Financial Glossary

An account transfer lets you move your investments (TFSA, RRSP, FHSA, non-registered account) from one broker to another without selling your holdings or losing contribution room. The new broker initiates the process and your investments are transferred "in kind."

Active management involves a fund manager selecting securities to try to beat a benchmark index. Passive management simply replicates an index (like the S&P 500) without trying to outperform it. The vast majority of active funds underperform their benchmark over the long term.

The adjusted close is the closing price of a security modified to account for past dividends, distributions, and stock splits. It allows prices and total returns to be compared consistently over long periods, incorporating all distributed income.

The adjusted cost base (ACB) is the average cost of your investments, accounting for all purchases, reinvested distributions, and return of capital. It is used to calculate your capital gain or loss when you sell.

An All-in-One ETF is an exchange-traded fund that holds a complete portfolio of stocks and bonds in a single product. It automatically rebalances to a target allocation, eliminating the need to manage multiple ETFs yourself.

Alpha measures an investment's performance relative to its benchmark index, after adjusting for risk. A positive alpha means the fund outperformed expectations, while a negative alpha means it underperformed.

Amortization refers to the process of spreading a debt repayment (principal + interest) over a set period through regular payments. In Canada, the term is primarily used for mortgages, where the amortization period (often 25 or 30 years) determines the payment amount.

Annual fees are fixed charges by a broker to maintain your account. Many Canadian online brokers don't charge them, or waive them under certain conditions (minimum balance, regular activity).

Annualized return (or CAGR — compound annual growth rate) expresses an investment's return as if it had grown steadily each year. It allows fair comparison of investments over different time periods.

Asset allocation refers to how an investor distributes their portfolio among different asset classes (stocks, bonds, cash, real estate). It is the most important decision in investing, as it determines approximately 90% of the variability of long-term returns.

Assets under management (AUM) is the total market value of money invested in a fund. ETFs with higher AUM typically have better liquidity and tighter bid-ask spreads.

A bear market is a prolonged period of declining stock prices, generally defined as a 20% or greater drop from a recent high. It reflects investor pessimism and often an economic slowdown.

Beta measures how sensitive an investment is to movements in the overall market. A beta of 1.0 means the investment moves in perfect sync with its benchmark index. A beta above 1.0 indicates the investment amplifies market movements (more volatile), and below 1.0 that it dampens them.

The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller will accept (ask). It is a hidden cost every time you buy or sell an ETF.

A blue chip is a stock of a large, well-established, financially sound company known for its stability. These companies typically pay regular dividends and have a long track record of performance.

A bond is a debt security issued by a government or corporation. When you buy a bond, you lend money to the issuer who commits to repaying you with interest on a fixed date.

Net asset value of the company per its books (total assets − total liabilities), divided by share count to get book value per share. Underlies the price-to-book (P/B) ratio. Poorly reflects the value of intangible-rich companies (brands, R&D, software) that aren't booked.

A bull market is a prolonged period of rising stock prices, generally defined as a 20% or greater increase from a recent low. It reflects investor optimism and a growing economy.

A capital gain occurs when you sell an investment for more than its purchase price. In Canada, only a portion of the gain (the inclusion rate) is added to your taxable income. Capital gains inside a TFSA or RRSP are not taxed.

A capital loss occurs when you sell an investment for less than its purchase price. In Canada, capital losses can be used to offset your taxable capital gains, in the same year or by carrying them back 3 years or forward indefinitely.

A commission is the fee charged by a broker to execute a buy or sell order. In Canada, several online brokers now offer commission-free trading on ETFs and stocks, which has transformed self-directed investing.

The CAGR is the annualized rate of return that would transform an initial investment into its final value over a given period, assuming gains are reinvested each year. It is the standard way to compare investment returns across different time periods.

Compound interest is the mechanism by which earned interest itself generates further interest. In other words, you earn returns not only on your initial capital but also on the returns already accumulated.

Contribution room is the maximum amount you can deposit into a registered account (TFSA, RRSP, RESP) without penalty. For the TFSA, unused room accumulates since 2009. For the RRSP, the limit is 18% of earned income from the previous year, up to an annual maximum.

