Investment Terms Explained

Assets are everything you own that has any monetary value, plus any money you are owed .They include money in bank accounts, stocks, bonds, mutual funds, equity in real estate, the value of your life insurance policy, and any personal property that people would pay to own.

Asset Allocation
Asset allocation is a strategy for reducing risk in your investment portfolio in order to maximize return over the long term.

Capital Gain
When you sell an asset at a higher price than you paid for it, the difference is your capital gain. For example, if you buy 100 shares of stock for $20 a share and sell them for $30 a share, you realize a capital gain of $10 a share, or $1,000 in total.

Capital Loss
When you sell a capital asset for less than you paid for it, the difference between the two prices is your capital loss.

Cash Flow
Your personal cash flow includes the money coming into your accounts and the money you are spending over a specific period such as a year.

Certificate Of Deposit (CD)
Certificates of deposit (CDs) are time deposits, which means you agree to leave your money on deposit for a fixed term. On traditional CDs, you earn compound interest at a fixed rate, which is determined by the current interest rate and the CD’s term. Adjustable-rate and market-rate CDs may also be available, though specific terms and conditions apply.

Consumer Confidence Index
The consumer confidence index is released each month by the Conference Board, an independent business research organization.

Consumer Price Index (CPI)
The consumer price index (CPI) is compiled monthly by the US Bureau of Labor Statistics and is a gauge of inflation that measures changes in the prices of basic goods and services.

Core Earnings
Core earnings report the performance of a corporation’s core business operations, including producing and marketing the primary goods or services it sells, the cost of granting stock options, restructuring charges for ongoing operations, and meeting pension obligations.

Credit Score
Your credit score is a number, calculated based on information in your credit report, that lenders use to assess the credit risk you pose and the interest rate they will offer you if they agree to lend you money.

Date Of Maturity
The date of maturity, or maturity date, is the day on which a bond’s term ends, and its issuer repays the principal and makes the final interest payment. When the phrase is used in connection with mortgages or other personal loans, the date of maturity is the day your last payment is due and your debt is repaid.

Diversification is an investment strategy. When you diversify, you spread your investment dollars among different sectors, industries, and securities within a number of asset classes.

Diversified Investment Portfolio
A portfolio that mixes a wide variety of investments. The rationale behind this strategy is that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment within the portfolio. The strategy is designed to take advantage of the fact that the performance of all securities or asset classes do not necessarily move in tandem, and so when one security or asset class is falling in value, another may be rising. The Callan Periodic Table of Index Returns shows how the performance of various asset classes can vary significantly from one year to the next, and explains why diversification within a portfolio is so important.

Corporations may pay part of their earnings as dividends to you and other shareholders as a return on your investment. These dividends, which are often declared quarterly, are usually in the form of cash, but may be paid as additional shares or scrip.

Corporate earnings are a company’s profits after expenses have been paid. Earnings history is one of the key indicators that fundamental analysts use to evaluate a company. However, there are several ways to report earnings. The broadest is reported earnings, which is defined by generally accepted accounting principles (GAAP). Others include pro forma earnings, EBITDA, free cash flow, and core earnings. Each method produces different results because of the data that is included in the calculation. The variations make it difficult to make meaningful comparisons among the earnings of different companies.

Earnings Per Share (EPS)
Earnings per share (EPS) is calculated by dividing a company’s total earnings by the number of outstanding shares.

Earnings before interest, taxes, depreciation, and amortization are commonly shortened to EBITDA. EBITDA reports a company’s profits before these expenses are subtracted.

Exchange-Traded Funds (ETFs)
Exchange traded funds (ETFs) resemble open-ended mutual funds but are listed on a stock exchange and trade like stock through a brokerage account.

Fair Market Value
Fair market value is the price you would have to pay to buy a particular asset or service on the open market.

Federal Deposit Insurance Corporation (FDIC)
The Federal Deposit Insurance Corporation (FDIC) insures deposits in banks and thrift institutions, assuring bank customers that their savings and checking accounts are safe.

Federal Open Market Committee (FOMC)
The Open Market Committee (FOMC) of the Federal Reserve Board meets eight times a year to evaluate the threat of inflation or recession.

