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Investment basics

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Keeping up with investment products and services in the marketplace can be challenging. Here are just a few of the more common investment terms:

Asset class – a group of investments that are similar based on how the group is invested or how it earns a return. Asset classes include: asset allocation, cash and equivalent, fixed income, balanced and equity

Asset mix – the recommended distribution of your investments among asset classes

Diversification – an investment technique intended to minimize risk by investing in a number of different funds

Dollar-cost averaging – the technique of buying a fixed amount of a particular investment at regular intervals, usually each month. Dollar-cost averaging, over time, should even out the effects of market fluctuations.

Investment manager – a person or organization responsible for investment of the fund’s portfolio, also known as the money manager or fund manager

Investment management fee (IMF) – a fee paid to the investment manager for its professional services, including the daily management of each fund

Load – fees charged to investors to buy (front end) or sell (back end) units in a fund

Rate of return – the measurement of an investment’s performance over a specified period of time

Risk – the possibility of loss and the uncertainty of future returns

Unit value – the cost, or value, of one unit of an investment fund. A unit is purchased when investors make contributions to funds. The unit value is determined by dividing the total assets in the fund by the number of units in the fund on a pre-determined frequency (e.g., daily, weekly or monthly).

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Next lesson: What is an asset class?