Financial Glossary
Welcome to our comprehensive glossary of investment terms! In the fast-paced and often complex world of investing, it’s not uncommon to encounter a myriad of terms and phrases that can be confusing, especially for those who are new to the field.
Recognizing that not everyone is familiar with the language routinely used in the investment world, we have put together this resource to demystify these terms for you. Our glossary is designed to provide clear, concise definitions of commonly used investment terminology.
By familiarizing yourself with these terms, you’ll gain a deeper understanding of the discussions and materials you encounter in your investment journey. Our goal is to empower you with knowledge, helping you become a more informed and confident investor.
Whether you’re just starting out or looking to brush up on your knowledge, this glossary is an invaluable tool that encapsulates decades of investment wisdom, aimed at enhancing your financial literacy and investment acumen.
Mutual Funds
Mutual Fund: A type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities, which is managed by an investment company and funded by shareholders.
Asset Management Company (AMC): A firm that invests the pooled funds of investors in securities in line with the stated investment objectives.
Net Asset Value (NAV): The total value of a mutual fund’s assets minus its liabilities, usually expressed on a per-share basis.
Expense Ratio: A measure of what it costs an investment company to operate a mutual fund, expressed as a percentage of the fund’s average assets.
Load: A sales charge or commission that an investor pays when buying or redeeming shares in a mutual fund.
No-Load Fund: A mutual fund that does not charge any type of sales load.
Front-End Load: A commission or sales charge applied at the time of the initial purchase of an investment.
Back-End Load: A fee paid by investors when they sell shares in a mutual fund, typically decreasing over time.
Distribution Fees: Fees paid out of a mutual fund’s assets to cover marketing and selling fund shares, along with the costs of providing shareholder services.
12b-1 Fees: A type of distribution fee within a mutual fund, named after the SEC rule authorizing it.
Diversification: A risk management strategy that mixes a wide variety of investments within a portfolio.
Fund Manager: A professional responsible for making investment decisions for the mutual fund’s portfolio.
Portfolio: A collection of investments owned by the mutual fund.
Capital Gains: The profit that results from a disposition of a capital asset, such as stock, bond, or real estate.
Dividends: A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders.
Redemption: The process of an investor selling back mutual fund shares to the fund.
Total Return: The overall financial benefit (or loss) experienced by an investor in a mutual fund, including dividends, interest, and capital gains.
Benchmark: A standard against which the performance of a mutual fund can be measured.
Prospectus: A legal document that provides details about an investment offering for sale to the public.
Index Fund: A type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the S&P 500.
Electronic Traded Funds (ETF)
Exchange-Traded Fund (ETF): An investment fund traded on stock exchanges, much like stocks, which holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism to keep its trading close to its net asset value.
Net Asset Value (NAV): The total value of an ETF’s assets minus its liabilities. For ETFs, the NAV is calculated at the end of each trading day.
Arbitrage: The practice of taking advantage of a price difference between two or more markets, balancing the price of the ETF with its underlying assets.
Index ETF: A type of ETF that is designed to track a particular index, such as the S&P 500 or NASDAQ.
Actively Managed ETF: ETFs where the portfolio manager actively makes decisions about how to invest the fund’s money.
Passively Managed ETF: ETFs that aim to replicate the performance of an index and do not seek to outperform it.
Intraday NAV: Refers to the Net Asset Value of the ETF that is calculated throughout the trading day.
Liquidity: The ease with which an ETF can be bought or sold in the market without affecting its price.
Market Order: An order to buy or sell an ETF immediately at the best available current price.
Limit Order: An order to buy or sell an ETF at a specific price or better.
Bid-Ask Spread: The difference between the highest price a buyer is willing to pay for an ETF (bid) and the lowest price a seller is willing to accept.
Dividend Yield: A financial ratio that shows how much a company pays out in dividends each year relative to its stock price, applicable to dividend-paying ETFs.
Sector ETF: An ETF that invests in a specific sector of the economy, such as technology, healthcare, or finance.
Commodity ETFs: ETFs that invest in physical commodities, like agricultural goods, natural resources, and precious metals.
Bond ETFs: ETFs that invest primarily in bonds and other debt instruments.
International ETFs: ETFs that invest in markets outside of the investor’s home country.
Emerging Market ETFs: ETFs that focus on investments in emerging market economies.
Leveraged ETF: An ETF that uses financial derivatives and debt to amplify the returns of an underlying index.
Inverse ETF: An ETF that is constructed by using various derivatives to profit from a decline in the value of an underlying benchmark.
Expense Ratio: The annual fee that all funds or exchange-traded funds charge their shareholders, expressed as a percentage of the fund’s average net assets.
Stocks
Stock: A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.
Common Stock: A type of stock that entitles the shareholder to vote at shareholders’ meetings and to receive dividends.
Preferred Stock: A type of stock that typically does not have voting rights, but has a higher claim on assets and earnings than common shares.
Dividend: A portion of a company’s earnings paid to shareholders, usually on a regular basis.
Market Capitalization: The total market value of a company’s outstanding shares, calculated as share price times number of shares.
IPO (Initial Public Offering): The first time a company offers its stock for public sale and becomes a publicly traded company.
Stock Exchange: A marketplace where stocks are bought and sold, such as the New York Stock Exchange or NASDAQ.
Ticker Symbol: A unique series of letters assigned to a security for trading purposes.
Bull Market: A financial market in which prices are rising or are expected to rise.
Bear Market: A financial market in which prices are falling or are expected to fall.
Blue Chip Stocks: Shares in large, well-established companies known for their financial stability and reliability.
Growth Stocks: Stocks from companies expected to grow at an above-average rate compared to other companies in the market.
Value Stocks: Stocks that appear to be undervalued in price and are therefore considered a good buy.
Dividend Yield: A stock’s annual dividend payments divided by its market value per share.
