Glossary

Often clients may see or read financial terms online, through financial documents, or hear them from a financial advisor. In effort to help our clients become knowledgeable investors, we have created a short glossary with some commonly seen financial terms. For those terms you don’t find here, we recommend visiting Investopedia’s Financial Terms Dictionary

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

Glossary: A

An alternative investment is a financial asset that does not fall into one of the conventional investment categories.

 

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Annuity

The term “annuity” refers to an insurance contract issued and distributed by financial institutions with the intention of paying out invested funds in a fixed income stream in the future.

 

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Accredited Investor

An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. 

 

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Active Management

Adjusted gross income (AGI) is the figure that the Internal Revenue Service (IRS) uses to determine your income tax liability for the year.

 

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Glossary: B

Bear Market

A bear market is when a market experiences prolonged price declines.

 

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Benchmark

A benchmark is a standard against which the performance of a security, mutual fund, or investment manager can be measured.

 

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Beneficiary

A beneficiary typically refers to someone eligible to receive distributions from a trust, will, or life insurance policy. 

 

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Beta

Beta is a measure of the volatilityor systematic riskof a security or portfolio compared to the market as a whole. 

 

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Breadth Indicator

Breadth indicators are mathematical formulas that measure the number of advancing and declining stocks, and/or their volume, to calculate the participation in a stock index’s price movements. 

 

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Breadth Thrust Indicator

The Breadth Thrust Indicator is a technical indicator used to ascertain market momentum. 

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Bull Market

A bull market is the condition of a financial market in which prices are rising or are expected to rise. The term is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities.

 

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Glossary: C

Calmar Ratio

The Calmar Raio is a gauge of the performance of investment funds such as hedge funds and commodity trading advisors (CTAs).

 

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Capital Gain

The term capital gain refers to the increase in the value of a capital asset when it is sold.

 

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Capital Gains Tax

The capital gains tax is the levy on the profit from an investment that is incurred when the investment is sold.

 

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Compound Annual Growth Rate (CAGR)

The rate of return (RoR) that would be required for an investment to grow from its beginning balance to its ending balance, assuming the profits were reinvested at the end of each period of the investment’s life span.

 

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Commission

A commission is a service charge assessed by a broker dealer or investment advisor for providing investment advice or handling purchases and sales of securities for a client.

 

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Compound Interest

The interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

 

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Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. The CPI is one of the most frequently used measures of inflation and deflation.

 

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Coupon Rate

The nominal yield paid by a fixed-income security. It is the annual coupon payments paid by the issuer relative to the bond’s face or par value.

 

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Correlation

Correlation, in the finance and investment industry, is a statistic that measures the degree to which two securities move in relation to each other.

 

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Cost Basis

The original value of an asset for tax purposes, usually the purchase price, adjusted for stock splits, dividends, and return of capital distributions.

 

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Cryptocurrency

A digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.

 

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Glossary: D

Deflation

Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy.

 

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Discretionary Investment Management

A form of investment management in which buy and sell decisions are made by a portfolio manager or investment counselor for the client account.

 

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Diversification

A risk management strategy that mixes a wide variety of investment within a portfolio.

 

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Dividend

The distribution of some of a company’s earnings to a class of its shareholders, as determined by the company’s board of directors.

 

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Dollar-Cost Averaging

An investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase.

 

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Drawdown

A peak-to-trough decline during a specific period for an investment, trading account, or fund.

 

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Deductions

A deduction is an expense that can be subtracted from a taxpayer’s gross income in order to reduce the amount of income that is subject to taxation.


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Glossary: E

Economic Cycle

The term economic cycle refers to the fluctuations of the economy between periods of expansion (growth) and contraction (recession).

 

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Efficient Frontier

The set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk or the lowest risk for a given level of expected return.

 

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Emerging Markets Index (MSCI)

A selection of stocks that is designed to track the financial performance of key companies in fast-growing nations.

 

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Employee Stock Ownership Plan (ESOP)

An employee benefit plan that gives workers ownership interest in the company, taken in the form of shares of stock.

 

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Exchange Traded Fund (ETF)

A type of pooled investment security that operates much like a mutual fund.

 

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Expected Return

The profit or loss that an investor anticipates on an investment that has known historical rates of return (RoR).

 

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Glossary: F

Fair Market Value (FMV)

In its simplest sense, fair market value (FMV) is the price an asset would sell for on the open market.

 

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FINRA Broker Check

A free, online tool that helps individuals research brokers, brokerage firms, investment adviser firms, and advisors.