FICO Score
Created by the Fair Isaac Corporation, FICO is the best-known credit scoring system in the United States.

A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets for the benefit of the other person rather than for his or her own profit.

Foreign Exchange (FOREX)
Any type of financial instrument that is used to make payments between countries is considered foreign exchange. The list of instruments includes electronic transactions, paper currency, checks, and signed, written orders called bills of exchange.

Gross Domestic Product (GDP)
The total value of all the goods and services produced within a country’s borders is described as its gross domestic product.

Gross National Product (GNP)
The gross national product is a measure of a country’s economic output — the total value of all the goods and services that it produces in a particular year. The GNP is similar to the gross domestic product (GDP), but not exactly the same.

Growth is an increase in the value of an investment over time. Unlike investments that produce income, those that are designed for growth don’t necessarily provide you with a regular source of cash.

Health Savings Account (HSA)
A health savings account(HSA)is designed to accumulate tax-free assets to pay current and future healthcare expenses. To open an HSA, you must have a qualifying high deductible health plan (HDHP) either through your employer or as an individual.

Hedge Fund
Hedge funds are private investment partnerships open to institutions and wealthy individual investors. These funds pursue returns through a number of investment strategies.

Homeowners Insurance
Homeowners insurance is a contract between an insurance company and a homeowner to cover certain types of damage to the property and its contents, theft of personal possessions, and liability in case of lawsuits based on incidents or events that occur on the property.

Inflation is a persistent increase in prices, often triggered when demand for goods is greater than the available supply or when unemployment is low and workers can command higher salaries.

Interest Rate
Interest rate is the percentage of the face value of a bond or the balance in a deposit account that you receive as income on your investment.

Limited Liability Company
Organizing a business enterprise as a limited liability company (LLC) under the laws of the state where it operates protects its owners or shareholders from personal responsibility for company debts that exceed the amount those owners or shareholders have invested.

Margin is the minimum amount of collateral — in either cash or securities — you must have in your margin account to buy on margin, sell short, or invest in certain derivatives.

Marginal Tax Rate
Because the US income tax system is progressive, your tax rate rises as your taxable income rises through two or more tax brackets.

Mark To The Market
When an investment is marked to the market, its value is adjusted to reflect the current market price.

Market Capitalization
Market capitalization is a measure of the value of a company, calculated by multiplying the number of either the outstanding shares or the floating shares by the current price per share.

Market Cycle
The period between the two latest highs or lows of the S&P 500, showing net performance of a fund through both an up and a down market. A market cycle is complete when the S&P 500 is 15% below the highest point or 15% above the lowest point (ending a down market).

Medicaid is a federal government program run by the individual states. It’s designed to provide assistance to people who can’t afford skilled or custodial healthcare.

Medicare is a federal government insurance program designed to provide healthcare coverage for people 65 or older, certain disabled people, and people with chronic kidney disease.

Money Supply
The money supply is the total amount of liquid or near-liquid assets in the economy.

National Association of Securities Dealers Automated Quotation System (NASDAQ)
NASDAQ is a computerized stock trading network that allows brokers to access price quotations for stocks being traded electronically or sold on the floor of a stock exchange.

New York Stock Exchange (NYSE)
The New York Stock Exchange (NYSE) is one of the two securities exchanges operated by the NYSE Group, Inc. It’s the oldest securities exchange in the United States and the largest traditional exchange in the world.

Nikkei Stock Average
The Nikkei Stock Average, sometimes call the Nikkei Index or simply the Nikkei, is a price-weighted index of 225 blue chip stocks traded on the Tokyo Stock Exchange.

Charitable, cultural, and educational organizations that exist for reasons other than providing a profit for their owners, directors, or members are nonprofit organizations.

A not-for-profit organization pays taxes and may make a profit, but those profits are not distributed to its owners or members.

Options Clearing Corporation (OCC)
The Options Clearing Corporation issues all exchange-listed securities options in the United States and guarantees all transactions in those options.

Over-the-counter (OTC)
Securities that trade over-the-counter (OTC) are not listed on an organized stock exchange, such as the New York Stock Exchange (NYSE) or the Nasdaq Stock Market.

Par Value
Par value is the face value, or named value, of a stock or bond.