P/E Ratio (Price-to-Earnings Ratio): A valuation ratio of a company’s current share price compared to its per-share earnings.
EPS (Earnings Per Share): The portion of a company’s profit allocated to each outstanding share of common stock.
Stock Split: An increase in the number of shares of a company’s stock without changing the shareholders’ equity.
Share Repurchase: A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares.
Volume: The number of shares or contracts traded in a security or an entire market during a given period.
Liquidity: The ease with which a stock can be bought and sold in the market.
Insider Trading: The trading of a public company’s stock or other securities by individuals with access to non-public, material information about the company.
Bonds
Bond: A fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).
Maturity Date: The date on which the bond’s principal amount is scheduled to be repaid to the bondholder.
Face Value (Par Value): The amount of money a bondholder will receive when the bond matures. It is also the reference amount the bond issuer uses when calculating interest payments.
Coupon Rate: The interest rate that the bond issuer will pay on the face value of the bond, expressed as a percentage.
Yield: The income return on an investment, such as the interest or dividends received from holding a particular security.
Yield to Maturity (YTM): The total return anticipated on a bond if the bond is held until its maturity date.
Bond Issuer: The entity (corporate or governmental) that issues the bond and is obliged to pay interest and repay the principal.
Treasury Bonds: Government debt securities issued by the federal government that have maturities greater than ten years.
Corporate Bonds: Bonds issued by corporations to fund capital improvements, expansions, debt refinancing, or acquisitions.
Municipal Bonds: Bonds issued by states, cities, counties, and other governmental entities to fund public projects.
Junk Bonds: High-yield or high-risk bonds with lower credit ratings than investment-grade corporate bonds.
Investment-Grade Bonds: Bonds with a high probability of creditworthiness, typically resulting in lower interest rates.
Zero-Coupon Bonds: Bonds that do not pay periodic interest payments and are issued at a discount from their face value.
Convertible Bonds: Bonds that can be converted into a predetermined number of the company’s equity shares.
Bond Fund: A fund that invests primarily in bonds and other debt securities.
Credit Rating: An assessment of the creditworthiness of a bond issuer, which affects the interest rate and terms of the bond.
Call Provision: A clause in a bond’s contract that allows the issuer to repurchase and retire the bond at a specific price prior to maturity.
Puttable Bond: A bond that allows the holder to force the issuer to redeem the bond before maturity.
Fixed-Rate Bond: A bond that pays the same amount of interest for its entire term.
Floating-Rate Bond: Bonds with variable interest rates that adjust over the life of the bond.
Bond Ladder: An investment strategy that involves purchasing several bonds with different maturity dates to reduce interest rate risk and to provide steady income streams.
Annuities
Annuity: A financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees.
Immediate Annuity: An annuity contract that starts paying income as soon as the investment is made.
Deferred Annuity: An annuity contract that delays payments of income, installments, or a lump sum until the investor elects to receive them.
Fixed Annuity: An annuity that provides regular, guaranteed payments to the annuitant.
Variable Annuity: An annuity that allows the owner to allocate premiums among various investment options, with payouts that vary based on the performance of these investments.
Indexed Annuity: A type of annuity that provides returns based on a specified equity-based index.
Annuitant: The person who receives the benefits or payments from an annuity.
Annuity Contract: The written agreement between the insurance company and the annuitant detailing the terms of the annuity.
Premium: The payment, or series of payments, made to an insurance company in exchange for the annuity benefits.
Surrender Charge: A fee charged by an insurance company for early withdrawal or termination of an annuity contract.
Surrender Period: The period during which a surrender charge is applicable on an annuity.
Accumulation Phase: The period in a deferred annuity during which the customer makes payments and accumulates assets.
Annuitization Phase: The period in an annuity contract when the insurance company starts making periodic payments to the annuitant.
Death Benefit: A feature of some annuities that allows a designated beneficiary to receive payments if the annuitant passes away.
Rider: An optional add-on to an annuity contract that provides additional benefits or features at an additional cost.
Exclusion Ratio: In a non-qualified annuity, the ratio used to determine the portion of the annuity payments that are taxable and non-taxable.
Guaranteed Minimum Death Benefit (GMDB): A feature in variable annuities that guarantees a minimum payout to beneficiaries upon the annuitant’s death.
Income Rider: An optional feature in some annuities that guarantees a minimum level of income regardless of market conditions.
Guaranteed Minimum Income Benefit (GMIB): A rider in a variable annuity that ensures the annuitant a certain level of income, even if the account balance falls.
1035 Exchange: A tax-free transfer of an existing annuity contract, life insurance policy, or endowment policy to a new policy.
Structured Notes
Structured Note: A debt security issued by financial institutions, whose return is based on equity indexes, a single equity, a basket of equities, interest rates, commodities, or foreign currencies.
Principal Protection: A feature of some structured notes that guarantees the return of principal at maturity, subject to the creditworthiness of the issuer.
Market-Linked Note: A type of structured note whose return is tied to the performance of a specific market index or asset.
Credit Risk: The risk that the issuer of the structured note will default on their obligations, affecting the return of the investment.
Maturity Date: The date on which the structured note is due to be repaid, along with any final interest or linked market return.
Interest Rate Linked Note: A structured note whose return is tied to the movements of interest rates.
Equity-Linked Note (ELN): A structured note whose return is based on the performance of a single stock, a basket of stocks, or an equity index.
Commodity-Linked Note: A structured note with a return linked to the performance of one or more commodities.
Currency-Linked Note: A structured note that provides returns based on the performance of one or more foreign currencies.
Cap: A limit set on the return of a structured note.
Floor: A predetermined lower limit on the interest rate or return of a structured note.
Callable Note: A structured note that can be redeemed by the issuer before its maturity date.
Non-Principal Protected Note: A type of structured note that does not guarantee the return of the principal amount invested.