 

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Fiscal Year-End

Refers to the completion of any one-year or 12-month accounting period other than a typical calendar year.

 

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Fixed Annuity

A fixed annuity is a type of insurance contract that promises to pay the buyer a specific, guaranteed interest rate on their contributions to the account.

 

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Full Retirement Age (FRA)

Also known as normal retirement age, it is the age at which you can receive full retirement benefits from Social Security.

 

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Fund Manager

A fund manager is responsible for implementing a fund’s investing strategy and managing its portfolio trading activities.

 

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Futures Market

An auction market in which participants buy and sell commodity and futures contracts for delivery on a specific future date.

 

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Glossary: G

Global Recession

An extended period of economic decline around the world.

 

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Green Investing

Seeks to support business practices that have a favorable impact on the natural environment.

 

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Gross Domestic Product (GDP)

The total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.

 

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Gross Earnings

The total amount of income earned over a period of time by an individual/household or a company.

 

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Gross Income

Gross income for an individual—also known as gross pay when it’s on a paycheck—is an individual’s total earnings before taxes or other deductions.

 

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Global Composite PMI

JP Morgan Global Services PMI gives an overview of the global services sector. It is based on monthly surveys of over 5,500 executives from 15 of the world’s strongest economies, including the U.S., Japan, Germany, France and China which together account for nearly 80 percent of global services sector’s gross value added (GWA). It reflects changes in global output, employment, new business, backlogs and prices.

Gross Earnings

The total amount of income earned over a period of time by an individual/household or a company. 

 

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Glossary: H

Headline Effect

The headline effect refers to the effect that negative news in the popular press has on a corporation or an economy.

 

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Historical Returns

Historical returns are often associated with the past performance of a security or index, such as the S&P 500.

 

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Historical Volatility

A statistical measure of the dispersion of returns for a given security or market index over a given period of time. 

 

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Holdling Period Return/Yield

The total return received from holding an asset or portfolio of assets over a period of time, known as the holding period, generally expressed as a percentage. 

 

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Health Savings Account - HSA

A Health Savings Account (HSA) is a tax-advantaged account created for or by individuals covered under high-deductible health plans (HDHPs) to save for qualified medical expenses.

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Glossary: I

Illiquid

Illiquid refers to the state of a stock, bond, or other assets that cannot easily and readily be sold or exchanged for cash without a substantial loss in value. 

 

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Indexed Annuity

A type of annuity contract that pays an interest rate based on the performance of a specified market index, such as the S&P 500.

 

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Inflation

The decline of purchasing power of a given currency over time.

 

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Inflation-Adjusted Return

The measure of return that takes into account the time period’s inflation rate. 

 

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Inflation Hedge

An investment that is considered to protect the decreased purchasing power of a currency that results from the loss of its value due to rising prices either macro-economically or due to inflation.

 

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Inherited IRA

An account that is opened when an individual inherits an IRA or employer-sponsored retirement plan after the original owner dies. 

 

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International Monetary Fund (IMF)

An international organization that promotes global economic growth and financial stability, encourages international trade, and reduces poverty. 

 

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Irrevocable Trust

Refers to a type of trust where its terms cannot be modified, amended, or terminated without the permission of the grantor’s beneficiary or beneficiaries. 

 

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Itemized Deductions

An expense that can be subtracted from adjusted gross income (AGI) to reduce your taxable income and therefore lower the amount of taxes that you owe. 

 

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Glossary: J

Jobless Claims

A statistic reported weekly by the U.S. Department of Labor that counts people filing to receive unemployment insurance benefits. 

 

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Joint-Life Payout

Refers to a payment structure for pensions and retirement plans in which a surviving spouse will continue to receive income after the account holder dies. 

 

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Glossary: L

Labor Market

Also known as the job market, refers to the supply of and demand for labor, in which employees provide the supply and employers provide the demand. 

 

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Large-Cap (Big Cap)

Refers to a company with a market capitalization value of more than $10 billion. 

 

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Leading Indicator

Any measurable or observable variable of interest that predicts a change or movement in another data series, process, trend, or other phenomenon of interest before it occurs.

 

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Like-Kind Exchange

A tax-deferred transaction that allows for the disposal of an asset and the acquisition of another similar asset without generating a capital gains tax liability from the sale of the first asset.

 

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Liquid Asset

An asset that can easily be converted into cash in a short amount of time.

 

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Living Trust

A legal document, or trust, created during an individual’s lifetime (the trustor or grantor) where a designated person, the trustee, is given responsibility for managing that individual’s assets for the benefit of the eventual beneficiary.

