Investment Glossary
Key terms and definitions to help you understand the world of investing
A
Asset Allocation
The process of dividing investments among different kinds of assets, such as stocks, bonds, and cash, to optimize the risk/return tradeoff based on an individual's specific situation.
Annual Return
The percentage change in the value of an investment over a one-year period.
B
Bond
A debt investment in which an investor loans money to an entity (typically a corporation or government) that borrows the funds for a defined period at a fixed interest rate.
Bull Market
A financial market of a group of securities in which prices are rising or are expected to rise.
Bear Market
A financial market of a group of securities in which prices are falling or are expected to fall.
C
Compound Interest
Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.
Capital Gain
An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.
D
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 on the overall portfolio.
Dividend
A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
E
ETF (Exchange-Traded Fund)
A type of investment fund and exchange-traded product, traded on stock exchanges, that tracks an index, a commodity, bonds, or a basket of assets.
Expense Ratio
The annual fee that all funds or ETFs charge their shareholders, expressed as a percentage of assets under management.
I
Inflation
A general increase in prices and fall in the purchasing value of money.
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.
M
Mutual Fund
An investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments, and similar assets.
Market Capitalization
The total dollar market value of a company's outstanding shares, calculated by multiplying the total number of a company's outstanding shares by the current market price of one share.
P
Portfolio
A collection of investments held by an individual or entity.
Price-to-Earnings Ratio (P/E Ratio)
A valuation ratio of a company's current share price compared to its per-share earnings.
R
Risk Tolerance
The degree of variability in investment returns that an individual is willing to withstand.
REIT (Real Estate Investment Trust)
A company that owns, operates, or finances income-generating real estate.
S
Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
S&P 500
A stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.
V
Volatility
A statistical measure of the dispersion of returns for a given security or market index.
Value Investing
An investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.