Yield Enhancement Note: A structured note designed to provide higher yield potential, often involving a higher risk level.
Barrier Note: A structured note whose payout is affected by whether the underlying asset crosses a predetermined price level.
Leveraged Note: A structured note that provides magnified exposure to the performance of the underlying asset or index.
Derivative: A financial instrument whose value is dependent on or derived from one or more underlying assets or benchmarks.
Secondary Market: A market where investors buy and sell structured notes among themselves, rather than from the issuing bank.
Prospectus: A legal document that provides detailed information about the structured note, including risks, costs, and investment objectives.
Risk-Return Profile: A characteristic of structured notes detailing the balance between the level of risk taken and the potential return.
Certificate of Deposit (CDs)
Certificate of Deposit (CD): A savings certificate with a fixed maturity date and specified fixed interest rate, issued by banks and credit unions.
Maturity Date: The date on which a CD term ends, and the investor can withdraw the principal amount plus accrued interest.
Interest Rate: The rate at which interest is paid by the bank to the depositor for the money invested in the CD.
Fixed-Rate CD: A CD that offers a fixed interest rate for its entire term.
Variable-Rate CD: A CD in which the interest rate can change over the term, based on market or index movements.
Jumbo CD: A CD with a higher minimum balance requirement, typically offering higher interest rates.
Liquid CD: A type of CD that allows for early withdrawal of funds without incurring a penalty.
Bump-Up CD: A CD that allows the investor to request a higher interest rate if rates go up during the CD’s term.
Step-Up CD: A CD that has a predetermined schedule for interest rate increases over its term.
Add-On CD: A CD that allows depositors to add funds to the CD after the initial investment.
Early Withdrawal Penalty: A fee charged for withdrawing funds from a CD before its maturity date.
Compounding Interest: The process in which interest earned on a CD is reinvested to earn additional interest.
Grace Period: A short period after a CD’s maturity date during which the investor can withdraw funds without penalty.
Roll Over: The process of reinvesting the funds from a matured CD into a new CD.
CD Ladder: An investment strategy involving multiple CDs with different maturity dates to balance access to funds and interest rate risk.
IRA CD: A CD held within an Individual Retirement Account, offering tax advantages.
Callable CD: A CD that the issuing bank can terminate before its maturity date, returning the principal with accrued interest to the investor.
Brokered CD: A CD purchased through a brokerage firm, often offering higher interest rates but also potentially higher risks.
No-Penalty CD: A type of CD that allows withdrawal of the principal amount before maturity without any penalties.
Time Deposit: Another term for a CD, emphasizing that the funds are deposited for a specific time period.
Life Insurance
Life Insurance: A contract between an insurance policyholder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person.
Policyholder: The person or entity who owns the life insurance policy.
Insured: The person whose life is covered by the life insurance policy.
Beneficiary: The person or entity designated to receive the death benefit from a life insurance policy upon the death of the insured.
Premium: The amount of money paid by the policyholder to the insurance company in exchange for the insurance coverage.
Death Benefit: The money paid out by the life insurance company to the beneficiary when the insured person dies.
Term Life Insurance: A type of life insurance policy that provides coverage at a fixed rate of payments for a limited period, known as the term. If the insured dies during the term, the death benefit is paid to the beneficiary.
Whole Life Insurance: A type of permanent life insurance policy that offers coverage for the insured’s entire life, typically with fixed premiums and a cash value component.
Universal Life Insurance: A type of permanent life insurance with flexible premiums and death benefits, and a savings element that grows on a tax-deferred basis.
Variable Life Insurance: A type of permanent life insurance with a cash value account that can be invested in a variety of separate accounts, similar to mutual funds.
Rider: An add-on to a standard insurance policy that provides additional benefits or amends the terms of the policy.
Cash Value: A savings component found in some types of life insurance, such as whole life and universal life, which accumulates tax-deferred over the life of the policy.
Surrender Value: The amount the policyholder will receive if they cancel their permanent life insurance policy before it matures or the insured passes away.
Convertible Term Insurance: A term life insurance policy that can be converted into a permanent policy without a medical examination.
Underwriting: The process by which an insurer determines whether to accept a risk and, if so, what amount of coverage and at what premium.
Policy Loan: A loan issued by an insurance company using the cash value of a person’s life insurance policy as collateral.
Grace Period: A set period after the premium due date during which a policy remains in force without the policyholder being penalized for late payment.
Exclusions: Specific conditions or circumstances for which the policy will not provide coverage.
Incontestability Clause: A clause that states the insurance company cannot dispute the validity of a policy after a certain period of time has passed.
Accidental Death Benefit: An additional benefit that can be added to a life insurance policy, paying an additional sum if the insured’s death is accidental.
Trust and Estate Planning
Trust: A fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.
Estate Planning: The process of arranging for the disposal of an individual’s estate, typically involving wills, trusts, and other arrangements for the distribution of assets and the management of tax liabilities.
Will: A legal document that sets forth how a person’s assets are to be distributed after death.
Beneficiary: A person or entity designated to receive benefits, such as assets or income, from an estate, trust, or insurance policy.
Trustee: An individual or organization that holds or manages and invests assets for the benefit of another.
Probate: The legal process through which a deceased person’s will is validated, and the estate is settled and distributed.
Estate Tax: A tax levied on an individual’s property at the time of their death, based on the value of the estate.
Inheritance Tax: A tax imposed on individuals who inherit property or money.
Power of Attorney: A legal document that gives an individual the authority to act on behalf of another person in legal or financial matters.
Living Trust: A trust created during an individual’s lifetime to hold assets for the benefit of the person who created the trust.
Irrevocable Trust: A type of trust that, once created, cannot be altered, stopped, or canceled.
Revocable Trust: A trust that can be altered or terminated during the lifetime of the creator.
Grantor: The individual who creates a trust and transfers assets into it.