A corporate bond is a debt security issued by a company to fund its operations or projects. In exchange for your loan, the company pays you regular interest (the coupon) and returns the principal at maturity. The yield is generally higher than a government bond, but so is the risk.

Correlation measures how closely two investments move in the same direction, on a scale from -1 to +1. A correlation of +1 means they always move together, -1 means they always move in opposite directions, and 0 means there is no relationship.

The Couch Potato portfolio is a passive investment strategy that involves buying a handful of low-cost index ETFs, holding them long-term, and rebalancing once a year. Popularized in Canada by blogger Dan Bortolotti (Canadian Couch Potato), this approach outperforms the majority of active managers.

The coupon is the interest rate that a bond pays to its holder, expressed as a percentage of the face value. For example, a 4% coupon on a $1,000 bond means you receive $40 in interest per year. Payments are usually semi-annual (twice a year).

A covered call strategy involves selling call options on stocks you already hold. In exchange for an immediate premium, the seller agrees to sell the shares at a predetermined price if they reach that level. Covered call ETFs generate high distributions but cap the upside potential.

The Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) are mandatory public pension programs funded by worker and employer contributions. They provide a basic retirement income starting at age 60 (with reduction) or 65 (full amount).

A cryptocurrency is a decentralized digital currency that uses cryptography to secure transactions and control the creation of new units. Bitcoin and Ethereum are the most well-known. Cryptocurrencies operate on blockchain networks without traditional banking intermediaries.

Currency conversion fees are the costs charged by your brokerage to convert Canadian dollars to U.S. dollars (or other currencies). They typically range from 1% to 2.5% of the converted amount.

A currency-hedged ETF uses financial instruments (forward contracts) to neutralize the impact of exchange rate fluctuations on your returns. For example, a hedged U.S. equity ETF eliminates the effect of USD/CAD movements on your Canadian-dollar returns.

The current yield is a bond's annual income (its coupon) divided by its current market price. Unlike the coupon rate which is fixed, the current yield varies based on the price you pay for the bond.

Day trading involves buying and selling stocks or other securities within the same trading day, aiming to profit from small price fluctuations. All positions are opened and closed on the same day, with nothing held overnight. It is a high-risk activity that requires time, knowledge, and a high tolerance for losses.

A distribution is the periodic payment an ETF makes to its unitholders. It can include dividends, interest, realized capital gains, or a return of capital. Unlike individual stocks, ETFs distribute all income generated by their underlying holdings.

A dividend is a portion of a company's profits paid out to shareholders. In the ETF context, dividends received from holdings are typically redistributed to unitholders as periodic distributions, or automatically reinvested depending on the fund's structure.

The dividend tax credit is a Canadian tax benefit that reduces the tax paid on eligible dividends received from Canadian corporations. This mechanism is designed to avoid double taxation: the company has already paid tax on its profits before distributing them to shareholders.

Dividend yield is the ratio between an ETF's (or stock's) annual distribution and its current price, expressed as a percentage. For example, an ETF that pays $2 per year and trades at $50 has a dividend yield of 4%.

Dollar-Cost Averaging (DCA) is the strategy of investing a fixed amount at regular intervals, regardless of the market price. This approach smooths out the average purchase cost and eliminates the stress of market timing.

A DRIP (Dividend Reinvestment Plan) is a program that automatically reinvests your ETF distributions or stock dividends into purchasing additional shares of the same security, without commission fees. It is a powerful tool to grow your portfolio through compound interest.

Net earnings divided by the number of shares outstanding. It's the share of profit attributable to each share. Trailing EPS uses the last 12 months; forward EPS estimates the next 12. Steady EPS growth is often a quality signal; volatile EPS signals a cyclical sector or problems.

An emergency fund is a readily accessible cash reserve, equal to 3 to 6 months of essential expenses, meant to cover unexpected events (job loss, urgent repairs, medical costs). It should be kept separate from your investments and remain liquid.

