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Glossary

If you are unfamiliar with any terms, you will find this glossary page useful.

Asset Allocation
Asset allocation is an investment strategy that aims to balance risk and reward for an investor.  This is accomplished by apportioning a portfolio’s assets according to the individual’s goals, risk tolerance and investment time horizon.

Business Risk
There are certain events that only affect a specific company or industry, such as the BP Gulf of Mexico oil spill.  The adverse impact on its revenue or operating expenses may cause the value of the company stock to drop.

Canadian Investment Manager
The Canadian Investment Manager designation is earned through an education stream of the Canadian Securities Institute. The CIM qualifies an individual for licensing in discretionary portfolio management in Canada.

CFA Charterholder
This credential is widely regarded in the global financial industry for its rigorous focus on current investment knowledge, analytical skill, and ethical standards.  The CFA designation symbolizes the knowledge, discipline and integrity you should expect from a portfolio manager. 

Chartered Accountant
The Chartered Accountant designation is given to accounting professionals in Canada after rigorous study, examination and hands-on experience.  The role of a CA is one of a trusted professional, known for technical competence, integrity, objectivity and a commitment to the public interest.

Currency Risk
Currency risk arises from the change in the price of one currency relative to another.

Discretionary Portfolio Manager
The practice of independently managing the funds of each client in accordance with his or her needs.

Economic Cycle
The economic cycle is the period during which a country’s economy moves from expansion to contraction and back again.  The economic cycle is influenced by many forces including: inflation, interest rates, fiscal and monetary policy, and natural events.

Economic Risk
When the overall economy experiences a downturn (or recession), the earnings capabilities of most companies are, at least temporarily, adversely impacted.  A decline in anticipated future earnings usually lowers stock prices.

Financial Risk
Financial risk is the dollar or percentage decline in value an investor can accept, given their need for capital preservation, income and overall level of wealth.

Inflation Risk
The chance that investment returns won’t keep pace with inflation over time, and consequently erode the investor’s purchasing power.

Interest Rate Risk
Marketable fixed income investments, like bonds, are sensitive to changes in interest rates.  Bond prices adjust in the opposite direction to interest rate movements.

Intrinsic Value
Intrinsic value is what a company is really worth, as opposed to what investors are currently willing to pay for the company’s stock, i.e. market price.

Investment Management
Investment management refers to portfolio management and the trading of securities to achieve a specific investment objective.  It also commonly refers to the buying and selling of securities within a portfolio. 

Investment Policy Statement
A portfolio manager develops a written agreement (usually known as an Investment Policy Statement or IPS that takes into account your specific needs.  Your IPS is the basis upon which your portfolio manager selects an appropriate mix of investments and makes discretionary adjustments to your portfolio.

Investment Portfolio
A collection of securities or types of investment vehicles that is designed to spread the risk of possible losses resulting from less-than-expected performance in any one investment. It usually includes securities such as bonds, income equities, stocks, and pooled or exchange traded funds.
 
Investment Risk
The possibility an investor’s actual return on an investment will be lower than expected due to the unpredictable direction of markets.

Liquidity Risk
The possibility of losses arising from situations in which there is not enough cash to meet investors’ immediate needs.  Securities whose market prices are inherently volatile (like stocks) compromise liquidity.

Longevity Risk
Given the uncertainty of a life span, longevity risk is the chance that an investor outlives their money.

Management Expense Ratio
The percentage of the fund’s total assets deducted from its returns each year to cover administrative expenses, like management fees, sales charges, trading costs, commissions, and so on.

Market Cycle
The market cycle is the period of time during which stock prices rise, then fall, and then recover again.  The market cycle generally runs ahead of the concurrent economic cycle.

Market Risk
The chance that the value of a security will decrease due to changes in environmental factors: stock price levels, interest rates, foreign exchange rates or commodity prices.  Market risk affects almost all types of investments, including stocks, bonds and real estate.

Marketability Risk
An investor’s ability to readily convert an investment to cash at prevailing market prices, which is a function of trade volume and bid-ask spreads.

Portfolio Management
The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals, and balancing risk against performance.  Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt versus equity, domestic versus international, growth versus safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk.

Portfolio Manager
Portfolio managers are firms and people who manage investment portfolios on behalf of private clients.  Portfolio managers differ from mass-market or retail investment managers because they manage larger amounts of money for fewer clients.

Private Client
Private clients are individuals and families who have a significant financial portfolio and require expertise and access to investments beyond those available to the mass market.  These individuals want to earn reasonable returns for the risk they are prepared to take.

Risk Perception
A subjective judgment held by a person about the characteristics and severity of a risk, i.e. likelihood, magnitude and timing of its effect. 

Risk-Reward Relationship
The concept implies that potential return rises with an increase in risk.  Accordingly, an investor must accept the possibility of loss to achieve higher return on invested money.

Risk Tolerance
The degree of uncertainty that an investor can handle in regard to a negative change in the value of an investment portfolio is personal risk tolerance.

Valuation Risk
The chance that the original purchase price paid for security is too high.

Wealth Management
Wealth management is a term generally used to describe a highly customized and sophisticated portfolio management and investment planning service directed to private clients. Wealth management goes beyond managing investments to address a client’s entire financial situation.

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