Executor: The person or institution appointed in a will to carry out the will’s instructions and manage the estate.
Intestate: The condition of dying without a legal will, in which case the estate is distributed according to state laws.
Guardianship: A legal relationship in which an adult is responsible for the care and decision-making for a minor child or an incapacitated adult.
Fiduciary: An individual or organization that acts on behalf of another person, putting their clients’ interests ahead of their own.
Estate Freeze: A strategy that allows an individual to lock in the current value of their estate, minimizing tax liability for beneficiaries.
Charitable Trust: A trust established to benefit a particular charity or the public and can offer tax benefits to the grantor.
Special Needs Trust: A trust designed to provide benefits to, and protect the assets of, a person with disabilities without jeopardizing their eligibility for government benefits.
Financial Planning
Financial Planning: The process of developing strategies to manage finances and meet life goals, involving the analysis of one’s financial situation, setting financial goals, and creating and implementing a plan for achieving them.
Budget: A detailed plan that outlines expected income and expenditures over a specific period, often used as a tool for managing personal finances.
Net Worth: The total value of all assets owned by an individual or household minus any debts or liabilities.
Asset Allocation: The practice of distributing investments among different asset categories, such as stocks, bonds, and cash, to balance risk and reward.
Risk Tolerance: An individual’s capacity or willingness to endure loss in their investments while seeking potential rewards.
Emergency Fund: Savings set aside to cover unexpected expenses or financial emergencies.
Retirement Planning: The process of determining retirement income goals and the actions and decisions necessary to achieve those goals.
Estate Planning: Planning for the management and disposition of a person’s assets after death, including wills, trusts, and estate taxes.
Investment Strategy: A set of rules or guidelines that inform an individual’s or institution’s approach to investment selection and management.
Debt Management: The process of managing and paying off liabilities, including strategies for reducing or consolidating debt.
Insurance Planning: Assessing and managing potential risks through insurance products to protect against financial losses.
Tax Planning: The analysis of a financial situation from a tax perspective, with the aim to ensure tax efficiency.
Education Funding: Planning and saving for future education expenses, often using specific investment vehicles like 529 plans or education savings accounts.
Cash Flow Management: The monitoring, analyzing, and adjusting of one’s income and expenses.
Credit Score: A numerical expression representing the creditworthiness of an individual, based on credit history.
Inflation: The rate at which the general level of prices for goods and services is rising, subsequently eroding purchasing power.
Diversification: A risk management strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk.
Long-Term Care Planning: Preparing for the potential need for long-term assistance with activities of daily living due to aging, illness, or disability.
Investment Portfolio: A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs.
Financial Advisor: A professional who provides financial guidance and advice to clients based on their financial situation and goals.
Tax Planning
Tax Planning: The analysis and arrangement of a person’s financial situation to maximize tax breaks and minimize tax liabilities within the law.
Income Tax: A tax levied by governments on the income earned by individuals and businesses.
Tax Deduction: An expense that can be subtracted from gross income to reduce the amount of income that is subject to income tax.
Tax Credit: A direct reduction in tax liability (not merely a reduction in taxable income) that the taxpayer is allowed to subtract from taxes owed to the government.
Tax Bracket: A range of incomes taxed at a given rate. As income increases, it is taxed at a higher rate (in a progressive tax system).
Capital Gains Tax: A tax on the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale.
Tax-Deferred: Referring to investment earnings such as interest, dividends, or capital gains that accumulate tax-free until the investor takes constructive receipt of the gains.
Tax-Exempt: Income or transactions that are free from tax at the federal, state, or local level.
Withholding Tax: An income tax to be paid to the government by the payer of the income rather than the recipient, typically deducted from the employee’s paycheck and paid directly to the government.
Alternative Minimum Tax (AMT): A supplemental income tax imposed to ensure that certain individuals, corporations, estates, and trusts pay at least a minimum amount of tax.
Estate Tax: A tax levied on the net value of the estate of a deceased person before distribution to the heirs.
Gift Tax: A tax imposed on the transfer of ownership of property.
Inheritance Tax: A tax paid by a person who inherits money or property of a deceased person, depending on the value of the inheritance.
Tax Shelter: A legal strategy used to minimize or decrease an individual’s or entity’s taxable income.
Tax Year: The 12-month calendar period for which tax returns are prepared, often coinciding with the fiscal year.
Filing Status: A category that defines the type of tax return form an individual will use, based on marital status and family situation.
Standard Deduction: A portion of income not subject to tax that can be used to reduce your tax bill in lieu of itemizing deductions.
Itemized Deductions: Eligible expenses that individual taxpayers can report on their federal income tax returns in order to decrease their taxable income.
Tax Return: The forms filed with a taxing authority that report income, expenses, and other pertinent tax information.
Tax Liability: The total amount of tax debt owed by an individual, corporation, or other entity to a taxing authority.
Investment Strategies
Investment Strategy: A set of rules, behaviors, or procedures designed to guide an investor’s selection of an investment portfolio.
Asset Allocation: The process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash.
Diversification: A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single investment’s performance.
Risk Tolerance: An individual investor’s ability to endure loss in their investment portfolio.
Buy and Hold: An investment strategy where an investor buys stocks and holds them for a long time, regardless of fluctuations in the market.
Active Investing: An investment strategy involving ongoing buying and selling actions by the investor. Active investors purchase investments and continuously monitor their activity to exploit profitable conditions.
Passive Investing: An investment strategy to maximize returns by minimizing buying and selling. It involves long-term holding of investments and often follows a market index.
Growth Investing: An investment strategy focusing on stocks of companies and stock funds where earnings are expected to grow at an above-average rate compared to other companies.
Value Investing: An investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Income Investing: Focusing on securities that typically pay out returns, and investing in assets known for generating consistent income, such as dividend-paying stocks, bonds, and real estate investment trusts (REITs).