ESG investing selects investments based on environmental, social, and governance criteria, in addition to traditional financial metrics. ESG ETFs typically exclude companies involved in fossil fuels, weapons, or tobacco.

Ratio of enterprise value (market cap + debt − cash) to EBITDA (earnings before interest, tax, depreciation, amortization). Used by professionals because it neutralizes capital structure (debt vs equity) and tax — better for comparing companies with very different leverage. EV/EBITDA below 10 is often considered attractive; above 20, expensive.

The date from which a stock trades "without the next dividend". To receive the dividend, you must own the share BEFORE this date (buy by the prior business day). On the ex-dividend date, the share price drops mechanically by the dividend amount — not a loss, just value moving from the share into cash.

An ETF is a basket of securities (stocks, bonds, or other assets) that trades on a stock exchange like a regular stock. It allows an investor to gain diversified exposure to hundreds or thousands of securities in a single purchase, typically at low cost.

The F-series refers to a class of mutual fund units designed for investors who have a fee-only advisor paid through direct fees. Unlike A or B series, the F-series does not include a trailing commission for the advisor, resulting in a lower MER.

The FHSA combines the benefits of a TFSA and RRSP specifically for first-time home buyers. Contributions are tax-deductible (like an RRSP) and qualifying withdrawals for a first home purchase are tax-free (like a TFSA). Annual contribution limit is $8,000, lifetime maximum $40,000.

Fixed income refers to investments that pay regular, predictable interest payments, primarily bonds. These investments offer less growth than stocks but more stability.

Subset of shares outstanding that is actually available for public trading — excludes blocks held by insiders (founders, executives, governments). A small float means higher volatility (few buyers, few sellers). Important for assessing a stock's liquidity.

Foreign withholding tax is a tax levied by a foreign country on dividends paid to non-resident investors. For example, the United States withholds 15% of dividends paid to Canadians. This withholding reduces the net return of ETFs holding foreign stocks in certain account types.

Average estimate of net earnings per share for the next 12 months, based on analyst consensus covering the company. Used to compute the forward P/E. The more analysts, the more credible the consensus. Usually revised after each quarterly earnings release.

A variant of P/E that uses forecast earnings for the next 12 months (analyst estimates) instead of historical earnings. Useful when a company is in transition (recession, turnaround) — historical P/E reflects the past, forward P/E reflects expectations. Less reliable than trailing P/E since forecasts can miss.

Fractional shares allow you to buy a fraction of an ETF or stock share rather than a whole share. For example, if an ETF costs $100, you can invest $25 and own 0.25 shares. This feature is offered by some Canadian brokers.

Cash generated by operations, after capital expenditures (CapEx) needed to maintain the business. The cash truly available to repay debt, buy back shares, or pay dividends. More reliable than accounting earnings (which depend on depreciation and other entries). Steady FCF growth is a very positive signal.

A government bond is a debt security issued by a government (federal or provincial) to fund its spending. The investor lends money to the government in exchange for regular interest payments and the return of principal at maturity. It is considered one of the safest investments.

Gross Domestic Product (GDP) measures the total value of all goods and services produced within a country during a given period, usually a quarter or a year. It is the most widely used indicator to assess the size and health of an economy. In Canada, GDP is calculated and published by Statistics Canada.

Gross income is the total of all income earned before any deductions, tax withholdings, or contributions. It includes salary, employment income, investment income (interest, dividends, capital gains), rental income, and any other income. It is the starting point for calculating your tax on both your federal and provincial tax returns.

Gross margin = (revenue − cost of goods sold) ÷ revenue. Shows what's left after direct production costs, before marketing, R&D, etc. SaaS techs run 70–90% gross margins (software has low marginal cost); retailers, 20–40%. Rising gross margin signals pricing power.

Growth stocks are companies that reinvest profits to grow quickly (e.g., tech), while value stocks are mature companies trading at a low price relative to their earnings and often paying dividends.

A GIC is a fixed-income investment offered by Canadian banks and credit unions that guarantees the invested principal and a fixed or variable interest rate for a set term (typically 30 days to 5 years). GICs are protected by CDIC (Canada Deposit Insurance Corporation) up to $100,000 per member institution. It is one of the safest investments in Canada.

