plan (RESP) — An investing account supported by the federal and some provincial governments. It helps you save money for a child’s future education, where the investments inside the  account grow tax-free. There is life-time limit of $50,000 per beneficiary and amounts contributed in excess of this are subject to a penalty tax of 1% per month on the excess until the over-contribution is withdrawn.

Registered retirement income fund (RRIF) — It’s like an RRSP in reverse. A RRIF requires you to take minimum withdrawals from your savings to help fund your retirement. You can convert your RRSP to a RRIF any time before Dec. 31 of the year you turn 71. All RRIF withdrawals are taxable as income.

Registered retirement savings plan (RRSP) — An investing and retirement savings account registered with the Canada Revenue Agency (CRA) that helps you save for retirement. The money you put towards an RRSP isn’t taxed as a part of your income, so you pay less income tax. Any growth isn’t taxed until you take your money out.

Risk — The possibility of loss and the uncertainty of future returns.

Segregated fund — Segregated funds are a type of pooled investment, like mutual funds. Where mutual funds are typically sold by banks and investment companies, segregated funds are offered by insurance companies. A fund manager is responsible for choosing the investments in a segregated fund.

They’ll select them based on the fund’s goals – like long-term growth or capital protection. This means no 2 segregated funds are the same. They all have different investment mixes and because of this, different performance over time. The amount of return you receive from investing in segregated funds will also be impacted by the management fees and other costs associated with it.

  • Individual segregated funds: Individual segregated funds offer both the potential for capital appreciation and some insurance benefits. Most segregated funds give you the option of a 75% to 100% payout of the premiums you paid. This is an advantage over mutual funds where you could potentially lose all your investment. With individual segregated funds you can name a beneficiary. This can offer some protection against creditors and upon your death, make transferring the proceeds to your beneficiary easier.
  • Group segregated funds: Group segregated funds are the most common investment offered for group retirement and savings plans. They don’t have capital guarantees or offer the estate transfer or creditor protection benefits that individual segregated funds do.

Socially responsible investing (SRI) — An investing strategy that considers not just at stock market returns, but also at the environmental, social, governmental and ethical impact of investing. Investors may choose to invest in companies that align with their values.

Special equity — An investment fund consisting of industry or sector-specific holdings, for example, real estate, precious metals, or natural resources.

Stock — An investment that provides part ownership of a company. Also known as shares or equity, stocks are purchased and sold on stock markets or exchanges. Stock owners, also known as shareholders enjoy a portion of the company’s earnings and assets, but also share in its losses. Common shares provide voting rights at shareholder meetings. Preferred shares offer other features but no voting rights. 

Stock market return — A change in the value of a stock (gain or loss) over time. A gain means a profit has been made on the investment. A loss means the investment has decreased in value. Total stock market returns include dividends and interest payments, plus the stock’s price change.

Tax-free savings account (TFSA) — A registered investment savings account introduced by the federal government in 2009. Use it for immediate goals like saving for a new car or a trip, or long-term goals like saving for retirement. A TFSA allows for tax-free gains on your investments and tax-free withdrawals. The amount of money you can contribute is limited annually. However, you can carry forward the unused contribution room to a current lifetime maximum amount.

Target date fund — Target date funds are created with unique maturity dates so you can choose the fund that most closely matches when you’ll need the money. By reducing the percentage of equities invested in the fund, the investment risk is reduced over time, so it remains suitable for the fund maturity date.

Time horizon — The length of time you expect to stay invested in an asset or security.

Unit value — The cost or value of 1 unit of an investment fund. A unit is purchased when investors make contributions to funds. The unit value is determined by dividing the total assets in the fund by the number of units in the fund on a pre-determined frequency (e.g., daily, weekly or monthly).

Yield — The annual percentage rate of return on capital.

What's next?

Now that you know more about these investing terms, you may wish to contact your advisor or if you’re a Canada Life group plan member, we have licensed professionals who can help you:

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors. 

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