Momentum Investing: An investment strategy that aims to capitalize on the continuance of existing trends in the market.
Contrarian Investing: A strategy that involves going against prevailing market trends by buying poorly performing assets and then selling when they perform well.
Index Investing: A strategy that involves investing in a market index, typically through an index fund, which replicates the performance of a key market index.
Dollar-Cost Averaging (DCA): An investment strategy where a person invests a fixed amount of money into a particular investment on a regular basis, regardless of the share price.
Balanced Investment Strategy: A strategy that combines elements of both growth and income investing by balancing the portfolio with both growth assets (like stocks) and income assets (like bonds).
Sector Rotation: An investment strategy involving the movement of funds between different industry sectors, as certain sectors are expected to outperform others based on macroeconomic trends.
Short Selling: The strategy of selling securities that are not currently owned, and subsequently repurchasing them at a lower price.
Leveraged Investing: Using various financial instruments or borrowed capital, like margin, to increase the potential return of an investment.
Hedging: An investment strategy used to reduce or eliminate the risk of adverse price movements in an asset by taking an offsetting position in a related security.
Economic Moat: A term used to describe a company’s competitive advantage that allows it to protect its market share and profitability.
Market Analysis: The process of evaluating the investment potential of a market or an asset through various economic, political, and financial factors.
Technical Analysis: A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume.
Fundamental Analysis: A method of measuring a security’s intrinsic value by examining related economic, financial, and other qualitative and quantitative factors.
Economic Indicators: Statistics that indicate the current state of the economy, such as GDP, unemployment rates, and inflation.
Trend Analysis: The practice of collecting information and attempting to spot a pattern, often used in technical analysis.
Bull Market: A market condition where prices are rising or are expected to rise.
Bear Market: A market condition where prices are falling or are expected to fall.
Volatility: A statistical measure of the dispersion of returns for a given security or market index, often quantified as the standard deviation or variance between returns from that same security or market index.
Market Sentiment: The overall attitude of investors toward a particular security or financial market.
Trading Volume: The amount of a security that is traded during a given period of time.
Market Capitalization: The total value of a company’s outstanding shares of stock.
Price-to-Earnings Ratio (P/E Ratio): A valuation ratio of a company’s current share price compared to its per-share earnings.
Dividend Yield: A financial ratio that indicates how much a company pays out in dividends each year relative to its stock price.
Beta: A measure of a stock’s volatility in relation to the overall market.
Moving Average: A statistical analysis tool used to identify the direction of a stock’s price trend.
Momentum Investing: An investment strategy that aims to capitalize on the continuance of existing trends in the market.
Support and Resistance: Price levels in technical analysis that are expected to serve as barriers, preventing the price of an asset from getting pushed in a certain direction.
Candlestick Chart: A style of financial chart used to describe price movements of a security, derivative, or currency.
MACD (Moving Average Convergence Divergence): A trend-following momentum indicator that shows the relationship between two moving averages of a security’s price.
Risk/Reward Ratio: A measure used by investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns.
Real Estate Investing
Real Estate Investing: The process of buying, owning, managing, renting, or selling real estate for profit.
Real Estate: Property consisting of land or buildings.
Commercial Real Estate: Real estate intended for use by businesses, such as office spaces, retail stores, and warehouses.
Residential Real Estate: Real estate intended for housing, including single-family homes, apartments, and townhouses.
Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-producing real estate and allows investors to buy shares in commercial real estate portfolios.
Leverage: The use of borrowed capital to increase the potential return of an investment, common in real estate transactions.
Mortgage: A loan used to purchase real estate, where the property itself serves as collateral.
Capital Gains: The profit from the sale of property or an investment.
Cash Flow: The net amount of cash being transferred into and out of a property, especially when it comes to rental income.
Depreciation: A decrease in the value of an asset over time, particularly in real estate for tax purposes.
Equity: The difference between the current market value of a property and the amount the owner still owes on the mortgage.
Foreclosure: The process by which a lender takes control of a property due to nonpayment of the mortgage.
Real Estate Broker: A licensed professional who arranges real estate transactions, putting buyers and sellers together and acting as their representative in negotiations.
Property Management: The administration of residential, commercial, and industrial real estate, including managing property owned by another entity or individual.
Rental Yield: The annual rental income from a property divided by its current market value, often expressed as a percentage.
Flipping: The process of buying real estate at a low price and quickly reselling it for a profit.
Vacancy Rate: The percentage of all available units in a rental property, such as an apartment complex, that are vacant or unoccupied at a particular time.
Appraisal: A professional assessment of a property’s value.
Liquidity: The ease with which an asset, like real estate, can be converted into cash without significantly affecting its market price.
Zoning: Government (typically local) regulation of the use of land and buildings, which can significantly impact real estate investment.
Cryptocurrency and Digital Assets
Cryptocurrency: A digital or virtual currency that uses cryptography for security and operates independently of a central bank.
Blockchain: A decentralized, distributed ledger technology that records transactions across many computers in such a way that the registered transactions cannot be altered retroactively.
Bitcoin: The first and most well-known cryptocurrency, created in 2009.
Ethereum: A decentralized software platform that enables SmartContracts and Distributed Applications; also a cryptocurrency.
Altcoin: Any digital cryptocurrency similar to Bitcoin, but not Bitcoin itself; often created to improve upon or offer different features than Bitcoin.
Digital Wallet: A software program or hardware device that stores private and public keys for cryptocurrencies and interacts with various blockchain to enable users to send and receive digital currency and monitor their balance.
Mining: The process of using computer hardware to do complex calculations for the blockchain in exchange for a reward in cryptocurrencies.
ICO (Initial Coin Offering): A fundraising method where new cryptocurrencies are sold to investors in exchange for legal tender or other cryptocurrencies.
Token: A unit of value issued by a tech or crypto project, representing a utility or asset, or a specific use in a blockchain ecosystem.