A hedge fund is a private investment fund that uses advanced strategies — short selling, leverage, derivatives — to attempt to generate positive returns regardless of market direction. In Canada, they are restricted to accredited investors (generally $1M in financial assets or $200,000 in annual income).

The HBP allows you to withdraw up to $60,000 from your RRSP tax-free to buy or build a qualifying first home. The withdrawn amount must be repaid to your RRSP over a maximum of 15 years, otherwise unpaid amounts are added to your taxable income. The program is available to first-time home buyers or those who have not owned a home in at least 4 years.

An ETF's inception date is the day it started trading on an exchange. A longer track record helps evaluate performance across different market cycles (bull markets, bear markets, crises).

The inclusion rate determines what portion of a capital gain is added to your taxable income. In Canada, the rate is 50% on the first $250,000 of annual gains for individuals, and 66.67% above that threshold.

Income splitting is a tax strategy that involves transferring or allocating income from a higher-taxed family member to a lower-taxed family member, thereby reducing the household's overall tax burden. In Canada, attribution rules limit this practice, but several legal mechanisms exist, including pension income splitting and the RESP.

An index fund is an investment fund that replicates the performance of a stock market index, such as the S&P 500 or S&P/TSX. Rather than picking individual stocks, the fund holds all (or most) of the stocks in the index it tracks.

Inflation is the general and sustained increase in the prices of goods and services in an economy. It reduces the purchasing power of money: over time, the same amount of money buys fewer things.

An IPO is the process by which a private company sells its shares to the public for the first time by listing on a stock exchange. It marks the transition from a private to a publicly traded company. The IPO allows the company to raise capital from public investors.

Professional investors (pension funds, ETFs, asset managers like BlackRock, Vanguard) holding a company's shares. High institutional ownership (>60%) signals a "quality" stock followed by pros, but can amplify volatility when funds rebalance portfolios at the same time.

An ETF's strategy defines how its holdings are selected. An index ETF replicates a benchmark (e.g., S&P 500), an active ETF is managed by a portfolio manager who picks securities, and a factor ETF targets specific criteria (value, momentum, dividends).

Your investment time horizon is how long you plan to keep your money invested before you need it. It directly influences the level of risk you can take on and the types of investments that are appropriate.

A large-cap stock is a company with a total market value generally exceeding $10 billion. These are well-established businesses, often household names like major Canadian banks or American tech giants.

Leverage involves using borrowed money or financial instruments to amplify the potential return of an investment. If the investment goes up, gains are multiplied; but if it goes down, losses are amplified as well. It is a double-edged sword that increases both the potential for gains and the risk of losses.

A life annuity is a financial product offered by an insurance company that guarantees regular payments for the rest of the annuitant's life, in exchange for a lump-sum capital payment. The payment amount depends on the capital invested, the age at purchase, and prevailing interest rates. It is a popular decumulation tool in retirement to eliminate the risk of outliving your savings.

A limit order is an instruction to buy or sell a security at a maximum (buy) or minimum (sell) price that you set in advance. The order only executes if the market reaches your price or better. The price is guaranteed, but execution is not.

A line of credit is a flexible loan offered by a financial institution that allows you to borrow money up to a pre-set limit, repay, and borrow again as needed. Unlike a traditional loan, you only pay interest on the amount used. It can be personal or secured against your home equity (HELOC).

Liquidity measures how easily an asset can be bought or sold quickly without significantly affecting its price. A liquid asset trades in high volumes with a narrow spread between the buy and sell price.

The MER represents the total annual cost of an ETF expressed as a percentage of assets. It includes management fees, administrative costs, and taxes. These fees are automatically deducted from the fund's assets daily — you never receive a separate bill.

A margin account is a type of investment account that lets you borrow money from your broker to buy securities. You use your existing investments as collateral. This amplifies your potential gains but also your losses.

