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Every Canadian finance term, in plain English. 26 entries and growing.
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A registered Canadian account where investment growth and withdrawals are tax-free. Contributions are made with after-tax money (no tax deduction). Annual contribution limit grows each year; unused room rolls over.
Example
If you invest $6,500 in your TFSA and it grows to $20,000 over a decade, you can withdraw all $20,000 tax-free. The CRA never sees a dollar of it.
A registered Canadian account where contributions reduce your taxable income now, growth is tax-deferred, and withdrawals are taxed as income in retirement. Best when your current tax bracket is higher than your expected retirement bracket.
Example
If you contribute $10,000 in a 40% tax bracket, you get $4,000 back as a tax refund. The $10,000 grows tax-free until you withdraw it in retirement (when you'll likely be in a lower bracket).
A registered Canadian account introduced in 2023 that combines the best of TFSA and RRSP for first-time homebuyers. Contributions are tax-deductible AND withdrawals for a first home are tax-free. $8,000/year limit, $40,000 lifetime.
Example
Triple tax savings: deduction on the way in, tax-free growth, tax-free withdrawal for a home. Best of both worlds.
A registered Canadian account for saving toward your child's post-secondary education. The government adds a 20% grant (CESG) on contributions up to certain limits. Growth is tax-deferred, and withdrawals for education are taxed in the student's name (usually at near-zero rates).
Example
Contribute $2,500/year and the government adds $500. Over 18 years that compounds into a sizeable education fund without coming entirely from your pocket.
The annual fee a mutual fund or ETF charges as a percentage of your invested assets. Subtracted automatically before any returns are reported. Lower is almost always better.
Example
A $100,000 portfolio with a 2% MER costs you $2,000/year in fees, every year, whether the fund does well or badly. The same portfolio at 0.10% MER costs $100.
A basket of stocks, bonds, or other assets that trades on a stock exchange like a single stock. Most ETFs track an index (like the S&P 500), which means low costs and instant diversification.
Example
Buying one share of VEQT gives you exposure to over 13,000 companies worldwide. One purchase, one ticker, fully diversified.
A mutual fund or ETF designed to match (not beat) a specific market index. Because there's no active manager picking stocks, fees are very low. Historically beats 90%+ of actively-managed funds over long time periods.
Example
An S&P 500 index fund holds the same 500 companies as the S&P 500 index, in the same proportions. You get the market's average return at the lowest possible cost.
Investing a fixed amount on a fixed schedule (every paycheck, every month) regardless of market conditions. Eliminates timing decisions and emotional buying. Mathematically buys more shares when prices are low and fewer when high.
Example
Auto-invest $500 on the 1st of every month. Some months the market is up, some down. Over 10 years you don't have to think about it once.
How your portfolio is split between asset classes (stocks, bonds, cash, etc.). Studies show asset allocation explains roughly 90% of portfolio returns over time, far more than which specific funds you pick.
Example
An 80/20 allocation means 80% stocks, 20% bonds. Younger investors can take more equity risk; closer to retirement, more bonds make sense.
A rough heuristic for asset allocation. Subtract your age from 120 to get the percentage of your portfolio in stocks. The rest goes in bonds or bond-equivalents. Adjusts with age.
Example
At 30 years old: 120 - 30 = 90% stocks, 10% bonds. At 60: 60% stocks, 40% bonds. Rule of thumb, not gospel.
If you withdraw 4% of your portfolio in the first year of retirement and adjust for inflation each year after, your money will likely last 30+ years (based on historical market data). Inverted: your FI number is annual expenses × 25.
Example
If you need $40,000/year in retirement, you need $1M invested. ($40K × 25 = $1M)
Interest earned on both your initial principal AND on the interest that has already been added. The 'snowball effect' that makes early investing so much more powerful than late investing.
Example
Invest $1,000 at 7%. After year 1: $1,070. Year 2 you earn 7% on $1,070, not $1,000. After 30 years that $1,000 becomes $7,612, and most of it is interest on interest.
Spreading your investments across many different assets so one bad outcome doesn't sink the whole portfolio. The only free lunch in investing.
