If you own investments, you will receive periodic statements with the value of your holdings, the details and perhaps performance. Statements might appear monthly or quarterly in the mail, or you might have converted everything to online access only.
Either way, do you have questions about what some of the 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 terms used could include Cash, Margin, RRSP, RRIF, LIF, TFSA and a few others. “Cash” means non-registered or “open”, which means it is not an RRSP, TFSA or similar, and the investment income is taxable each year. It does not mean that all of the money is sitting in cash, but rather it is invested. Each account description will usually identify Canadian or US dollars, the currency in which that account is invested.
The terms “Balance” or “Cash” (yes, the same word but in a different context) denote the amount of actual cash balance in that account at month end.
“Margin” is a type of non-registered 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.
Most statements start with a Portfolio Summary on the first page, listing the account type, account number, and current value of cash and securities. “Securities” in this context means money that is invested, as opposed to the cash balance.
Confusion can arise when first looking at the summary and then the details of the accounts, because there is repetition. 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”. Others group investments by the asset class, which could be cash & short term, bonds or fixed income, preferred shares, common stock or equities, and may be further broken down between domestic (Canadian) and foreign, sometimes further broken down between US and international.
In the details, the statement tries to describe the 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 face value of bonds or the number of shares or units you own of a security) 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 actually adjusted over time by things like dividends reinvested into the same security, or return of capital on trust units. (This may be more detail than you need.)
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 companies 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 last term refers mostly to purchases or sales of investments. For example, if you sold $10,000 of Royal Bank shares, you’d see a $10,000 addition to your cash balance when the sale settles.
If you then purchased $9,000 of BMO shares, this amount would be deducted from your cash balance, leaving a $1,000 net balance.
However, in a given month you likely started with a certain cash balance, you may have received dividends on shares or interest on fixed income investments you own, and you paid either a monthly fee from the account, or commissions on the buys and sells.
When a transaction occurs, you may receive a “confirmation” in the mail, which is a half-page statement of what happened. These are sometimes confusing, but become clear if you go carefully through them line by line. They will tell you that you bought or sold something, the net proceeds and any transaction costs.
This summary just scrapes the surface of all of the terms and jargon used in investing. However, it should help reduce the stress that can arise when you are unclear on what your statements are telling you.
Be sure to ask your investment advisor to go through your statements with you, if any questions remain.
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
Please consult legal, tax, insurance and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIMis a financial planner and advisor with Christianson Wealth Advisors, a Vice President with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.