A financial account that is opened by an individual and managed by a designated trustee for the benefit of a third party per agreed-upon terms.
Accrued Interest
Interest that has been earned but not yet paid or received.
Active Management
A strategy where a portfolio manager makes specific investments with the goalof outperforming a benchmark index.
Active Return
The difference between the return of an investment or portfolio and the returnof a benchmark or market index.
Alternative Investments
Non-traditional investments like hedge funds, private equity, real estate, commodities, venture capital, which offer potential diversification benefits but often carry higher risks.
Amortization
The process of gradually paying off a loan or allocating the cost of an intangibleasset over time.
B
Balloon Loan
A loan that requires a large lump-sum payment at the end of its term after smaller periodic payments during the loan period.
Balloon Payment
Final payment made at the end of a balloon loan to repay the remaining balance.
Beneficiary
A person (or entity) designated to benefit from assets such as life insurance policies, retirement accounts, or other financial instruments.
Bid Price
The price a buyer is willing to pay for an asset.
Business Plan
A formal document outlining the goals of a business, the strategy for achieving them, and the financial forecast for the future.
Bond Duration
A measure of a bond's sensitivity to changes in interest rates, indicating how much a bond's price is expected to fluctuate when interest rates change.
C
Capital Expenditure (CapEx)
Money spent by a business on acquiring, maintaining, or improving fixed assetslike property, plants, or equipment.
Cash Flow
The total amount of money being transferred into and out of a business, particularly regarding liquidity.
Combined Loan-to-Value (CLTV)
An indicator of the risk level for lenders in mortgage financing, which compares the total amount of all loans secured by a property to its appraised value.
Commission
A fee charged by brokers or investment advisors for facilitating transactions or providing investment advice.
Compound Interest
Interest calculated on both the initial principal and the accumulated interest from previous periods.
Correlation
A statistical measure that describes how two securities move in relation to each other. Positive correlation means they move together, while negative correlation means they move in opposite directions.
Cost Basis
The original value of an asset for tax purposes, used to determine capital gains or losses upon sale.
D
Debit Card
A payment card that deducts money directly from a consumer’s checking account when making purchases.
Debt-to-Income (DTI)
A measure that compares an individual's total monthly debt payments to their gross monthly income, used primarily by lenders to assess a borrower's ability to manage monthly payments and repay debts.
Deflation
A decrease in the general price level of goods and services in an economy, often associated with a reduction in the money supply.
Delinquency
The failure to fulfill an obligation or debt in the context of loans or credit, where it typically indicates that a payment has not been made by the due date.
Depreciation
An accounting practice used to spread the cost of a tangible or physical asset over its useful life for accounting and tax purposes.
Direct Lending
A form of private credit where funds are lent directly to borrowers without going through a traditional financial intermediary.
Discounted cash flow (DCF)
A valuation method that estimates the value of an investment based on its expected future cash flows, discounted to present value.
E
Earnings yield
Earnings per share for the most recent 12-month period divided by the current market price per share.
Earnings Before Interest, Taxes, Depreciation, and Amortization(EBITDA)
Measure of a company's operating performance and profitability.
Equity
The value of an investor’s ownership in an asset after deducting liabilities, commonly referred to as "shares" in the case of stocks.
Emerging Markets
Financial markets of developing countries with higher growth potential but alsohigher risk than developed markets.
Enterprise Value (EV)
A measure of a company's total value, calculated as market capitalization plus debt, minority interest, and preferred shares, minus total cash and cash equivalents.
Estate Planning
The process of arranging for the transfer of an individual's assets after death, including the creation of wills and trusts.
F
Fair Isaac Corporation score (FICO)
A credit scoring model used by lenders to assess an individual's creditworthiness based on their credit history and behavior (ranges from 300 to850, with higher scores indicating lower risk to lenders).
Fair Value
The estimated value of an asset, calculated by considering its future cash flows or based on what a willing buyer would pay in an open market.
Fiduciary
An individual or organization that acts in the best interests of another party like a financial advisor acting on behalf of their client.
Financial Planning
Process of evaluating a client's financial situation, goals, and risk tolerance to create a comprehensive plan for achieving financial objectives, including retirement planning, tax planning, estate planning, and more.
Fixed Annuity
An individual or organization that acts in the best interests of another party like a financial advisor acting on behalf of their client.
Fixed Income Security
A type of investment that provides returns in the form of regular interest payments and the return of principal at maturity like bonds.
G
General Partner
A member of a partnership who has the authority to manage the business and is personally liable for the partnership's debts and obligations.
Gross Margin
The difference between revenue and the cost of goods sold (COGS), expressed as a percentage of revenue, indicating the efficiency of production.
Gross Profit
The total revenue of a company minus its cost of goods sold, excluding operating expenses.
Growth Rate
The annualized percentage increase in the revenue, earnings, or dividends of a company over a specific period.
Growth Stock
A stock of a company expected to grow at an above-average rate compared to other companies.
H
Hedge Fund
Funds targeting absolute returns through investment in financial markets and/or applying non-traditional portfolio management techniques.
High-Net-Worth Individual
A person with a high level of financial assets, exceeding a specific threshold (usually $1 million in investable assets).
Holding Period
The length of time an investment is held by an investor before being sold orliquidated.
I
Income Statement
A financial statement that shows a company’s revenues, expenses, and profits over a specific period of time.
Index Fund
A type of mutual fund or ETF that aims to replicate the performance of a specific index like the S&P 500.
Individual Retirement Account
A tax-deferred account to which an eligible individual can make annual contributions up to $3,000 ($6,000 for a single-income married couple filing a joint income tax return).