Example
Owning 500 companies via the S&P 500 means even if 10 of them go bankrupt, your portfolio barely notices. Owning just 5 stocks and having one go to zero costs you 20% instantly.
Periodically buying and selling within your portfolio to bring your asset allocation back to target. If stocks have outperformed bonds, you'll be over-weighted in stocks and need to sell some and buy bonds.
Example
Target: 80% stocks, 20% bonds. After a good year, you might be 88/12. Rebalancing sells some stocks and buys bonds to get back to 80/20.
Automatic reinvestment of dividends back into more shares of the same investment, instead of taking the dividends as cash. Accelerates compounding because each dividend buys more shares that generate more dividends.
Example
A stock pays you $50 in dividends. With DRIP enabled, that $50 automatically buys you more shares, which next quarter generate more dividends, on and on.
An automated investment platform that builds and manages a diversified portfolio for you based on a risk questionnaire. Charges much less than a human advisor (typically 0.25-0.5% vs 1%+).
Example
Wealthsimple Invest is the most popular Canadian robo-advisor. Answer a questionnaire, link your bank, set up auto-contributions, never think about it again.
A self-directed investment platform where you make your own trades. Lower fees than robo-advisors but requires you to pick and manage your own investments.
Example
Questrade and Wealthsimple Trade are the main Canadian discount brokerages. Best for people who want to buy specific ETFs and rebalance themselves.
Government grant that adds 20% to your RESP contributions, up to $500/year per child. Free money for your kid's education if you're already contributing.
Example
Contribute $2,500/year to your child's RESP and the government adds $500. Over 17 years that's $8,500 in free grants alone.
Lets you withdraw up to $35,000 from your RRSP tax-free for a first-home purchase. You repay it over 15 years. Less attractive than FHSA for most people now.
Example
Most coaches recommend the FHSA over the HBP because FHSA withdrawals don't need to be repaid.
Tax on the profit you make when you sell an investment for more than you paid. In Canada, 50% of capital gains are taxable at your marginal rate. Gains inside a TFSA are not taxed at all.
Example
Buy a stock for $1,000, sell for $1,500. The $500 gain has 50% ($250) added to your taxable income. At a 30% tax rate, you owe $75. Inside a TFSA, you'd owe $0.
Paying off debts smallest balance first, regardless of interest rate. Mathematically slower than the avalanche method but psychologically motivating because you see early wins.
Example
You have a $500 credit card, $5,000 line of credit, $20,000 student loan. Snowball pays the $500 first for the quick win, then the $5,000, then the $20,000.
Paying off debts highest interest rate first, regardless of balance. Mathematically optimal — saves the most interest over time. Less psychologically rewarding because progress feels slow.
Example
Pay the 20% credit card before the 5% student loan, even if the credit card has a bigger balance. You save more in interest this way.
A dedicated savings account for a specific future expense — a vacation, a wedding, a car. Removes guilt when you spend because the money was always for that purpose.
Example
Save $200/month into a 'Japan Trip' sinking fund for 12 months. When the trip comes, you spend $2,400 guilt-free because it was earmarked from day one.
When your spending automatically expands to match your income increases. The reason high earners often have no savings — every raise gets absorbed into nicer cars, restaurants, and rent.
Example
You get a $10K raise. Within 6 months you've leased a nicer car ($300/month more), upgraded to a bigger apartment ($400/month more), and started eating out more. The raise disappeared.
The psychological phenomenon where lifestyle upgrades feel amazing briefly, then normalize, leaving you wanting the next upgrade. The reason 'more money' rarely makes people happier past a point.
Example
The first time you fly business class is incredible. By the 10th time, it's just how you fly. Now you're eyeing first class. The treadmill keeps moving.
The anxiety that drives bad investment decisions — chasing a hot stock after it's run up, buying crypto at the top, panic-selling at the bottom. The single biggest enemy of long-term returns.
Example
Bitcoin hits $60K and everyone's talking about it. You buy at $58K because you're 'missing out.' It drops to $20K. You sell. You just paid $38K to learn about FOMO.
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