Vocabulary

• Mutual Funds – These are investment vehicles that pool money from various investors to purchase securities like stocks, bonds, and other assets.
• Stock – A type of investment that represents an ownership share in a company.
• Bond – A type of investment that involves loaning money to an organization in exchange for periodic interest payments and the return of the principal amount at maturity.
• Portfolio – A collection of investments held by an individual or an investment company.
• Diversification – A risk management strategy that involves mixing a variety of investments within a portfolio.
• Asset Allocation – The strategy of dividing investments among different kinds of assets to reduce risk.
• Net Asset Value (NAV) – The total value of an entity's assets less the total value of its liabilities.
• Expense Ratio – The cost of managing a mutual fund, expressed as a percentage of the fund's total assets.
• Dividend – A distribution of a portion of a company's earnings to a class of its shareholders.
• Capital Gain – The increase in value of an investment or real estate that gives it a higher worth than the purchase price.
• Index Fund – A type of mutual fund with a portfolio constructed to match or track the components of a market index.
• Exchange-Traded Fund (ETF) – An investment fund traded on stock exchanges, much like stocks.
• Money Market Fund – A type of mutual fund that invests in highly liquid, near-term instruments.
• Fixed Income – A type of investing for which real return rates or periodic income is received at regular intervals and at reasonably predictable levels.
• Equity – Ownership interest in a corporation in the form of common stock or preferred stock.
• Mutual Fund Manager – The person who oversees a mutual fund and makes the investment decisions for the fund.
• Large-Cap Stocks – Stocks of large companies with a market capitalization of $10 billion or more.
• Small-Cap Stocks – Stocks of smaller companies with a market capitalization of under $2 billion.
• Mid-Cap Stocks – Stocks of medium-sized companies with a market capitalization between $2 billion and $10 billion.
• Growth Stocks – Stocks in companies that are expected to grow at an above-average rate compared to other companies in the market.
• Value Stocks – Stocks that trade for less than their intrinsic values.
• Income Stocks – Stocks that pay above-average dividends.
• Sector Funds – Mutual funds that invest in a specific sector of the economy.
• Balanced Funds – Mutual funds that invest in a balanced mixture of equity and debt.
• No-Load Funds – Mutual funds that do not charge a sales commission.
• Load Funds – Mutual funds that charge a sales commission.
• Front-End Load – Sales charges paid when an investment is purchased.
• Back-End Load – Sales charges paid when an investment is sold.
• Turnover Ratio – The percentage of a mutual fund's holdings that have been replaced in a given year.
• Risk Tolerance – An individual investor's ability to endure the potential of losing money on an investment.
• Dollar-Cost Averaging – The practice of regularly investing a fixed dollar amount in a particular investment.
• Rebalancing – The process of realigning the weightings of a portfolio of assets.
• Benchmark – A standard against which the performance of a mutual fund can be measured.
• Alpha – A measure of performance on a risk-adjusted basis.
• Beta – A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
• Capital Loss – The decrease in the value of an investment or real estate that gives it a lower worth than the purchase price.
• Prospectus – A legal document provided by investment companies that provides details about an investment.
• Redemption – The return of an investor's principal in a fixed income security, such as a preferred stock or bond.
• Yield – The income return on an investment, such as the interest or dividends received.
• Total Return – The overall gain or loss experienced on an investment over a given period of time.
• Volatility – The degree of variation of a trading price series over time.
• Liquidity – The degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value.
• Inflation – The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• Interest Rate – The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.
• Tax Efficiency – An attempt to minimize tax liability when given many different financial decisions.
• Leverage – The use of various financial instruments or borrowed capital to increase the potential return of an investment.
• Short Selling – The sale of a security that is not owned by the seller, or that the seller has borrowed.
• Derivative – A security with a price that is dependent upon or derived from one or more underlying assets.
• Arbitrage – The simultaneous purchase and sale of an asset to profit from a difference in the price.
• Hedge – An investment to reduce the risk of adverse price movements in an asset.