Investor Glossary

Below you’ll find definitions on all things investing related. And there are a lot of them! To help you find what you need, use the following alphabet to jump to the correct section.

Notice that some are red? That’s a good thing; it means there are no terms in that section that you need to know.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

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401K — A retirement plan that is sponsored by an employer, where both the employee and employer makes contributions. The employee’s contributions are under their own control, while the employer’s share of contributions are vested over time, meaning the employee gradually earns ownership of the full value of these funds. Typically, the money placed in a 401K is then invested in stocks and bonds. Taxation of these accounts depends on whether it is a Traditional 401K (contributions are tax-free, earnings are taxed upon withdrawal) or Roth 401K (contributions are taxed upfront; earnings are tax-free) account. See our Retirement Glossary for more terms related to retirement.

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A


Alpha — The amount of return expected from an investment based on its initial value compared against a given index. Alpha is also used to determine risk, alongside Beta. A positive Alpha means a good return for the risk involved, while a negative Alpha means a poor return and not worth the risk.

Alternative Minimum Tax (AMT) — A federal tax to ensure that wealthy individuals and businesses pay some taxes

Annual Report — A yearly disclosure that details a company’s financial situation and performance to their shareholders.

Annualized — Taking figures that cover less than a year period and extending it to a 12 month period.

Appreciation — When an asset increases in financial value.

Asset — Anything with value that can be transformed into cash. This can include stocks, bonds, life insurance policies, mutual funds, real estate, cash, checks, and checking and savings accounts.

Asset Allocation — The process of putting your finances into different forms of assets to get the most reward for an acceptable amount of risk.

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B


Balanced Fund — A common style of fund that seeks to increase value and income by investing in a variety of stocks or bonds. Typically is made up of a bond component, a stock component and a money market component.

Bear Market — A period of time where stock prices drop at a steady pace. The opposite of a bull market.

Benchmark — Assessing the performance of a portfolio or mutual fund.

Beta — A measurement of how risky an investment is, with 1 being neutral, above 1 being more volatile, and less than 1 being less volatile. The equation is based off of factors provided by different stock market indexes and can differ depending on what index you utilize.

Blue Chip — A term for relatively safe investments, typically with stocks in well established corporations. These corporations are typically industry leaders and their stock prices follow closely that of the S&P 500 Index.

Board of Trustees — A governing board elected to lead an organization or company.

Bonds — A type of loan or IOU given by an investor with the intention of being repaid at a future point with added interest.

Bond Fund — A mutual fund that is only made up of bonds.

Book Value — How much an asset is worth according to the company that owns it.

Bull Market — A period of time where stock prices go up at a steady pace. The opposite of a bear market.

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C


 

Capital — A term for the initial money invested for a long term basis.

Capital Gain — The amount of money received when selling an asset minus the capital of the investment.

Capital Gain Tax — A tax applied the sale of a non-inventory asset when sold for more than it was purchased for; a tax paid on the income derived from asset appreciation, incurred following a sale of the asset.

Capital Loss — The amount of money lost when selling an asset that is worth less than it was originally purchased for.

Capitalization — The market worth of a company when you take the prices of all the stocks and add them together.

Cash Equivalent — A tool used to move money between different assets that is easily liquidated to cash. This includes U.S. Treasury bills, bank certificates of deposit, banker acceptances, and corporate commercial paper.

Certified Financial Planner — A profession designed to help clients make the best choices with their finances to reach their monetary and lifestyle goals. They are certified by the Certified Financial Planner Board of Standards. They are qualified to make suggestions on investing options, retirement plans, and what kind of checking and savings accounts to utilize.

Common Stock — Ordinary shares of ownership in a corporation. Is the basic kind of stock a person can purchase. Provides less returns and privileges than preferred stock (see below).

Corporate Bond — A long term bond offered by a corporation in an effort to raise outside funds. This differs from stock as it doesn’t provide ownership in the company, but acts as a debt the company will have to repay at the time of maturity.

Crash — When the prices and worth of an asset in a market plummets.

Custodian — A bank or financial figure who manages portfolios and handles asset trades.