 

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Living Will

Also known as an advance directive, it is a legal document that specifies the type of medical care that an individual does or does not want in the event they are unable to communicate their wishes.

 

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Long Position

Describes what an investor has purchased when they buy a security or derivative with the expectation that it will rise in value.

 

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Itemized Deductions

An expense that can be subtracted from adjusted gross income (AGI) to reduce your taxable income and therefore lower the amount of taxes that you owe. 

 

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Glossary: M

Managed Account

An investment account that is owned by an investor but managed by somebody else.

 

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Market Breadth

Indicators which analyze the number of stocks advancing relative to those that are declining in a given index or on a stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq.

 

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Market Cycles

Market cycles, also known as stock market cycles, is a wide term referring to trends or patterns that emerge during different markets or business environments. 

 

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Market Indicators

Market indicators are quantitative in nature and seek to interpret stock or financial index data in an attempt to forecast market moves. 

 

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Market Sentiment

Refers to the overall attitude of investors toward a particular security or financial market.

 

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Maximum Drawdown

the maximum observed loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum drawdown is an indicator of downside risk over a specified time period.

 

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Mid Cap

The term that is used to designate companies with a market cap (capitalization)—or market value—between $2 and $10 billion. 

 

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Modern Portfolio Theory (MPT)

A practical method for selecting investments in order to maximize their overall returns within an acceptable level of risk.

 

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Momentum Investing

A strategy that aims to capitalize on the continuance of an existing market trend.

 

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Monetary Policy

A set of tools that a nation’s central bank has available to promote sustainable economic growth by controlling the overall supply of money that is available to the nation’s banks, its consumers, and its businesses.

 

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MSCI All Country World INdex (ACWI)

A stock index designed to track broad global equity-market performance. Maintained by Morgan Stanley Capital International (MSCI), the index comprises the stocks of nearly 3,000 companies from 23 developed countries and 25 emerging markets.

 

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Glossary: N

Negative Correlation

A relationship between two variables in which one variable increases as the other decreases, and vice versa.

 

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Non-Traded REIT

Non-traded REITs are not listed on public exchanges and can provide retail investors access to inaccessible real estate investments with tax benefits.

 

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Glossary: O

Open Market

An economic system with little to no barriers to free-market activity. An open market is characterized by the absence of tariffs, taxes, licensing requirements, subsidies, unionization, and any other regulations or practices that interfere with free-market activity. Open markets may have competitive barriers to entry, but never any regulatory barriers to entry.

 

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Organization of the Petroleum Exporting Countries (OPEC)

Refers to a group of 13 of the world’s major oil-exporting nations. OPEC was founded in 1960 to coordinate the petroleum policies of its members and to provide member states with technical and economic aid. OPEC aims to manage the supply of oil in an effort to set the price of oil on the world market and to avoid fluctuations that might affect the economies of both producing and purchasing countries. 

 

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Glossary: P

Personal Consumption Expenditures (PCE)

The term personal consumption expenditures (PCEs) refers to a measure of imputed household expenditures defined for a period of time. Personal income, PCEs, and the PCE Price Index reading are released monthly in the Bureau of Economic Analysis (BEA) Personal Income and Outlays report. Personal consumption expenditures support the reporting of the PCE Price Index, which measures price changes in consumer goods and services exchanged in the U.S. economy.

 

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Purchasing Manager's Index

An index of the prevailing direction of economic trends in the manufacturing and service sectors. 

 

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Portfolio Management

The art and science of selecting and overseeing a group of investments that meet the long-term financial objectives and risk tolerance of a client, a company, or an institution.

 

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Purchase Price

The purchase price is the price an investor pays for an investment, and the price becomes the investor’s cost basis for calculating gain or loss when selling the investment.

 

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Price-to-Earnings (P/E) Ratio

The ratio for valuing a company that measures its current share price relative to its earnings per share (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

 

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Producer Price Index (PPI)

The producer price index (PPI), published by the Bureau of Labor Statistics (BLS), is a group of indexes that calculates and represents the average movement in selling prices from domestic production over time. It is a measure of inflation based on input costs to producers.

 

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Prospectus

A prospectus is a formal document that is required by and filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering to the public. It can help investors make more informed investment decisions because it contains a host of relevant information about the investment or security.

 

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Power of Attorney (POA)

A legal authorization that gives a designated person, termed the agent or attorney-in-fact, the power to act for another person, known as the principal. 