Smart Contract: Self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code, stored and replicated on the blockchain.
Decentralized Finance (DeFi): Financial services that are offered on public blockchains, especially Ethereum, without the need for traditional financial intermediaries.
Ledger: A record-keeping system for cryptocurrencies; can be either the blockchain itself or a device/hardware that connects to a cryptocurrency network.
Exchange: A platform (either online or physical) where users can buy, sell, or trade cryptocurrencies.
Cryptographic Key: A string of data that shows ownership of a digital asset or allows the asset to be unlocked and sent to another party.
Fiat Currency: Government-issued currency that is not backed by a physical commodity, like gold or silver.
Stablecoin: A type of cryptocurrency that is pegged to a stable asset, like gold or fiat currencies, to minimize price volatility.
NFT (Non-Fungible Token): A type of cryptographic token on a blockchain that represents a unique asset, which can be digital or physical.
Proof of Work (PoW): A system that ties mining capacity to computational power. Blocks must be hashed, which is a computationally expensive process, in order to add new blocks to the blockchain.
Proof of Stake (PoS): A type of algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. It requires users to stake their tokens to become eligible to validate transactions and create new blocks.
Gas (in Ethereum Network): A unit that measures the amount of computational effort required to execute operations, like transactions or smart contracts, on the Ethereum network.
Banking and Credit
Banking: The business conducted or services offered by a bank, including deposit accounts, loans, and currency exchange.
Credit: The provision of resources (such as granting a loan) by one party to another party where that second party does not reimburse the first party immediately, thereby generating a debt.
Checking Account: A deposit account at a financial institution that allows withdrawals and deposits, often accessible via checks and electronic transactions.
Savings Account: A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
Credit Score: A numerical expression based on a level analysis of a person’s credit files, representing the creditworthiness of the individual.
Interest Rate: The amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal.
Loan: A sum of money that is borrowed and is expected to be paid back with interest.
Mortgage: A loan used to purchase or maintain a home, land, or other types of real estate where the borrower agrees to pay back the loan over a set period of time, typically in a series of regular payments.
Credit Card: A small plastic or metal card issued by a bank or financial company, allowing the holder to purchase goods or services on credit.
Debit Card: A payment card that deducts money directly from a consumer’s checking account to pay for a purchase.
Overdraft: An extension of credit from a lending institution that is granted when an account reaches zero, allowing the account holder to continue withdrawing money.
Compound Interest: Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
Bankruptcy: A legal proceeding involving a person or business that is unable to repay outstanding debts.
Credit Report: A detailed report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
ATM (Automated Teller Machine): An electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller.
Certificate of Deposit (CD): A financial product offered by banks to investors who deposit money for a fixed period of time and receive a fixed interest rate.
Line of Credit: A credit facility extended by a bank or financial institution to a government, business, or individual customer that enables the customer to draw on the facility when the customer needs funds.
Secured Loan: A loan where the borrower pledges some asset (e.g., a car or property) as collateral for the loan.
Unsecured Loan: A loan that is issued and supported only by the borrower’s creditworthiness, rather than by any type of collateral.
APR (Annual Percentage Rate): The annual rate charged for borrowing or earned through an investment, which represents the actual yearly cost of funds over the term of a loan.
Risk Management and Insurance
Risk Management: The process of identifying, assessing, and controlling threats to an organization’s capital and earnings.
Insurance: A contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.
Premium: The amount of money charged by an insurance company for active coverage.
Deductible: The amount paid out of pocket by the policyholder before an insurance provider will pay any expenses.
Policy: A document detailing the terms and conditions of a contract of insurance.
Underwriting: The process by which insurers assess the risk associated with an applicant, determine whether to accept the risk, and establish appropriate terms and conditions for that risk.
Claim: A formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event.
Liability: Legal responsibility for one’s acts or omissions, often covered under liability insurance policies.
Coverage: The scope of protection provided under an insurance policy.
Beneficiary: A person or entity designated to receive funds or other benefits from an insurance policy, retirement plan, trust, or other contract upon the occurrence of certain events.
Actuary: A business professional who deals with the measurement and management of risk and uncertainty in insurance.
Indemnity: A principle of insurance which provides that when a loss occurs, the insured should be restored to the approximate financial condition they were in before the loss, no better or worse.
Term Life Insurance: A life insurance policy that provides coverage at a fixed rate of payments for a limited period of time, the relevant term.
Whole Life Insurance: A type of permanent life insurance that remains in force for the insured’s whole life and requires (in most cases) premiums to be paid every year into the policy.
Property Insurance: Insurance that provides financial reimbursement to the owner or renter of a structure and its contents, in the event of damage or theft.
Casualty Insurance: A type of insurance that covers loss or damage to property and injury to persons, typically not covered by liability insurance.
Health Insurance: A type of insurance coverage that pays for medical and surgical expenses incurred by the insured.
Annuity: A long-term insurance contract that provides regular payments in exchange for a lump sum or periodic payments, often used for retirement income.
Reinsurance: The practice of insurers transferring portions of risk portfolios to other parties to reduce the likelihood of paying a large obligation resulting from an insurance claim.
Exclusion: Specific conditions or circumstances listed in an insurance policy for which the policy will not provide coverage.
International Investing
International Investing: The process of selecting and managing investments in companies, securities, or assets located outside the investor’s home country.
Emerging Markets: Countries with developing economies that are becoming more engaged with global markets but are not yet as advanced as developed economies.
Foreign Exchange (Forex): The global market for exchanging national currencies against one another.
American Depository Receipt (ADR): A certificate issued by a U.S. bank representing a specified number of shares in a foreign stock traded on a U.S. exchange.
Global Fund: A mutual fund or ETF that invests in companies located anywhere in the world, including the investor’s home country.
International Fund: A mutual fund or ETF that invests exclusively in assets located outside of the investor’s country of residence.