The marginal tax rate is the percentage of tax applied to the last dollar of income earned. In Canada, income tax is progressive: the first dollars are taxed at a lower rate and the rate increases in brackets as income rises. The marginal rate combines federal and provincial tax, and therefore varies by province of residence.

Market capitalization is the total market value of a publicly traded company, calculated by multiplying the share price by the number of outstanding shares. It is used to classify companies by size.

A market correction is a decline of 10% to 20% in an index or market from its recent peak. It's a normal occurrence that happens on average every 1 to 2 years. Beyond 20%, it's called a bear market.

A market order is an instruction to buy or sell a security immediately at the best available price. Execution is guaranteed, but the exact price is not — you pay the ask price when buying and receive the bid price when selling.

Maturity is the date on which the bond issuer must repay the borrowed principal to the investor. It can range from a few months to over 30 years. The longer the maturity, the more sensitive the bond is to interest rate changes.

Maximum drawdown measures the maximum loss an investment suffered between a peak and a trough over a given period. It expresses the worst-case loss scenario an investor could have experienced by buying at the peak and selling at the bottom. It is a key measure of downside risk.

Highest market-cap tier: companies worth $200 billion or more. Includes the US "Magnificent 7" (Apple, Microsoft, NVIDIA, Alphabet, Amazon, Meta, Tesla). Very liquid, covered by every analyst, relatively low volatility, but growth slower than in their early days. Often a portfolio backbone for beginners.

The minimum deposit is the amount required to open an account with a broker. Many Canadian online brokers have no minimum, allowing you to start investing with any amount.

Momentum is an investment strategy that involves buying securities that have performed well recently and avoiding those that have underperformed, based on the assumption that trends tend to persist in the short to medium term.

The money market consists of very short-term (less than one year) and very low-risk investments, such as Treasury bills and term deposits. Money market ETFs offer a return close to the Bank of Canada's policy interest rate.

A mortgage is a loan secured by real property, used to finance the purchase of a home. In Canada, mortgages have a term (rate period, typically 1 to 5 years) and an amortization period (total repayment duration, typically 25 years). If the down payment is less than 20%, mortgage loan insurance (CMHC) is mandatory.

A moving average is a technical indicator that calculates the average price of a security over a given period (e.g., 50 days or 200 days), updating each day. It smooths out daily fluctuations to reveal the overall price trend.

A mutual fund is an investment vehicle that pools money from multiple investors to buy a diversified portfolio of securities. It is actively managed by a professional fund manager, unlike most ETFs which passively track an index.

The Net Asset Value of an ETF represents the total value of all its assets minus its liabilities, divided by the number of outstanding units. It is calculated at market close each day. An ETF's market price fluctuates in real time throughout the day but generally stays very close to its NAV.

Net asset value (NAV) is the total value of a fund's assets minus its liabilities, divided by the number of outstanding shares. It's the "true price" of an ETF share, calculated once daily after market close. The market price may differ slightly from the NAV.

Net income is the amount remaining after subtracting eligible deductions from gross income. In Canada, it appears on line 23600 of your federal tax return. Net income is used to calculate many government credits and benefits, including the Canada Child Benefit, Guaranteed Income Supplement, and OAS clawback.

Net margin = net earnings ÷ revenue. Percentage of revenue that becomes profit for shareholders, after interest, tax, and all other costs. A net margin above 20% is exceptional (Apple, Microsoft); 5–10% is typical for most sectors. Affected by tax, so varies by country.

A non-registered account (also called a taxable account) is a regular investment account with no special tax advantages. Unlike the TFSA or RRSP, there is no contribution limit, but investment income is taxable in the year it is received.

Norbert's Gambit is a technique used by Canadian investors to convert Canadian dollars to U.S. dollars (or vice versa) at a lower cost, avoiding brokerage currency conversion fees.

Old Age Security (OAS) is a monthly benefit paid by the Canadian federal government to most people aged 65 and over who have lived in Canada for at least 10 years. Unlike CPP/QPP, it is not based on your contributions but on your length of residence.

