Finance-speak decoded

Annualized Return

A rate of return for a given period that is less than a full year, but that is computed as if the rate were for a full year.

Derivative

A contract between two parties whose value is derived from the performance of an underlying asset. One example is a futures contract, where one party agrees to buy a commodity or financial instrument at a pre-determined price in the future. Another is a warrant, where the issuer gives the holder the right to buy securities at a fixed price within a given time frame.

Income Investments

Investments that pay regular interest or dividends. These are typically suited to retirees who count on predictable returns, as opposed to fluctuating stock prices.

Arbitrage

The simultaneous purchase and sale of an asset in order to profit from a difference in the price, typically on different markets or in different forms.

Fixed Income Investments

Investments that pay returns at predictable levels at regular intervals. Common fixed-income investments include bonds or guaranteed income certificates (GICs).

Large-Cap, Small-Cap

“Cap” refers to market capitalization, or total value of a company, determined by multiplying number of outstanding shares by share price. Small cap typically refers to smaller or startup companies while large-cap typically refers to large multinational companies.

Compound Annual Return

The annualized rate at which capital has compounded over a period of time.

Hedge Fund Investment fund employing advanced strategies such offsetting long and short positions, dealing in derivatives, pursuing arbitrage opportunities and seeking event-driven special situations.

REIT

A Real Estate Investment Trust is a company that invests exclusively in real estate and mortgages and passes cash flow on to investors. These offer high yields, as well as a highly liquid way of investing in real estate. ■