The A, B, Cs of Money: I

ILLIQUID: If an investment is said to be "illiquid" it means that it'll be damn hard to find some other sucker to buy it from you. Shares of private companies, commercial real estate and limited partnerships are all considered to be illiquid.  Illiquid investments are particularly difficult to get rid of without losing a lot of money during times of market turmoil.

IN PLAY: This is slang used to describe a company who has become a takeover target or who has put itself up for sale. With the first bid, the company is "in play." Typically, share prices increase on the expectation that several companies will try to win the bidding war.

IN THE MONEY: When an option or a warrant has a positive intrinsic value, it is said to be "in the money." So if a call option has an exercise price below the price of the underlying investment – or a put's exercise price is above – the option is said to be in the money.

INCOME-SPLITTING: This is when you move money from the hands of someone who must pay high levels of tax to the hands of someone who will be taxed at a lower rate. This is a good way of paying less income tax, particularly for those who are retiring. If all the retirement savings are in The Big Guy's hands, then he'll pay a whopping amount of tax. But if half are in his hands, with the other half being taxed in The Little Woman's hands, hey, ding, ding, ding, you win! Tax savings!

INDEX-LINKED GIC: A GIC that pays no interest (or significantly reduced interest). Instead, the return is tied to the return in stock market investments. Every index-linked GIC has a different calculation – I haven't seen one yet that is a direct tie to an index — (oy, my head hurts) so you have to be very careful that you understand what you're buying.

INFLATION: The increase in prices in an economy over time. A small amount of inflation is thought to be good because it denotes steady growth in the economy. The Consumer Price Index – or CPI – is used to measure inflation.

INSOLVENCY: The inability of a body to repay the debts he or she has taken on.  Oh boy, you're in deep doo doo now! Get thee to a bankruptcy trustee.

INVESTMENT PYRAMID: A ranking of investments based on their relative levels of risk. At the bottom of the pyramid is the safest type of investments: savings accounts, GICs, Canada Savings Bonds. The further up the pyramid you go, the more risk you're prepared to take in the hope of earning higher levels of return. You must know your investment time horizon and your risk profile before deciding how high up the pyramid you'll go. And if you don't understand what something is on the pyramid, that's a sure sign you should be buying it, no matter who tells you it's a good idea.

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