Cash generated solely by operating activities, before CapEx. Broader than FCF — includes everything in and out of the business (customers, suppliers, payroll). If a company shows a profit but has negative operating cash flow, it's a red flag (unpaid receivables, etc.).

Operating margin = operating income ÷ revenue. Includes operating costs (SG&A, R&D) on top of cost of goods. Measures core-business profitability, before interest and tax. More stable than net margin (which can move with one-off tax effects). Track the trend over several years, not a single quarter.

Passive income is regular income that doesn't require ongoing active work. In investing, it mainly comes from stock and ETF dividends, bond interest, and real estate investment trust (REIT) distributions.

The payout ratio is the percentage of a company's earnings paid out to shareholders as dividends. A ratio of 50% means the company distributes half its profits and reinvests the other half. A ratio that is too high (>100%) may signal an unsustainable dividend.

PEG ratio = P/E ÷ earnings growth rate (in %). Lets you compare companies with different growth profiles — a PEG of 1 is often "fair": P/E exactly reflects expected growth. PEG below 1 suggests undervaluation relative to growth; above 2, expensive. Sensitive to growth estimates, which can be optimistic.

A penny stock is a share that trades at a very low price, typically under $1 or $2 per share. In Canada, these stocks are often listed on the TSX Venture Exchange (TSX-V) and involve small companies, often mining or early-stage technology firms. They are very risky and highly speculative.

The policy interest rate is the interest rate set by the Bank of Canada (or the Fed in the U.S.) that influences all other interest rates in the economy. It determines the cost of borrowing between banks and trickles down to mortgage rates, savings accounts, and bonds.

A portfolio is the collection of all investments held by an investor. It can contain stocks, bonds, ETFs, cash, and other assets, allocated according to a chosen strategy.

Overlap occurs when two ETFs held in the same portfolio contain the same securities. For example, if you hold VFV.TO (S&P 500) and VEQT.TO (global including ~45% US stocks), you have double exposure to large US companies, which reduces your actual diversification.

A preferred stock is a type of security that pays a fixed dividend and has priority over common shares for dividend payments and in the event of liquidation. In exchange, preferred shareholders typically have no voting rights and benefit less from the company's growth.

The price-to-book (P/B) ratio compares a stock's price to its book value per share (net assets on the books). A P/B below 1 means the market values the stock at less than its net assets — often a signal of trouble or undervaluation. Relevant for banks and insurers (mostly financial assets); less relevant for tech (intangibles dominate).

The price-to-book ratio (P/B) compares a stock's price to the company's book value (its assets minus its liabilities). A P/B of 1 means the stock trades at exactly the value of its net assets. A P/B below 1 may indicate a bargain.

The price-to-earnings (P/E) ratio compares a stock's price to its earnings per share over the last 12 months. A P/E of 20 means investors pay $20 for every $1 of annual profit. Used to compare valuation — a high P/E can signal growth expectations or overvaluation; a low P/E, undervaluation or problems. Always compare within the same sector.

The price-to-earnings ratio (P/E) compares a stock's price to its earnings per share. A P/E of 20 means investors are paying $20 for every $1 of annual earnings. The higher the ratio, the more "expensive" the stock is considered relative to its profits.

Compares a stock's price to revenue (sales) per share. Useful for valuing unprofitable or volatile-earnings companies — startups, biotechs, cyclicals at trough. A low P/S can suggest undervaluation; a high P/S reflects growth or margin expectations. Compare within sector (SaaS have much higher P/S than retailers).

A Real Estate Investment Trust (REIT) is an investment vehicle that owns and manages a portfolio of income-producing real estate properties (offices, shopping centres, apartments, warehouses). REITs distribute most of their rental income to investors as distributions. They allow you to invest in real estate without buying property directly.

Real return is the return on your investment after subtracting inflation. It's the true gain in purchasing power. An 8% return with 3% inflation gives a real return of roughly 5%.

Rebalancing means returning your portfolio's asset allocation to its original target after markets have shifted it. For example, if your stocks rose significantly and now represent 90% instead of 80%, you sell some stocks and buy bonds to return to your 80/20 target.