Inflation
The rate at which the general price level of goods and services is rising, eroding purchasing power.
Insurance Company
A financial institution that offers risk management by exchanging premium payments for policies that protect people and companies from financial losses caused by unforeseen events.
Interest
The cost of borrowing money or return on an investment, typically expressed asa percentage of the principal amount over a specified period.
K
Key Performance Indicators (KPIs)
Metrics used to evaluate the performance of a business or investment relative to its strategic objectives.
L
Leverage
The use of borrowed funds to increase potential returns, while also increasing the potential risk.
Limited Partner
An investor in a partnership who contributes capital but does not participate in day-to-day management, having limited liability for the partnership's debts.
Liquidity
The ease and speed with which an asset can be converted to cash without significantly affecting its price.
Liquidity Ratio
A measure of a company’s ability to meet its short-term obligations, often calculated as current assets divided by current liabilities.
Loan-to-Value (LTV)
A term, which is commonly used in mortgage lending to assess risk, expresses the ratio of a loan amount to the appraised value or purchase price of an asset.
Lock-Up Period
A window of time in which investors cannot sell certain shares or securities.
M
Margin
Borrowing money from a broker to purchase securities, or the collateral deposited to cover the credit risk.
Market capitalization
A measure of a company's size, calculated by multiplying the total number of shares in issue by the current share price.
Maturity Date
The date on which the principal amount of a bond or other debt instrument be comes due and is to be repaid.
Mortgage
A loan secured by real estate, typically used to purchase property, where the borrower makes periodic payments over time.
Mortgage-Backed Security
A type of asset-backed security that is secured by a collection of mortgages.
Mutual Fund
Fund operated by an investment company that raises money from shareholdersand invests it in stocks, bonds, options, commodities or money marketsecurities.
N
Net Asset Value (NAV) per share
The current dollar value of a single mutual fund share.The process of calculating the NAV is called pricing.
O
Options
Financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at a set price within a specified time.
Overbought
A market condition where a security’s price has risen too far and too fast, often seen as a signal for a potential price correction.
P
Payback Period
The amount of time it takes for an investment to generate enough cash flow to recover the initial capital outlay.
Payout Ratio
The proportion of earnings a company distributes to shareholders in the form of dividends.
Portfolio Turnover Rate
A measure of how frequently assets within a fund are bought and sold by the managers.
Potential Annual Return
The possible profit or gain an investor can earn on an investment over the course of a year.
Price-to-Book Ratio (P/B)
A financial ratio used to compare a company's market value to its book value, calculated as the stock price divided by book value per share.
Price-to-Earnings Ratio (P/E)
A company's current stock price divided by its earnings per share, used to evaluate whether a stock is over-or under-valued.
R
Rate of Return
The gain or loss on an investment over a specified period, expressed as a percentage of the investment’s initial cost.
Recession
A period of economic decline, typically defined as two consecutive quarters of negative GDP growth.
Relative risk and potential return
The amount of potential return from an investment related to the amount of risk you are willing to accept.
Return on Investment (ROI)
A measure of the profitability of an investment, calculated by dividing the net profit by the initial cost of the investment.
Retirement Plan
A financial arrangement designed to provide income during retirement, often with tax advantages.
Risk Parity
An investment strategy that allocates risk equally among various asset classes rather than allocating capital, aiming for balanced exposure.
S
Scenario Analysis
A process of analyzing possible future events by considering alternative possible outcomes (scenarios), often used for risk management.
Securities
Financial instruments, including stocks, bonds, and options, that represent ownership in a publicly-traded company or creditor relationships.
Sharpe Ratio
A measure used to calculate risk-adjusted returns, comparing an investment's excess return to its standard deviation.
Short-Term Capital Gains
Gains from the sale of an asset held for one year or less, typically taxed at a higher rate than long-term capital gains.
Socially Responsible Investing (SRI)
An investment strategy that considers both financial return and social/environmental good, focusing on companies that meet specific ethical criteria.
Spread
The difference between the bid price and the ask price of a security, indicating the transaction cost for buyers and sellers.
T
Tax-Deferred
Investment earnings like interest or dividends that accumulate tax-free until the investor withdraws them at a later date.
Term Life Insurance
A type of life insurance policy that provides coverage for a specified term, with no cash value accumulation, paying a death benefit only if the insured dies during the term.
Time Horizon
The length of time over which an investment is expected to be held before it is liquidated.
Treasury Bond
A long-term interest-bearing bond issued by the U.S. government with a maturity of more than 10 years.
Turnover Ratio
Percentage of holdings in a mutual fund that are sold in a specified period.
U
Underweight
A situation where an investor holds a smaller proportion of a particular asset orasset class in their portfolio than is typical in the market index or benchmark.
V
Venture Capital
Financing provided to startups and small businesses with high growth potential, usually in exchange for equity.
Volatility
A statistical measure of the fluctuations of a security's price over time, with higher volatility indicating higher risk.
W
Wealth Management
A professional service combining financial planning and investment advice to manage an individual's or family's financial situation and grow their wealth.
Weighted Average Cost of Capital (WACC)
A company’s average cost of capital from all sources, including debt and equity, weighted according to the proportion of each in the company’s capital structure.
Whole Life Insurance
A type of permanent life insurance that provides coverage for the insured's entire life, with a guaranteed cash value and death benefit.
Working Capital
A measure of a company’s operational efficiency calculated as current assets minus current liabilities.
Y
Yield to maturity (YTM)
The rate of return anticipated on a bond if it is held until the maturity date.
Z
Zero-Coupon Bond
A bond that is issued at a discount and pays no periodic interest, but is repaid at its face value at maturity.