 

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Phishing

Phishing is a method of identity theft that relies on individuals unwittingly volunteering personal details or information that can be then be used for nefarious purposes. It is often carried out through the creation of a fraudulent website, email, or text appearing to represent a legitimate firm.

 

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Proxy Vote

The term proxy vote refers to a ballot cast by a single person or firm on behalf of a corporation’s shareholder who may not be able to attend a shareholder meeting, or who may not choose to vote on a particular issue. Shareholders receive a proxy ballot in the mail along with an information booklet called a proxy statement, which describes the issues to be voted on during the meeting. Shareholders vote on a variety of issues including the election of board members, merger or acquisition approvals, or approving a stock compensation plan.

 

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Glossary: Q

Quantitative Easing (QE)

A form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment.

 

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Quarter (Q1, Q2, Q3, Q4)

A three-month period on a company’s financial calendar that acts as a basis for periodic financial reports and the paying of dividends. A quarter refers to one-fourth of a year and is typically expressed as Q1 for the first quarter, Q2 for the second quarter, and so forth. 

 

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Glossary: R

Realized Loss

The loss that is recognized when assets are sold for a price lower than the original purchase price. Realized loss occurs when an asset that was purchased at a level referred to as cost or book value is then disbursed for a value below its book value.

 

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Rebalancing

The process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk.

 

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Required Minimum Distribution (RMD)

The amount of money that must be withdrawn from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants of retirement age.

 

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Risk-Adjusted Return

A calculation of the profit or potential profit from an investment that takes into account the degree of risk that must be accepted in order to achieve it. The risk is measured in comparison to that of a virtually risk-free investment—usually U.S. Treasuries.

 

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Risk Profile

An evaluation of an individual’s willingness and ability to take risks. A risk profile is important for determining a proper investment asset allocation for a portfolio.

 

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Risk Tolerance

The degree of variability in investment returns that an investor is willing to withstand in their financial planning. Risk tolerance is an important component in investing. 

 

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Glossary: S

S&P 500 Index

The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an exact list of the top 500 U.S. companies by market cap because there are other criteria that the index includes. Still, the S&P 500 index is regarded as one of the best gauges of prominent American equities’ performance, and by extension, that of the stock market overall.

 

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Sharpe Ratio

It is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Volatility is a measure of the price fluctuations of an asset or portfolio.

 

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Small Cap

A public company whose total market value, or market capitalization, is about $300 million to $2 billion. The precise figures vary.

 

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Stagflation

Stagflation is characterized by slow economic growth and relatively high unemployment—or economic stagnation—which is at the same time accompanied by rising prices (i.e. inflation). Stagflation can be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).

 

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Standard Deviation

Standard deviation measures the dispersion of a dataset relative to its mean. In finance, is often used as a measure of a relative riskiness of an asset.

 

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Step-Up in Basis

Step-up in basis refers to the adjustment in the cost basis of an inherited asset to its fair market value on the date of the decedent’s death. Cost basis, more commonly the price paid for an asset, is what determines the taxes owed, if any, when the asset is sold.

 

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Stock Split

A stock split happens when a company increases the number of its shares to boost the stock’s liquidity. Although the number of shares outstanding increases by a specific multiple, the total dollar value of all shares outstanding remains the same, because a split does not fundamentally change the company’s value.

 

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Structured Note

A debt obligation that also contains an embedded derivative component that adjusts the security’s risk-return profile. The return performance of a structured note will track both the underlying debt obligation and the derivative embedded within it.

 

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Glossary: T

Tactical Asset Allocation

Tactical asset allocation is an active management portfolio strategy that shifts the percentage of assets held in various categories to take advantage of market pricing anomalies or strong market sectors. This strategy allows portfolio managers to create extra value by taking advantage of certain situations in the marketplace.

 

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Target Date Fund

Mutual funds or exchange-traded funds (ETFs) structured to grow assets in a way that is optimized for a specific time frame. The structuring of these funds addresses an investor’s capital needs at some future date—hence, the name “target date.” 

 

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Tax-Advantaged

Tax-advantaged refers to favorable tax status held by certain qualified investments, accounts, or other financial vehicles.

 

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Tax Base

A tax base is a total amount of assets or income that can be taxed by a taxing authority, usually by the government. It is used to calculate tax liabilities and can be in different forms, including income or property.

 

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Tax-Loss Harvesting

the timely selling of securities at a loss in order to offset the amount of capital gains tax due on the sale of other securities at a profit. This strategy is most often used to limit the amount of taxes due on short-term capital gains, which are generally taxed at a higher rate than long-term capital gains. However, the method may also offset long-term capital gains.

