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Key Terms and Concepts

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Volatility
The price and return of an investment will tend to fluctuate. Stocks, and the stock market overall, are probably the prime example. If you are investing for a short-term goal, these up-and-down fluctuations can be a problem.

But by choosing products such as Guaranteed Investment Certificates, bonds or Treasury bills for your short-term investments (one to five years) you should reduce your volatility risk. With longer-term goals (five years or more), you should successfully ride out market volatility. Historically, stock markets have gone up over the long-term, offsetting any short-term declines.
Inflation
Today's inflation may be low, but it's not dead. It can reduce the purchasing power of an investment's return. By including growth investments such as stocks or stock-based mutual funds in your portfolio, you can counter the effects of inflation.
Liquidity
You may suddenly need cash and have to turn to your investments to get it. This will be easier to do if you have a well-balanced portfolio with a number of different investments such as bonds, stocks, and cash revenues.

A money market mutual fund is a good investment choice for your cash reserves. Your investment usually can be redeemed within a few business days. Some money market mutual funds even offer cheque-writing privileges.
Diversification
The technique of creating a portfolio with investments selected from different asset classes, international markets, and investment styles. The objective is to reduce the degree of overall risk, while maintaining the potential for return.
Asset Allocation
Asset allocation refers to how the investment is allocated among various asset classes.
Strategic Asset Allocation
A long term strategy that determines the asset classes and the percentages of each of the classes that should be in a portfolio. Once the asset class percentages are determined, they remain the same, regardless of market fluctuations.
Investment Management Styles
There are three primary "Investment Management Styles" used for equity funds. These are:

  • Value: The Fund tries to find companies that are fundamentally strong and whose share price is undervalued compared to similar companies.
  • Growth: The Fund tries to invest in companies that are growing fast and whose share price is expected to also grow quickly, even though the company may not yet be profitable.
  • Blend: The Fund may primarily use both styles for a portion of its portfolio at the same time, or it may switch between these styles as it determines which is best for the Fund at the time.