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Investing
Growing money to achieve long-term financial goals.
Investments
Assets or funds expected to generate income.
Return
Reward from investing, includes income and value increase.
Portfolio
Collection of assets grouped together for investment.
Common Stock
Equity representing partial ownership in a company.
Dividends
Income distributed from a company's profits to shareholders.
Stock Price Appreciation
Increase in stock value due to market demand.
Money Market Securities
Low-risk, highly liquid short-term investments.
Bonds
Loans to governments or firms for fixed income.
Coupon Payments
Interest earned on bonds, typically paid annually.
Face Value
The amount paid back to bondholders at maturity.
Mutual Funds
Investment vehicles pooling funds for diversified portfolios.
Real Estate
Investment in property, less liquid than stocks or bonds.
Capital Gain
Profit from selling an asset for more than purchase price.
Inflation
Increase in overall price level, reducing money's purchasing power.
Mortgage
Loan secured by real estate, typically for home purchase.
Equity of a Home
Market value minus the debt owed on the property.
Fixed-rate Mortgage
Mortgage with a constant interest rate over a term.
Variable-rate Mortgage
Mortgage with fluctuating interest rates tied to prime rate.
Interest Rate
Cost of borrowing money, expressed as a percentage.
Guaranteed Investment Certificates (GICs)
Low-risk investment with fixed returns over a term.
Variable-rate mortgage
Mortgage with interest rate that fluctuates over time.
Prime rate
Interest rate banks charge their most creditworthy customers.
Effective interest rate
Actual interest rate paid after discounts applied.
Monthly payment
Fixed amount paid monthly towards loan principal and interest.
Basis points (bps)
Unit measuring percentage changes in financial rates.
GDP
Gross Domestic Product; total value of goods produced.
Potential GDP
Maximum output if all resources are used efficiently.
Business cycle
Fluctuations in economic activity over time.
Conservative investment
Investment strategy focusing on low risk and stability.
Moderate risk
Investment strategy balancing risk and return.
Aggressive investment
Investment strategy seeking high returns with higher risk.
Productivity
Efficiency of production; key driver of economic growth.
Basis Points
0.01% change in interest rates or yields.
Investment Calculation
# of shares = investment amount / stock value.
Stock Market Index
Measures performance of a group of stocks.
Dow Jones Industrial Average
Index of 30 large firms' stock performance.
S&P 500
Index based on 500 firms' stock movements.
Nasdaq Composite Index
Index of technology companies' stock performance.
S&P/TSX Composite Index
Index of stocks on Toronto Stock Exchange.
Active Investing
Investor makes all decisions to outperform market.
Passive Investing
Investor matches market performance, often via index funds.
Primary Market
Market for new securities sold to investors.
Initial Public Offering (IPO)
First public sale of a company's stock.
Secondary Market
Market for trading securities after issuance.
Stock Exchange
Platform for buying and selling existing stocks.
Toronto Stock Exchange (TSX)
Senior equities traded in Canada.
TSX Venture Exchange
Market for new firms with high growth potential.
New York Stock Exchange (NYSE)
Largest stock exchange in the US.
Over-the-Counter (OTC) Market
Market for companies not meeting exchange requirements.
Discount Brokerage Firm
Executes transactions without investment advice.
Full-Service Brokerage Firm
Offers advice and executes transactions, higher fees.
Bear Market
Stock prices fall by 20% or more.
Bull Market
Stock prices rise significantly.
Bid Price
Highest price offered by an investor to buy.
Ask Price
Lowest price asked by an investor to sell.
Market Order
Order to buy/sell at best available price.
Limit Order
Order to buy/sell at specified price.
Day Order
Expires at end of trading day if unfilled.
Good Till Cancelled (GTC) Order
Remains active for six months unless executed.
Stop-Loss Order
Sells stock if price falls below specified level.
Common Stock
Equity ownership in a company.
Income Stocks
Pay high dividends, limited growth potential.
Growth Stocks
High growth potential, low or no dividends.
Market Capitalization
Total shares outstanding multiplied by share price.
Market-Cap Stocks
Value of a company based on market capitalization.
Large Cap Stocks
Companies with market caps over $10 billion.
Mid-Cap Stocks
Companies with market caps between $2-$10 billion.
Small Cap Stocks
Companies with market caps under $2 billion.
Micro-Cap Stocks
Companies with very low market caps, high risk.
Stock Split
Increase in number of shares, reduces share price.
Book Value
Shareholders' equity as reported on balance sheet.
Balance Sheet
Snapshot of a company's assets and liabilities.
Income Statement
Measures revenues, expenses, and earnings over time.
Earnings Per Share (EPS)
Net income divided by number of outstanding shares.
Dividend Yield
Annual dividend as a percentage of stock price.
Random Walk Hypothesis
Stock prices evolve unpredictably, like a random walk.
Efficient Market
Current prices reflect all information about assets.
EMH
Efficient Markets Hypothesis on information incorporation.
Weak Form EMH
Past stock data cannot predict future prices.
Semi-strong Form EMH
Public info cannot yield consistent abnormal returns.
Strong Form EMH
No info allows consistent abnormal returns for investors.
Market Anomalies
Patterns inconsistent with Efficient Market Hypothesis.
Calendar Effects
Stock returns linked to specific times of year.
Value Effect
Low P/E stocks outperform high P/E stocks.
Behavioural Finance
Systematic mistakes causing market inefficiencies.
Herd Behaviour
Investors follow the crowd in decision-making.
Overconfidence
Underestimation of risks due to excessive confidence.
Self-attribution Bias
Credit successes to self, blame failures on others.
Contrarian Investing
Investing against prevailing market trends.
Simple Interest
Interest calculated on principal amount only.
Compound Interest
Interest calculated on initial principal and accumulated interest.
Future Value (FV)
Value of an investment at a future date.
Present Value (PV)
Current worth of a future sum of money.
Rule of 72
Estimate doubling time using 72 divided by interest rate.
Discounting
Calculating present values from future cash flows.
Interest Rate
Percentage charged for borrowing money.
Doubling Time (DT)
Time required for an investment to double.
Excel FV Formula
=FV(rate, nper, pmt, [pv], [type]).
Annuity
A series of equal payments over time.
