Investment Glossary

Interest that has been accumulated but not paid out. Accrued interest occurs as a result of the difference in timing of cash flows and the measurement of these cash flows. For example, accrued interest receivable occurs when interest on an outstanding receivable has been earned by the company, but has not yet been received. A loan to a customer for goods sold would result in interest being charged on the loan.

A strategy where an investor regularly contributes large or small amounts to a fund while reinvesting related income in an attempt to increase the value of the portfolio over time. With mutual funds, an accumulation plan can be a formal arrangement in which an investor contributes a pre-determined amount to the fund on a regular basis. The investor can then accumulate a larger and larger investment in the fund via these contributions and the increase in value of the fund's portfolio. An accumulation plan can be useful for investors who wish to build their positions in a mutual fund over time.

A financial document public corporations are required to send each year to their shareholders. This report discloses financial and operational information, and will usually be audited by an outside, independent authority.

Typically, an annual report will contain:

• financial highlights
• letter to the shareholders
• discussion and analysis
• financial statements
• notes to financial statements
• auditor's report
• corporate information

With mutual funds, an annual report must be provided to fund shareholders each fiscal year. The report explains the fund’s operations and finances.

The beneficiary who receive payments from an annuity; the age of the annuitant influences how an annuity contract acts. For example, when the annuitant seeks to receive lifetime payouts from the annuity, the insurer looks at statistics on life expectancy to determine payment sums; this makes sure the annuity can reasonably be expected to last the full life of the recipient.

A financial product that is designed to provide a steady cash flow at a future date based on an initial lump sum investment, and really refers to any terminating stream of fixed payments over a specified period of time. This term is often used in the world of finance, and usually describes how the stream of payments is valued; valuation considers the time value of money, and concepts such as interest rate and future value.

The lowest price a seller is willing to accept for a security; the ask price will always be higher than the “bid” price. "Market makers" make money on the difference between the bid price and the ask price. That difference is called the "spread." A market maker is a company, or an individual, that quotes both a buy and a sell price in hopes of making a profit on the spread between bid price and offer price.

Something with economic value that an individual, corporation or country owns or controls, such as cash, securities, inventory, office equipment, real estate, and other property. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings. From an accounting perspective, assets are divided into the following categories: current assets (e.g., cash), long-term assets (e.g., real estate, plant), prepaid and deferred assets (e.g., future costs such as insurance, rent, interest), and intangible assets (e.g., patents, goodwill).

A fee, sales charge, or commission paid at the time mutual funds or other annuities are redeemed. The fee amounts to a percentage of the value of the share being sold. The fee percentage is highest in the first year and decreases yearly until the specified holding period ends, at which time it drops to zero.

A financial statement describing a company's assets liabilities and shareholders' equity. The balance sheet must follow the following formula: Assets = Liabilities + Shareholders' Equity The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates for the differences between different types of businesses.

A balanced fund is a mutual fund that balances its portfolio by including bonds and shares in varying proportions in order to mitigate risk while providing income and capital appreciation. A balanced fund is geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. The amounts that such a mutual fund invests into each asset class usually must remain within a set minimum and maximum.

The rate at which a central bank such as the Bank of Canada makes short-term loans to financial institutions, and the benchmark for prime rates set by financial institutions. Changes in bank rate are reflected in the prime lending rates offered by commercial banks (to their best customers), which in turn affect investments such as bank deposits, bond issues, mortgages. This term has largely been replaced by newer terms base-rate and prime rate.

Short-term credit investment where the repayment of principal and payment of interest is guaranteed by a bank.

A financial market characterized by falling prices. A bear market is not the same as a market correction; a correction is a short-term trend that has a duration of less than two months, whereas bear markets can last for an average of six months or more. While corrections are often a great place for a value investor to find an entry point, bear markets rarely provide great entry points, as timing the “bottom” or end of the bear market and a return of sustained increases can be very difficult to gauge. Trying to recoup losses made by miscalculation in a bear market can be very risky because it is quite difficult for an investor to make meaningful gains during a bear market unless it is through short selling.

A statistical term used to compare the risk of an individual security or portfolio to that of the market as a whole. In general terms, a security with a beta of 1.5, will move, on average, 1.5 times the market return; the stock's excess return (over and above a short-term money market rate) is expected to move 1.5 times the market excess return.

Beta also represents systematic risk that cannot be mitigated by diversification.

The bid price is the highest price a buyer is willing to pay for a security. “Bid” and “ask” prices are fundamental market concepts, as they detail the exact amount at which securities can be bought and sold at any point in time. It should be noted that the current price is not the price for which securities can be purchased, but is instead the price at which the shares last traded hands. To determine the price at which a security can be bought, it’s necessary to look at the bid and ask prices because they will often differ from the current price. See also: “ask” price.