Per Capita
Per capita is the legal term for one of the ways that assets being transferred by your will can be distributed to the beneficiaries of your estate.

Performance, expressed as a percentage, measures the total return an investment provides over a specific period. It can be positive, representing a gain in value, or negative, representing a loss.

Portfolio Manager
The person responsible for investing an investor’s assets, implementing an agreed investment strategy, and managing the day-to-day trading of the portfolio.

Power Of Attorney
A power of attorney is a written document that gives someone the legal authority to act for you as your agent or on your behalf. To be legal, it must be signed and notarized.

Private Equity
Private equity is an umbrella term for large amounts of money raised directly from accredited individuals and institutions and pooled in a fund that invests in a range of business ventures.

If you own common stock in a US corporation, you have the right to vote on certain company policies and elect the board of directors by casting a proxy, or vote.

Quadruple Witching Day
Once every quarter — on the third Saturday of March, June, September, and December — stock options, stock index options, stock index futures contracts, and single stock futures expire on the same day in the United States. In the past, when trading in all contracts expired at the same hour on the preceding Friday, trading could be extremely volatile as professional investors attempted to capitalize on pricing differences. But in recent years, various adjustments in the trading schedule have helped to reduce the pace.

Quotation (Quote)
On a stock market, a quotation combines the highest bid to buy and the lowest ask to sell a stock.

Real Estate Investment Trusts (REITs)
A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Revenue is the money you collect for providing a product or service.

Risk Management
Risk management is a set of strategies for analyzing potential risks and instituting policies and procedures to avoid losses and realize gains. The work of assessing the possibilities, setting priorities, and finding cost-effective solutions is also described as business continuity planning.

Risk Premium
A risk premium is one way to measure the risk you’d take in buying a specific investment. Some analysts define risk premium as the difference between the current risk-free return — defined as the yield on a 13-week US Treasury bill — and the potential total return on the investment you’re considering.

Securities And Exchange Comission (SEC)
The Securities and Exchange Commission (SEC) is an independent federal agency that oversees and regulates the securities industry in the United States and enforces securities laws.

If you own stock in a corporation, you are a shareholder of that corporation.

Socially Responsible Investing
An investment that is considered socially responsible because of the nature of the business the company conducts. Some common themes for socially responsible investing include avoiding alcohol, gambling and tobacco, defense and seeking out companies engaged in environmental sustainability and alternative energy/clean technology efforts. CAIM has the ability to customize a portfolio to your individual values.

Tax Bracket
A tax bracket is a range of income that is taxed at a specific rate.

Tax Credit
A tax credit is an amount you can subtract from the tax you would otherwise owe. Unlike a deduction or exemption, a credit is a dollar-for-dollar reduction of your tax bill.

Total Return
Total return is comprised of two categories of return: income and capital appreciation. Income includes interest paid by fixed-income investments, distributions or dividends. Capital appreciation represents the change in the market price of an asset.

Trading Range
A trading range means different things on different types of markets.

Troubled Asset Relief Program (TARP)
The Troubled Asset Relief Program (TARP) was created by the Emergency Economic Stabilization Act of 2008 in response to the credit crisis created in part by illiquid mortgage-backed securities (MBS) full of defaulting mortgages.

A trustee is a person or institution appointed to hold and manage assets for someone else’s benefit.

US Savings Bond
The US government issues two types of savings bonds: Series EE and Series I.

US Treasury Bond
US Treasury bonds are long-term government debt securities with 30-year terms. These bonds are considered among the world’s the most secure investments since they are backed by the full faith and credit of the US government .

The term volatility indicates how much and how quickly the value of an investment, market, or market sector changes.

Volume is the number of shares traded in a company’s stock or in an entire market over a specified period, typically a day.

Whole Life Insurance
A whole life insurance policy is a type of permanent insurance that provides a guaranteed death benefit and has fixed premiums.

Year-To-Date (YTD)
Year-to-date (YTD) describes the period beginning January 1 of the current year and ending with the current date.

Yield To Call
The yield of a bond or note if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. The calculation of yield to call is based on the coupon rate, the length of time to the call date and the market price.

Yield To Maturity (YTM)
Yield to maturity is the most precise measure of a bond’s anticipated return and determines its current market price.