A recession is a significant decline in economic activity lasting at least several months. In Canada, it is generally defined as two consecutive quarters of declining GDP. Recessions typically bring job losses, falling corporate profits, and declining stock markets.

The RDSP is a tax-deferred savings account designed to help individuals eligible for the Disability Tax Credit (DTC) save for their long-term financial security. The federal government provides generous matching grants (Canada Disability Savings Grant) and bonds (Canada Disability Savings Bond) that can triple contributions. Withdrawals are generally not taxed until funds are taken out.

The RESP is a registered account designed to save for a child's post-secondary education. The federal government adds a grant (CESG) of 20% on the first $2,500 contributed per year, up to a lifetime maximum of $7,200 per child.

The RRIF is an account into which you convert your RRSP by December 31 of the year you turn 71. You must then withdraw a minimum amount each year, calculated based on your age. Withdrawals are taxable as income.

The RRSP is a Canadian registered account that allows contributions to be deducted from taxable income. Investments grow tax-sheltered until withdrawal. Contribution room equals 18% of prior-year earned income, up to an annual limit ($31,560 in 2024).

Decumulation is the phase where you gradually withdraw the money accumulated in your investment accounts to fund your retirement. It is the opposite of the accumulation phase. The goal is to make your money last your entire life.

Return represents the gain or loss of an investment over a given period, expressed as a percentage. It includes capital gains (price increase) and distributed income (dividends, interest). To be accurate, an ETF's return must always be calculated from the adjusted closing price.

Return of capital (ROC) is a distribution that returns a portion of your own invested money to you, rather than income generated by the fund. It's not immediately taxable but reduces the adjusted cost base (ACB) of your shares.

ROA = net earnings ÷ total assets. Measures how efficiently a company uses its assets to generate profit. Unlike ROE, ROA isn't amplified by debt — so it's a purer measure of operational profitability. Most relevant for banks and asset-heavy industries.

ROE = net earnings ÷ shareholders' equity. Measures how much profit the company generates per dollar invested by shareholders. A consistent ROE above 15% signals a quality company. Caveat: a very high ROE can come from leverage (debt) rather than operational excellence — always check debt-to-equity alongside.

Risk tolerance is your emotional and financial ability to handle fluctuations in the value of your investments. It determines what proportion of stocks and bonds should make up your portfolio.

A robo-advisor is an automated investment service that builds and manages an ETF portfolio for you, based on your risk profile. It handles asset allocation, rebalancing, and distribution reinvestment. Fees are lower than a traditional financial advisor.

The Rule of 72 is a math shortcut to estimate how many years it takes to double your money. Divide 72 by your annual rate of return and you get the approximate number of years.

The S&P 500 is an American stock market index that groups the 500 largest publicly traded companies in the United States, weighted by market capitalization. It is considered the most representative barometer of the American economy and serves as a global benchmark for measuring stock market performance.

A savings account rate is the annual interest percentage paid on your balance. High-interest savings accounts (HISA) offer more competitive rates than traditional bank accounts.

A sector ETF is an exchange-traded fund that invests in a single sector of the economy, such as technology, energy, healthcare, or financials. It allows you to target a specific industry without picking individual stocks.

Total shares issued by the company and held by all shareholders (public + private + insiders). It's the denominator of EPS and market cap. A company that regularly buys back shares reduces this count — mechanically, EPS and per-share value rise. Conversely, share issuance dilutes existing holders.

The Sharpe ratio measures an investment's excess return above a risk-free asset (typically Treasury bills), divided by its volatility. It allows investments to be compared while accounting for the risk taken. A higher ratio indicates better risk-adjusted performance.

Short selling means borrowing shares you don't own, selling them at the current price, then buying them back later (ideally at a lower price) to return them to the lender. You profit if the price drops but lose if the price rises. It is an advanced and risky strategy.

A small-cap stock is a company with a market value generally between $300 million and $2 billion. These companies have high growth potential but also more volatility and risk than large caps.