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D


Default — When a debtor fails to pay back a debt in a timely manner. If a company defaults on its bonds, investors won’t receive the payout they were expecting.

Diversification — Incorporating a variety of investments and assets in a portfolio.

Dividend — A part of a company’s profits paid to their shareholders; not the same as the payout bondholders receive when their bonds mature.

Dow Jones Industrial Average (DOW) — A common indicator of the performance of the stock market based on 30 blue chip companies.

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E


Earnings Per Share (EPS) — A portion of a company’s profits set aside to pay stockholders. Used to determine a company’s profitability.

Equities — Shares issued by a company to represent ownership. A term that is often used synonymously with stocks.

Equity Fund — A mutual fund that is made up almost entirely of stocks.

Exchange Privilege — A ability to move money from one mutual fund to another within the same family without incurring extra fees.

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F


Fixed Income Fund — A mutual fund or portfolio made of mostly bonds to provide a steady source of income, without a maturity date or large payout.

Fixed Income Security — A stock or bond that pays a stable, consistent amount of interest at regular intervals.

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G


Growth Investing — An investing strategy that focuses on stocks that are growing at a higher rate, without regard to price per share.

Growth Stock — Shares of a well known company that is growing quickly.

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I


Index — Tracks the performance of multiple investments as a way of seeing how profitable specific industries are.

Index Fund — A type of mutual fund that makes investments based off of an investing index, such as the S&P 500 Index. This type of fund specializes in broad market exposure, low portfolio turnover and inexpensive operating costs.

Individual Retirement Account (IRA) — A tax-deferred account to which a person can contribute up to $3,000 a year to. Taxes are paid on appreciation of the underlying funds upon withdrawal from the account. (See also: Roth IRA)

Inflation — When the price of a good or service increases. Often leads to less purchasing power for consumers.

Interest Rate — The amount over time, expressed as a percentage, at which new interest is applied on a investment or charged on a debt.

Inventory Sale — When a business sells a physical product or service. There is a physical transaction for a physical product or service that is received (as opposed to an individual selling his or her investments, which is subject to capital gains taxes).

Investment Advisor — A person or organization that is hired to help make sound and profitable investments. There is no certification required to becoming an investment advisor, but there are certifications available to help investors find the right one for their needs.

Investment Grade Bonds — A bond that is deemed worthy of purchase by professional investors or advisors.

Investment Objective — The financial goal for a portfolio or mutual fund.

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J


Junk Bond — A lowly rated bond, that has a higher payout. (See also: Ratings).

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L


Letter of Intent — A way for a person to outline what they want from a deal or expect in a business transaction. Is also used from a holder in a mutual fund or investor saying they would like to invest specific amounts of money at specific times.

Liquidity — How easy it is to transform different assets into cash.

Loads — Charges for being in a mutual fund.

Long-Term Investment Strategy — A strategy that cares less for the day to day changes in the investment market and instead focus on a protracted approach to steadily grow the assets’ worth.

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M


Management Fee — The cost of paying a mutual fund to oversee your investments.

Market Correction — When the prices and values of stocks across the entire stock market drop about 10 percent from its all time high. Considered a normal part of the stock market, usually leads to stocks becoming more valuable.

Market Price — The current, fluctuating cost of a tradeable asset. Market price does not always accurately reflect the underlying value of the asset (see below).

Market Risk — The possibility that an investment won’t reach it’s target worth.

Market Timing — A strategy that involves predicting market trends and quickly buying and selling stocks to make a profit.

Maturity — The point in time when an investment or debt is due and must be paid.

Maturity Distribution — The different times investments in a portfolio will reach their maturity dates.

Money Market— Assets that can be traded and liquidated quickly that also have short maturities. These maturities can range from a single day to almost a year. Assets commonly used in money markets are: U.S. treasury bills, certificates of deposits (CDs), Eurodollar deposits.

Mutual Fund — A fund that is managed by an investment company that raises money for their clients and invests in stocks, bonds, options, or other assets. A mutual fund is typically made up of multiple people grouping their assets together in order to purchase more expensive stocks and bonds with larger payouts.

