A guide to de­cod­ing in­vest­ment ter­mi­nol­ogy


WHETHER you hold mu­tual funds, stocks, bonds or other ve­hi­cles in your in­vest­ment ac­counts, you will re­ceive reg­u­lar state­ments (ei­ther pa­per or on­line) that pro­vide the value of your hold­ings and myr­iad other de­tails and ar­cane terms.

Do you know what all those terms mean?

Ev­ery week I meet some­one who isn’t clear on the in­dus­try jar­gon that is, un­for­tu­nately, still used on many of these state­ments. Let’s try to clar­ify a few of those.

Ac­count type — the la­bels used could in­clude cash, mar­gin, open, RRSP, RRIF, LIF, TFSA and a few oth­ers. “Cash” or “mar­gin” means non-reg­is­tered or “open,” which tells you that ac­count is not an RRSP, TFSA or other “reg­is­tered” ac­count. In cash and mar­gin ac­counts, the in­vest­ment in­come is tax­able each year. On the other hand, only with­drawals are tax­able from reg­is­tered ac­counts.

For a TFSA, both in­vest­ment in­come and with­drawals are tax-free.

Within all ac­count state­ments, the terms “bal­ance” or “cash” de­note the amount of ac­tual cash bal­ance in that ac­count at month end. The word “cash” is used again, but with a dif­fer­ent mean­ing in this con­text.

“Mar­gin” is a cer­tain type of non­reg­is­tered in­vest­ment ac­count that has a built-in line of credit, al­low­ing you to pur­chase in­vest­ments (or make with­drawals) “on mar­gin,” which means with money bor­rowed from your in­vest­ment dealer. It is con­ve­nient if you need to make a quick with­drawal, be­fore the sale of a se­cu­rity “set­tles.”

Most state­ments start with a port­fo­lio sum­mary on the first page, list­ing the ac­count types, ac­count num­bers and cur­rent value of cash and se­cu­ri­ties. “Se­cu­ri­ties” in this con­text means the hold­ings in which the money is in­vested, as op­posed to the cash bal­ance in the ac­count.

Some­times rep­e­ti­tion causes con­fu­sion. For ex­am­ple, state­ments of­ten pro­vide a sum­mary, then re­peat with more de­tail. The sum­mary to­tals ev­ery­thing up, while the de­tails re­peat those same amounts, but break them down much fur­ther.

Some com­pa­nies re­fer to the in­vest­ments or se­cu­ri­ties as “Po­si­tions” or “Hold­ings.” State­ments usu­ally group in­vest­ments by the as­set class, which could be:

• cash and short term

• bonds or fixed in­come (which may in­clude pre­ferred shares)

• com­mon stock or eq­ui­ties

The last cat­e­gory may be fur­ther bro­ken down be­tween Cana­dian and for­eign, and be­tween U.S. and in­ter­na­tional.

Some state­ments also list “mu­tual funds” as a sep­a­rate as­set cat­e­gory, but this is com­pletely un­help­ful. A mu­tual fund could be cash, fixed in­come, equity or other cat­e­gories, as it de­pends on what in­vest­ments are held within that fund.

In the de­tails por­tion, the state­ment names each in­di­vid­ual se­cu­rity, though some­times they use con­trac­tions. More de­tail is al­ways avail­able by look­ing up the trad­ing sym­bol.

The state­ment then shows the quan­tity (which is the num­ber of shares or units you own of a se­cu­rity, or the face value of bonds) and the cur­rent mar­ket price. If you mul­ti­ply the quan­tity by the price, you should get your cur­rent mar­ket value.

Many state­ments also show “book value.” This may be the orig­i­nal amount you paid for the se­cu­rity, al­though book value is of­ten ad­justed over time by things like dis­tri­bu­tions rein­vested into the same se­cu­rity, or by re­turn of cap­i­tal on trust units.

Ac­count ac­tiv­ity — this is the area that tells you what has hap­pened in the month. Some­times there is a sum­mary first, which is an ac­count­ing of changes in your cash bal­ance. In ad­di­tion, or al­ter­na­tively, some state­ments just show the ac­tiv­ity de­tails.

The types of ac­count ac­tiv­ity in­clude in­ter­est and div­i­dends paid by se­cu­ri­ties into your cash bal­ance, ex­penses and fees de­ducted, de­posits, with­drawals and trad­ing ac­tiv­ity.

This sum­mary just scrapes the sur­face of all of the terms and jar­gon used in in­vest­ing. Over the next few months, we will ex­pand on these and some of the other terms used, with the goal of mak­ing you an ex­pert (or at least a very well-in­formed am­a­teur).

When you have ques­tions about your in­vest­ments, ask your in­vest­ment ad­viser to go through your state­ments with you. Re­mem­ber, it’s your money.

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