RIHANA PEIMAN
Mortgage Solutions in British Columbia
Insurance & Investment Solutions in British Columbia & Ontario
INVESTMENT GLOSSARY:
COMMON INVESTMENT TERMS
ANNUAL CONTRIBUTION LIMIT
The maximum annual contribution amount that applies to certain registered plans or accounts. Annual limits and contribution rules vary by account, and not every registered plan has an annual contribution limit. An individual’s available contribution room may also differ from the annual limit.
ASSET ALLOCATION
The way an investment portfolio is divided among different asset classes, such as equities, fixed income and cash. An appropriate asset mix generally considers investment objectives, time horizon and risk tolerance.
BENEFICIARY DESIGNATION
Naming a person, organization or other eligible beneficiary to receive proceeds when the account holder or contractholder dies. For certain insurance-based investments, such as segregated fund contracts, a named beneficiary may allow proceeds to pass directly to the beneficiary rather than through the estate, subject to the contract and applicable provincial law.
BOOK VALUE
The recorded cost of an investment, generally including amounts paid to purchase it and certain transaction costs, adjusted for items such as reinvested distributions or returns of capital. Book value may not always equal the adjusted cost base used for income-tax purposes.
CAPITAL GAINS
A capital gain generally occurs when a capital investment is sold or considered sold for more than its adjusted cost base plus eligible selling expenses. The tax treatment depends on the investment, account type and applicable tax rules.
CONTRIBUTION DEADLINE
The date by which a contribution must be made to receive the applicable treatment for a particular year or registered plan. Deadlines vary by account. For example, eligible RRSP contributions made during the first 60 days of a year may be applied toward the previous tax year, subject to the applicable rules.
CONTRIBUTION ROOM
The amount an individual is permitted to contribute to a registered account or plan under its rules. How contribution room is calculated and whether unused room carries forward depends on the particular plan.
DIVERSIFICATION
Spreading investments among different asset classes, sectors, geographic regions or investment types to reduce concentration risk. Diversification can help manage risk but does not eliminate the possibility of investment losses.
ESTATE BYPASS
An estate-planning feature available with certain insurance-based investments. When an eligible beneficiary other than the estate is properly designated, proceeds may be paid directly to that beneficiary rather than through the estate, potentially avoiding probate or estate-administration processes, depending on provincial law.
FUND MATURITY GUARANTEE
A feature of certain segregated fund contracts that guarantees a specified percentage of eligible deposits at the applicable maturity date. Depending on the contract, the guarantee may be 75% or 100%, with adjustments for withdrawals, resets and other contract provisions.
GRANT ENTITLEMENT
The amount of government matching grants an eligible beneficiary may receive within certain registered savings plans. Grant amounts and eligibility may depend on factors such as contributions, family income, age and available grant entitlement.
MANAGEMENT EXPENSE RATIO (MER)
The annual cost of managing and operating an investment fund, expressed as a percentage of the fund’s assets. The MER is reflected in the fund’s returns. Components of the MER vary by product, and certain segregated fund contracts may have additional guarantee fees.
MARKET VALUE
The current value of an investment based on the applicable market price or fund value at a particular point in time. Market value can increase or decrease as investment values change.
MATURITY DATE
The date specified in an investment or contract when it reaches maturity or when a maturity-related provision applies. For segregated fund contracts, the maturity date may determine when a maturity guarantee becomes applicable, subject to the contract terms.
OVERCONTRIBUTION
An amount contributed above the permitted contribution limit or available contribution room of a registered account. Excess contributions may result in tax or other consequences, which vary by type of plan.
REBALANCING
Adjusting an investment portfolio to bring its asset mix back toward its intended allocation after market movements have caused the portfolio to drift from its target.
REGISTERED TRANSFER / ROLLOVER
A transfer of eligible funds or property between certain registered plans under applicable tax rules. When the requirements for a direct transfer are met, the transfer may occur without immediately triggering taxation. Not every transfer or withdrawal qualifies for this treatment.
RESET OPTION
A feature available with certain segregated fund contracts that may allow a higher market value to become the new basis for a maturity or death-benefit guarantee. Reset availability, frequency, age limits and effects on the maturity period vary by contract.
RISK TOLERANCE
An investor’s willingness and financial ability to accept fluctuations or potential losses in the value of their investments. Risk tolerance is considered together with factors such as investment objectives and time horizon.
TAX-SHELTERED GROWTH
Investment growth that receives special tax treatment while held within certain registered plans. The treatment varies by account—for example, TFSA investment income is generally tax-free, while RRSP investment income is generally tax-deferred while it remains in the plan and is generally taxable when withdrawn.
TAX SLIP
A document prepared by an employer, payer, issuer, administrator or financial institution that reports certain amounts for income-tax purposes.
TIME HORIZON
The length of time an investor expects to keep money invested before needing to use it. Time horizon is an important consideration when assessing investment objectives and appropriate levels of risk.
VOLATILITY
The degree to which an investment’s value fluctuates over time. Higher volatility means larger price movements and generally greater uncertainty and investment risk.
WEIGHTED AVERAGE COST
The average cost per unit when identical investments are acquired at different prices. For Canadian tax purposes, the average cost of identical properties, such as shares of the same class or units of the same mutual fund, may be used when determining the adjusted cost base.
WITHDRAWAL RULES
The conditions that apply when money is withdrawn from an investment account or contract. Withdrawals may affect taxation, future contribution room, grants, guarantees or other benefits depending on the type of account or investment.