Stagflation is a rare economic situation where high inflation coexists with stagnant economic growth and rising unemployment. It combines the worst of both worlds: prices keep rising while the economy fails to grow. This phenomenon is particularly difficult for central banks to combat.

Standard deviation measures how spread out an investment's returns are around its average. The higher the standard deviation, the more returns vary from one period to the next, and therefore the more volatile the investment. It's the most common risk measure in finance.

A stock is a security that represents partial ownership in a company. By buying a stock, you become a co-owner of that business and can benefit from its growth through price appreciation or dividend payments.

A stock exchange is a marketplace where securities like stocks and ETFs are traded. In Canada, the Toronto Stock Exchange (TSX) is the primary market. Canadian ETFs (.TO) are listed there, while US ETFs trade on NYSE or NASDAQ.

A stock market index is a basket of securities selected according to specific criteria (size, sector, region) that serves as a benchmark to measure market performance. Most ETFs aim to replicate the performance of a specific index — these are called passive or index ETFs.

A stop-loss order is an instruction given to your broker to automatically sell a security when its price drops to a predetermined level. It is used to limit potential losses on an investment. Once the trigger price is reached, the stop-loss converts into a market order and executes at the next available price.

A superficial loss occurs when you sell an investment at a loss and you (or an affiliated person, such as your spouse or a corporation you control) repurchase the same or identical investment within 30 days before or after the sale. In this case, the CRA denies the capital loss deduction. The denied loss is added to the adjusted cost base (ACB) of the repurchased investment.

A swap-based ETF is an ETF that replicates an index without physically holding the underlying securities. Instead, it uses a swap contract with a financial counterparty (usually a bank) that agrees to pay the index return. These ETFs can offer tax advantages in certain structures.

Systematic risk (also called market risk) is the risk that affects the entire market and cannot be eliminated through diversification. It includes recessions, interest rate hikes, geopolitical crises, and inflation.

T3 and T5 slips are tax documents issued by your broker to report investment income in a non-registered account. The T3 covers trust income (including most ETFs), and the T5 covers direct dividends and interest.

A tax credit is an amount that directly reduces the tax you owe to the federal or provincial government. Unlike a tax deduction which reduces your taxable income, a tax credit reduces the tax itself, dollar for dollar (non-refundable credit) or even beyond (refundable credit).

A tax-deferred account lets you postpone paying tax on your investment gains until later, usually when you withdraw. The RRSP is the classic Canadian example: you deduct contributions from your income now and pay tax when you withdraw the funds in retirement.

The TFSA is a Canadian registered account where investment income (interest, dividends, capital gains) is completely tax-sheltered. Withdrawals can be made at any time without paying tax, and any contribution room withdrawn is regained the following year.

The Toronto Stock Exchange (TSX) is Canada's main stock exchange. It lists large Canadian companies and is particularly known for its financial, energy, and natural resources sectors. Canadian ETFs whose ticker ends in .TO are traded there.

Total return includes both the price appreciation of an investment and the income it generated (dividends, distributions, interest). It's the most complete measure of an investment's actual performance.

Tracking error measures the gap between an ETF's performance and that of the index it seeks to replicate. It is generally expressed as the annualized standard deviation of the return differences. A low tracking error indicates the ETF faithfully replicates its benchmark index.

Trading volume is the number of ETF shares exchanged over a given period (typically 30 days). High volume indicates good liquidity: you can buy or sell quickly without affecting the price.

A Treasury bill is a short-term debt security (typically 1, 3, 6, or 12 months) issued by the Government of Canada. It is sold at a discount (below face value) and redeemed at full face value at maturity, with the difference representing the return. T-Bills are considered the safest investment in Canada as they are backed by the federal government.

A trust is a legal arrangement where a trustee holds and manages assets on behalf of beneficiaries. In Canada, trusts are commonly used for estate planning, asset protection, and tax optimization. Many ETFs and Real Estate Investment Trusts (REITs) are structured as trusts rather than corporations.

Volatility measures the magnitude of price fluctuations of an investment over time. It is typically expressed as the annualized standard deviation of returns. High volatility means the investment's value can swing significantly in either direction over short periods.