Currency Risk: The potential risk of loss from fluctuating exchange rates when an investment is made in a currency other than the investor’s home currency.
Political Risk: The risk that an investment’s returns could suffer due to political changes or instability in a country.
Eurobond: A bond issued in a currency other than the currency of the country or market in which it is issued.
Multinational Corporation: A corporation that operates in multiple countries beyond its home country.
Cross-Border Investing: Making investments in companies, real estate, or other assets located in different countries.
Emerging Market Fund: A fund that invests the majority of its assets in securities from emerging markets.
Global Diversification: The process of spreading investments across various geographical regions to reduce risk.
Trade Barrier: Any regulation or policy that restricts international trade, including tariffs and quotas.
Exchange-Traded Fund (ETF): A marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund but trades like a stock on an exchange.
Foreign Direct Investment (FDI): An investment made by a firm or individual in one country into business interests located in another country.
International Portfolio: A selection of investment assets based in various countries and regions worldwide, providing diversification.
Sovereign Risk: The risk that a foreign central government will default on its bonds or other financial commitments.
Globalization: The process by which businesses or other organizations develop international influence or start operating on an international scale.
Hedging: The use of financial instruments or market strategies to offset the risk of any adverse price movements in investments, including currency hedges in international investing.
Ethical and Sustainable Investing
Ethical Investing: An investment discipline that considers environmental, social, and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.
Sustainable Investing: Investing in companies that aim to contribute to sustainable solutions for societal challenges, often aligning with environmental sustainability principles.
Socially Responsible Investing (SRI): An investment strategy that seeks to generate both financial return and social good, often by avoiding investments in companies that produce or sell addictive substances (like alcohol, gambling, and tobacco) and seeking out companies engaged in social justice, environmental sustainability, and alternative energy/clean technology efforts.
Environmental, Social, and Governance (ESG) Criteria: Standards for a company’s operations that socially conscious investors use to screen potential investments.
Impact Investing: Investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
Green Bonds: Bonds specifically earmarked to be used for climate and environmental projects.
Corporate Social Responsibility (CSR): A business model that helps a company be socially accountable—to itself, its stakeholders, and the public.
Sustainable Development Goals (SDGs): A collection of 17 global goals set by the United Nations General Assembly in 2015 for the year 2030 that include ending poverty, protecting the planet, and ensuring prosperity for all.
Carbon Footprint: The total amount of greenhouse gases (including carbon dioxide and methane) that are generated by our actions.
Renewable Energy: Energy from sources that are not depleted when used, such as wind or solar power.
Divestment: The reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm.
Community Investing: Directing capital to communities that are underserved by traditional financial services institutions.
Social Enterprise: An organization that applies commercial strategies to maximize improvements in financial, social, and environmental well-being.
Shareholder Activism: The use of an equity stake in a corporation to put pressure on its management.
Microfinance: Financial services, such as loans, savings, insurance, and training to entrepreneurs and small business owners in developing countries.
Ethical Funds: Investment funds managed in such a way as to consider ethical and social criteria.
Stewardship: The careful and responsible management of something entrusted to one’s care, particularly in the context of responsible management of shareholder assets.
Triple Bottom Line: A business theory that suggests that companies should commit to focusing on social and environmental concerns just as they do on profits.
Climate Risk: The potential negative impacts of climate change on organizational operations and financial performance.
Sustainable Value Chain: A process that involves integrating sustainability practices into a value chain, from product design and development to sourcing and final product delivery.
Personal Finance
Personal Finance: The management of individual or family financial activities including budgeting, saving, investing, insurance, and planning for retirement.
Budget: A plan for making and spending money, outlining projected income and expenses over a certain period.
Emergency Fund: Savings reserved for unexpected expenses or financial emergencies.
Credit Score: A numerical expression based on analysis of an individual’s credit files, representing their creditworthiness.
Debt: Money owed by one party to another, often resulting from loans or credit.
Interest Rate: The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage.
Investment: Assets purchased with the expectation that they will generate income or appreciate in the future.
Retirement Planning: The process of determining retirement income goals and the actions and decisions necessary to achieve those goals.
Savings Account: A bank account where money is deposited for safekeeping and earns interest.
401(k) Plan: A retirement savings plan sponsored by an employer allowing employees to save and invest a portion of their paycheck before taxes are taken out.
IRA (Individual Retirement Account): A tax-advantaged investing tool for individuals to earmark funds for retirement savings.
Net Worth: The total value of all assets owned by an individual or household minus all liabilities or debts.
Financial Literacy: The ability to understand and use various financial skills, including personal financial management, budgeting, and investing.
Asset Allocation: The process of dividing investments among different types of assets, such as stocks, bonds, and cash, to optimize the balance between risk and reward.
Mortgage: A loan used to purchase real estate, where the property itself serves as collateral.
Credit Card: A card issued by a financial company giving the holder an option to borrow funds, usually at the point of sale.
Insurance: A contract represented by a policy in which an individual receives financial protection or reimbursement against losses from an insurance company.
Inflation: The rate at which the general level of prices for goods and services is rising, eroding purchasing power.
Estate Planning: The preparation of tasks that serve to manage an individual’s asset base in the event of their incapacitation or death.
Financial Advisor: A professional who provides expert advice on financial planning and investment management to help individuals reach financial goals.
Emerging Financial Technologies
Financial Technology (FinTech): An emerging financial services sector that applies technology to improve financial activities.
Blockchain: A decentralized, distributed ledger technology that records transactions across many computers securely and transparently.
Cryptocurrency: A digital or virtual currency that uses cryptography for security, operating independently of a central bank.
Mobile Payment: Payment services operated under financial regulation and performed from or via a mobile device.
Peer-to-Peer (P2P) Lending: A method of debt financing that enables individuals to borrow and lend money without the use of an official financial institution as an intermediary.