 

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Term Life Insurance

Also known as pure life insurance, it is a type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the term life insurance policy to terminate.

 

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Total Return

Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends, and distributions realized over a period. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions, or dividends and capital appreciation, representing the change in the market price of an asset.

 

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Traditional IRA

This type of account allows individuals to direct pre-tax income toward investments that can grow tax-deferred. The IRS assesses no capital gains or dividend income taxes until the beneficiary makes a withdrawal. Individual taxpayers can contribute 100% of any earned compensation up to a specified maximum dollar amount.

 

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Transfer on Death (TOD)

The transfer on death designation lets beneficiaries receive assets at the time of the person’s death without going through probate. This designation also lets the account holder or security owner specify the percentage of assets each designated beneficiary receives, which helps the executor distribute the person’s assets after death. With TOD registration, the named beneficiaries have no access to or control over a person’s assets as long as the person is alive.

 

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Tight Monetary Policy

Tight, or contractionary monetary policy is a course of action undertaken by a central bank such as the Federal Reserve to slow down overheated economic growth, to constrict spending in an economy that is seen to be accelerating too quickly, or to curb inflation when it is rising too fast.

 

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Treasury Yield

The return on investment, expressed as a percentage, on the U.S. government’s debt obligations. Looked at another way, the Treasury yield is the effective interest rate that the U.S. government pays to borrow money for different lengths of time.

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Glossary: U

Underwriter

Any party that evaluates and assumes another party’s risk for a fee, which often takes the form of a commission, premium, spread, or interest. Underwriters determine the level of the risk for lenders.

 

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Universal Life Insurance (UL)

Universal life (UL) insurance is permanent life insurance (lasting the lifetime of the insured) that has an investment savings element and low premiums similar to those of term life insurance. Most UL insurance policies contain a flexible-premium option. However, some require a single premium (single lump-sum premium) or fixed premiums (scheduled fixed premiums).

 

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Unrealized Gain

An unrealized gain is an increase in the value of an asset, such as a stock position or a commodity like gold, that has yet to be sold for cash. A gain becomes realized once the position is sold for a profit. It is possible for an unrealized gain to be erased if the asset’s value drops below the price at which it was bought.

 

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Unrealized Loss

An unrealized loss is a “paper” loss that results from holding an asset that has decreased in price, but not yet selling it and realizing the loss. An investor may prefer to let a loss go unrealized in the hope that the asset will eventually recover in price, thereby at least breaking even or posting a marginal profit. For tax purposes, a loss needs to be realized before it can be used to offset capital gains.

 

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Glossary: V

V-Shaped Recovery

A type of economic recession and recovery that resembles a “V” shape in charting. Specifically, a V-shaped recovery represents the shape of a chart of economic measures economists create when examining recessions and recoveries. A V-shaped recovery involves a sharp rise back to a previous peak after a sharp decline in these metrics.

 

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Variable Annuity

A type of annuity contract, the value of which can vary based on the performance of an underlying portfolio of sub accounts. Sub accounts and mutual funds are conceptually identical, but sub accounts don’t have ticker symbols that investors can easily type into a fund tracker for research purposes. 

 

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VIX (CBOE Volatility Index)

A real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 index (SPX). Because it is derived from the prices of SPX index options with near-term expiration dates, it generates a 30-day forward projection of volatility. Volatility, or how fast prices change, is often seen as a way to gauge market sentiment, and in particular the degree of fear among market participants.

 

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Volatility

Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured as either the standard deviation or variance between returns from that same security or market index.

 

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Glossary: W

Whole LIfe Insurance

Also known as traditional life insurance, it provides permanent death benefit coverage for the life of the insured. In addition to paying a death benefit, whole life insurance also contains a savings component in which cash value may accumulate. Interest accrues at a fixed rate and on a tax-deferred basis.

 

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Wash Sale

A wash sale is a transaction in which an investor seeks to maximize tax benefits by selling a losing security at the end of a calendar year so they can claim a capital loss on taxes that year. 

 

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Wash Sale Rule

An Internal Revenue Service (IRS) regulation that prevents a taxpayer from taking a tax deduction for a security sold in a wash sale. 

 

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Glossary: Y

Year to Date (YTD)

Refers to the period of time beginning the first day of the current calendar year or fiscal year up to the current date. YTD information is useful for analyzing business trends over time or comparing performance data to competitors or peers in the same industry. 

 

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Yield Curve

A line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity. There are three main shapes of yield curve shapes: normal (upward sloping curve), inverted (downward sloping curve), and flat.

 

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