Financial Glossary
Welcome to our comprehensive financial glossary. Use this resource to understand key financial terms and concepts that will help you make more informed investment decisions.
4
401(k)
A tax-advantaged retirement savings plan offered by employers that allows employees to save and invest a portion of their paycheck before taxes are taken out.
A
Asset Allocation
The strategy of dividing investments among different asset categories, such as stocks, bonds, and cash to optimize the risk/return tradeoff based on an individual's goals, risk tolerance, and investment horizon.
Alpha
A measure of the active return on an investment, the performance of that investment compared with a suitable market index.
B
Bear Market
A market condition in which the prices of securities are falling or are expected to fall, typically by 20% or more from recent highs.
Bull Market
A market condition in which the prices of securities 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.
Beta
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
Bitcoin
A decentralized digital currency created in 2009 that uses blockchain technology and operates without a central authority or banks.
Blockchain
A distributed, decentralized, public ledger that records transactions across many computers so that any involved record cannot be altered retroactively.
C
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. The gain is not realized until the asset is sold.
Compound Interest
Interest calculated on the initial principal and also on the accumulated interest of previous periods. It makes a sum of money grow at a faster rate than simple interest.
Capital Loss
The decrease in value of a capital asset when it is sold for less than the original purchase price.
Carbon Footprint
The total amount of greenhouse gases (including carbon dioxide and methane) that are generated by human actions, often evaluated in ESG investment analysis.
Cap Rate
Capitalization Rate - a real estate valuation measure used to compare different real estate investments, calculated as the ratio between the net operating income and the property asset value.
Commercial Mortgage-Backed Securities
Fixed-income investment products backed by mortgages on commercial properties rather than residential real estate.
D
Diversification
A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single security on overall portfolio performance.
Dividend
A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Dollar-Cost Averaging
An investment strategy in which an investor divides up the total amount to be invested across periodic purchases to reduce the impact of volatility on the overall purchase.
E
ETF (Exchange-Traded Fund)
A type of investment fund and exchange-traded product, with shares that trade on stock exchanges similar to those of individual stocks.
Ethereum
A decentralized, open-source blockchain system featuring smart contract functionality that enables developers to build and deploy decentralized applications.
ESG Investing
An investment approach that considers environmental, social, and governance factors alongside financial factors in the investment decision-making process.
F
FIRE (Financial Independence, Retire Early)
A movement dedicated to extreme savings and investment that allows proponents to retire far earlier than traditional budgets and retirement plans would allow.
G
GDP (Gross Domestic Product)
The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
H
Hedge
An investment position intended to offset potential losses or gains that may be incurred by a companion investment.
I
Inflation
A general increase in prices and fall in the purchasing value of money. It erodes the real value of cash over time.
IRA (Individual Retirement Account)
A tax-advantaged investing tool designed for retirement savings. Traditional IRAs allow tax-deductible contributions but taxable withdrawals, while Roth IRAs offer tax-free withdrawals but no deduction for contributions.
L
Liquidity
The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price.
M
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.
Modern Portfolio Theory (MPT)
A theory on how risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk.
P
P/E Ratio (Price-to-Earnings Ratio)
A valuation ratio of a company's current share price compared to its per-share earnings. It shows how much investors are willing to pay per dollar of earnings.
R
Rebalancing
The process of realigning the weightings of a portfolio of assets by periodically buying or selling assets to maintain the original or desired level of asset allocation or risk.
Risk Tolerance
The degree of variability in investment returns that an investor is willing to withstand. It's an important component in investing.
Roth IRA
A retirement account where contributions are made with after-tax dollars and qualified withdrawals are tax-free. Unlike traditional IRAs, there are no required minimum distributions during the account holder's lifetime.
REITs
Real Estate Investment Trusts - companies that own, operate, or finance income-generating real estate across a range of property sectors.
S
S&P 500
A stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.
Sustainable Investing
An investment strategy that seeks to consider both financial return and social/environmental good to bring about positive change.
T
Tax-Loss Harvesting
The practice of selling a security that has experienced a loss to offset taxes on both gains and income. The sold security is replaced by a similar one to maintain the portfolio's asset allocation and expected returns.
V
Volatility
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.
Y
Yield
The income returned on an investment, such as the interest received from holding a security. The yield is usually expressed as an annual percentage rate.
Z
Zero-Coupon Bond
A debt security that doesn't pay interest but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.