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N


NASDAQ — National Association of Securities Dealers Automated Quotations system. Provides brokers and dealers with price quotes on securities.

Net Asset Value Per Share — The current, average dollar value for a single mutual fund share.

Non-Inventory Sale — The sale of a non-tangible asset of a business, such as stocks or bonds.

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O


Over 50 Contributions — People over the age of 50 are allowed to contribute larger amounts of money to their 401Ks without incurring penalties or additional taxes, thus allowing more money to be invested in stocks and bonds.

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P


P/B Ratio — Literally, Price/Book, or the price of a stock divided by its book value.

Par Value — The stated or face value of an asset.

Personal Financial Specialist — A job certification that qualifies a person as a Certified Public Accountant (CPA) that specializes in everything financial and wealth management. This certification is issued by the American Institute of Certified Public Accountants.

Portfolio — A group of investments owned by a single organization or person.

Portfolio Allocation — How much value in a portfolio is placed into a specific kind of asset.

Portfolio Manager — A person or business in charge of managing a portfolio and making sure it is successful.

Preferred Stock — A class of stock that gets priority over common stock when a company pays its dividends.

Premium — How much a bond or stock sells above its market value.

Price-to-Earnings Ratio — A stock’s price divided by its earnings per share.

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Q


Quality Distribution — A breakdown of the assets in a portfolio based off of their ratings.

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R


Ratings — Evaluations of the credit quality of different bonds by industry specialists.

Recession — A decrease in economic activity and overall asset worth in a specific economy.

Risk — How likely it is that an investment won’t reach it’s maturity date or pay out its targeted worth.

Risk Tolerance — A personal preference on how much an investor is willing to risk on investments in order to get a larger payout. A higher risk tolerance means being able to invest large amounts of funds with a high chance that it might not pay out, but if it does pay out, it will be a significant profit. A low risk tolerance means investing money is safer options, but often with smaller returns.

Roth IRA — An individual retirement account that can be invested in assets like stocks and bonds. Taxes are paid on contributions up front, making any appreciation of the account tax-free upon withdrawal (see also: Traditional IRA).

Roth 401K — A type of a 401K, but where taxes are paid when money is placed in the account, but funds pulled from the account later are not taxed (see also: Traditional 401K ).

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S


Sales Charge — Sometimes, the sale of a stock has a fee associated with it.

Securities — Another name for assets like stocks or bonds.

Securities and Exchange commission (SEC) — A federal agency in charge of managing and enforcing laws in the securities industry.

Share — A unit of ownership in a company.

Short-Term Investment — A type of investment that hits its maturity date in less than a year.

Stocks — A long term investment designed to grow over time, signifies ownership in a company.

S&P index — The Standard and Poor 500 index is an U.S. stock market index that details information of top stock options as a means to compare other common stock against.

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T


Tax-Exempt Income — Types or portions of income that aren’t taxed by the federal government.

Total Return — All of the money, from dividends and interest, earned before counting fees and taxes.

Traditional IRA — An IRA for which contributions are tax-free, but which is subject to capital gains taxes when withdrawals are made (see also: Roth IRA)

Traditional 401K — An employer-sponsored retirement account for which contributions are tax-free, but appreciation is subject to capital gains taxes (see also: Roth 401K).

Treasury Bill — A short term debt issued by the U.S. government that can be cashed in usually less than a year.

Treasury Bond — A debt issued by the U.S. government that is paid out after about 10 years time.

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V


Valuation — An estimate of worth or value of a specific company and/or its stocks.

Value — The general worth of a stock or asset. The financial base of value is much more steady than it’s market price, as these prices often fluctuate on a daily basis.

Value stock — An overlooked or under priced company stock that is rising in value.

Volatility — How often and by how much an investment fluctuates in price or value.

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W


Wall Street — A street found in New York City, is also used as the name for the financial markets of the United States as a whole. Often, more specifically is used in reference to the stock market.

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Y


Year-to-Date Total Return — How much an investment has returned over a single year.

Yield — The annual percentage rate of return on the initial capital invested.

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