Glossary of Investment Terms

Annuity: A contract sold by an insurance company designed to provide payments to the holder at specified intervals.

Asset Allocation: The distribution of investments among different kinds of assets.

Blended Fund: A combination of stocks, bonds and money market securities.

Bond: A loan to the government or a company that agrees to the payment of the original investment plus interest.

Cash Investment: Money market funds, certificates of deposit and U.S. Treasury Bills.

Certificate of Deposit (CD): A certificate from a bank stating that the named party has a specified sum on deposit, usually for a given period of time at a fixed rate of interest.

Deflation: A decline in the general price of goods and services.

Developed Markets: Countries with well established economies.

Diversification: A portfolio strategy designed to reduce exposure to risk by combining investments that are uncorrelated (unlikely to move in the same direction) with the goal of reducing risk and volatility.

Dividend: A taxable distribution of a portion of a company’s earnings to its shareholders.

Dow Jones: An indicator of stock market prices; based on the share values of 30 leading companies listed on the New York Stock Exchange.

Emerging Market: A foreign economy in rapid growth with low to middle per capita income.

Equity: Ownership interest in a corporation in the form of common stock or preferred stock.

Estate Planning: The preparation of a plan for the administration and disposition of one’s property before or after death, including wills, trusts, gifts, power of attorney, etc.

ETF (Electronic Transfer Fund): A fund (bundle of securities) that tracks to an index and can be traded like a stock.

Financial Planning: The long-term process of coming up with a strategy for wisely managing finances to meet goals while at the same time negotiating the financial barriers that inevitably arise in every stage of life.

Fixed Income: An investment that provides a fixed rate of upon return, such as bonds, certificates of deposits, annuities, pensions and social security.

Growth Fund: Companies with above average earnings that pay little or no dividends.

Hedge Fund: An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns.

Indexing: An investment approach that seeks to track the performance of a specific benchmark or index. Common indexes include:

  • Barclays Capital U.S. Aggregate Bond: Taxable, investment grade U.S. bond market of U.S. Treasury and corporate bonds.
  • NASDAQ Composite: Stocks of more than 3,000 companies listed on the NASDAQ.
  • Standard and Poor’s 500: Stocks of 500 leading U.S. companies.

Inflation: The general level at which the prices for goods and services in an economy is rising.

Investment: Providing money, capital or time with the expectation of a positive return.

Investment Management: Portfolio management and the trading of securities to achieve a specific investment objective.

IRA (Individual Retirement Account): An account for retirement where taxes are deferred. A Traditional IRA, which is tax deductible, will be taxed when withdrawn. A Roth IRA is not tax deductible and withdrawals will not be taxed.

Large-Cap: Stocks of companies with a market capitalization usually over $5 billion.

Market Capitalization: Represents the aggregate value of a company or stock. It is obtained by multiplying the number of shares outstanding by the price per share.

Mid-Cap: Stocks of companies with a market capitalization typically between $1 and $5 billion.

Mutual Fund: A collection of stocks and/or bonds and/or money market securities.

NASDAQ (National Association of Securities Dealers Automated Quotation): A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks.

Portfolio: A grouping in assets such as stocks, bonds, real estate, and cash.

Purchasing Power: The value of money, as measured by the quantity and quality of goods and services it can buy.

Roth IRA: A type of IRA, established in the Taxpayer Relief Act of 1997, which allows taxpayers, subject to certain income limits, to save for retirement while allowing the savings to grow tax-free.

S&P 500: A market value weighted index of 500 stocks designed to be a leading indicator of the U.S. equity market.

Sector: A subset of companies in a common line of business, such as:

  • Consumer Discretionary: Automotive, household durable goods, textiles and hotels, restaurants and other leisure facilities.
  • Consumer Staples: Manufacturers and distributors of food, beverages, and tobacco, as well as producers of nondurable household goods and personal products.
  • Energy: The construction or provision of oil rigs, drilling equipment, and other energy-related equipment and services; or companies engaged in the exploration, production, marketing, refining, and/or transportation of oil and gas products.
  • Financial: Banking, mortgage finance, consumer finance, specialized finance, investment banking and brokerage, asset management and custody, corporate lending, insurance, financial investment, and real estate.
  • Health Care: Companies that manufacture health care equipment and supplies or provide health care related services.
  • Industrials: The manufacture and distribution of capital goods; the provision of commercial services and supplies; or the provision of transportation services.
  • Information Technology: Includes technology, software, Internet applications systems, databases, consulting, data processing, outsourced services.
  • Materials: Companies that manufacture chemicals, construction materials, glass, paper, forest products, and related packaging products, as well as metals, minerals, and mining companies.
  • Telecommunications: Companies that provide communication services primarily through fixed-line, cellular, wireless, high-bandwidth, and/or fiber-optic cable networks.
  • Utilities: Electric, gas, and water utility companies, as well as companies that operate as independent producers and/or distributors of power.

Small-Cap: Stocks of companies with a market capitalization of less than one billion dollars.

Stock: Represents a share of ownership in a particular company.

Tax Efficient: Investments that minimize the impact on taxes, such as low capital gains.

Tax Shelter: A legal method of minimizing an investor’s taxable income, such as a 401k.

Value Fund: Companies with a lower than average price-to-earnings ration that are considered to be undervalued.