Robo-Advisor: A digital platform that provides automated, algorithm-driven financial planning services with little to no human supervision.
Digital Wallet: A software-based system that securely stores users’ payment information and passwords for numerous payment methods and websites.
InsurTech: Technologies designed to enhance the operations and efficiency of the insurance industry.
RegTech: The management of regulatory processes within the financial industry through technology.
Crowdfunding: The practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet.
Open Banking: A financial services term as part of financial technology that refers to the use of open APIs that enable third-party developers to build applications and services around the financial institution.
Neobank: A type of direct bank that operates exclusively online without traditional physical branch networks.
Smart Contract: A self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code.
Initial Coin Offering (ICO): A type of funding using cryptocurrencies, often used as a way to raise capital for startup companies.
Big Data: Extremely large data sets that may be analyzed computationally to reveal patterns, trends, and associations, especially relating to human behavior and interactions.
Machine Learning: A branch of artificial intelligence based on the idea that systems can learn from data, identify patterns, and make decisions with minimal human intervention.
Biometric Authentication: A security process that uses the unique biological characteristics of an individual to verify their identity.
Contactless Payment: A secure method for consumers to purchase products or services using a debit, credit, or smartcard, by using RFID technology or near-field communication.
Quantum Computing: A type of computing that takes advantage of quantum phenomena like superposition and quantum entanglement to perform operations on data.
Artificial Intelligence (AI): The simulation of human intelligence processes by machines, especially computer systems, used in analyzing complex financial data and customer service.
Regulatory and Compliance
Regulatory Compliance: Adhering to laws, regulations, guidelines, and specifications relevant to a business or organization.
Anti-Money Laundering (AML): Laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.
Know Your Customer (KYC): A process carried out by businesses to verify the identity of their clients, a part of AML regulations.
Dodd-Frank Act: A comprehensive set of financial regulations passed in the United States in 2010, in response to the financial crisis of 2008.
Sarbanes-Oxley Act (SOX): A U.S. law that sets enhanced standards for all U.S. public company boards, management, and public accounting firms.
General Data Protection Regulation (GDPR): A regulation in EU law on data protection and privacy in the European Union and the European Economic Area.
Compliance Officer: An individual who ensures that a company complies with its outside regulatory requirements and internal policies.
Financial Industry Regulatory Authority (FINRA): A private American corporation that acts as a self-regulatory organization for member brokerage firms and exchange markets.
Securities and Exchange Commission (SEC): A U.S. federal agency responsible for enforcing federal securities laws and regulating the securities industry.
Basel Accords: A set of international banking regulations issued by the Basel Committee on Banking Supervision, which provides recommendations on banking regulations.
Fiduciary Duty: A legal obligation of one party to act in the best interest of another, particularly in financial matters.
Insider Trading: The illegal practice of trading on the stock exchange to one’s own advantage through having access to confidential information.
Regulatory Audit: An evaluation to determine whether a company is complying with regulatory guidelines.
Consumer Financial Protection Bureau (CFPB): A U.S. government agency that ensures banks, lenders, and other financial companies treat consumers fairly.
Money Laundering: The illegal process of making large amounts of money generated by a criminal activity appear to have come from a legitimate source.
Office of Foreign Assets Control (OFAC): A financial intelligence and enforcement agency of the U.S. Treasury Department that administers and enforces economic and trade sanctions.
Financial Action Task Force (FATF): An intergovernmental organization that designs and promotes policies and standards to combat financial crime.
Compliance Risk: The threat posed to a company’s financial, organizational, or reputational standing resulting from violations of laws, regulations, codes of conduct, or organizational standards of practice.
Market Manipulation: Activities designed to deceive or artificially affect the market for a security, including spreading false information, rigging quotes, or cornering markets.
Tax Evasion: The illegal evasion of taxes by individuals, corporations, and trusts.
Common Stock Trading Terms
Trailing Stop Loss: An order set to sell a security when it reaches a certain percentage below the market price, adjusting as the price fluctuates.
Stop Loss: An order placed with a broker to buy or sell once the stock reaches a certain price, used to limit a trader’s loss on a security position.
Standard Deviation: A statistical measure of market volatility, showing how much variation or dispersion there is from the average (mean).
Asset Allocation: The strategy of dividing an investment portfolio among different asset categories, like stocks, bonds, and cash, to optimize risk and reward based on an individual’s goals and risk tolerance.
Position Size: The amount of a particular stock or fund held in a portfolio. It determines the risk and potential gain or loss relative to the portfolio’s overall size.
Risk Exposure: The degree of uncertainty and potential financial loss inherent in an investment decision.
Downside Capture: A statistic in performance measurement, showing how well a fund or investment performed relative to a benchmark during periods when the benchmark has dropped.
Upside Capture: A measure used to evaluate how well an investment manager performed relative to an index during periods when that index has risen.
Bull Market: A market condition where prices are rising or are expected to rise.
Bear Market: A market condition characterized by falling prices and typically shrouded in pessimism.
Market Order: An order to buy or sell a security immediately at the best available current price.
Limit Order: An order to buy or sell a stock at a specific price or better.
Dividend Yield: A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
Price-to-Earnings Ratio (P/E Ratio): A valuation ratio of a company’s current share price compared to its per-share earnings.
Beta: A measure of a stock’s volatility in relation to the overall market.
Volume: The number of shares or contracts traded in a security or an entire market during a given period.
Short Selling: The sale of a stock that the seller does not own, or any sale that is completed by the delivery of a stock borrowed by the seller.
Margin: Borrowing money from a broker to purchase stock, using the investment as collateral.
Exchange-Traded Fund (ETF): A marketable security that tracks an index, commodity, bonds, or a basket of assets like an index fund but trades like a stock on an exchange.
Liquidity: The ease with which a stock can be bought or sold in the market without affecting its price.
Options: Financial derivatives that provide the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period or on a specific date.