Glossary

A

Account in Trust

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 goal of outperforming a benchmark index.

Active Return

The difference between the return of an investment or portfolio and the return of 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 intangible asset over time.

Annual Percentage Rate (APR)

The annual cost of borrowing money expressed as a percentage, including interest and fees.

Appreciation

The increase in the value of an asset over time.

Arbitrage

The simultaneous buying and selling of an asset in different markets to profit from price differences.

Ask Price

The price a seller is willing to accept for an asset, commonly used in securities trading.

Asset Allocation

Process of dividing investments among different asset classes (e.g. stocks, bonds, real estate, cash) to optimize a balance between risk and return based on financial goals and risk tolerance.

Asset Class

A group of securities that exhibit similar characteristics and behave similarly in the marketplace (e.g. equities, fixed income, or real estate).

B

Buy and Hold

An investment strategy where securities are purchased and held for a long period regardless of short-term market fluctuations.

Break-Even Point

The point at which total revenue equals total costs, resulting in no net gain or loss.

Book Value

The net value of a company's assets minus its liabilities, typically used as a measure of the company's intrinsic value.

Bond Yield

The return an investor realizes on a bond.

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.

Bid Price

The price a buyer is willing to pay for an asset.

Beneficiary

A person (or entity) designated to benefit from assets such as life insurance policies, retirement accounts, or other financial instruments.

C

Custodian

A financial institution that holds customers' securities for safekeeping to prevent them from being stolen or lost.

Credit Risk

Probability of a financial loss resulting from a borrower's failure to repay a loan.

Credit Score

A numerical representation of a person's creditworthiness, typically calculating based on a credit history.

Coverage Limit

The maximum amount an insurance company will pay for a covered loss or liability under an insurance policy.

Coupon Rate

The interest rate paid by a bond, expressed as a percentage of the face value of the bond.

Cost Basis

The original value of an asset for tax purposes, used to determine capital gains or losses upon sale.

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.

Compound Interest

Interest calculated on both the initial principal and the accumulated interest from previous periods.

Commission

A fee charged by brokers or investment advisors for facilitating transactions or providing investment advice.

Cash Flow

The total amount of money being transferred into and out of a business, particularly regarding liquidity.

Capital Expenditure (CapEx)

Money spent by a business on acquiring, maintaining, or improving fixed assets like property, plants, or equipment.

D

Dividend Yield

A stock's annual dividend payments divided by its market price.

Dividends

A portion of a company’s earnings distributed to shareholders, typically in cash or additional shares.

Diversification

Spreading of investments across various assets or asset classes to reduce risk and increase the potential for returns.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows, or the rate the Federal Reserve charges banks for short-term loans.

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.

Direct Lending

A form of private credit where funds are lent directly to borrowers without going through a traditional financial intermediary.

Depreciation

An accounting practice used to spread the cost of a tangible or physical asset over its useful life for accounting and tax purposes.

Deflation

A decrease in the general price level of goods and services in an economy, often associated with a reduction in the money supply.

Debit Card

A payment card that deducts money directly from a consumer’s checking account when making purchases.

E

Expected Return

The anticipated profit or loss on an investment, based on probabilities of various outcomes.

Exchange Traded Fund (ETF)

A type of investment fund that is traded on stock exchanges, holding assets like stocks, bonds, or commodities.

Estate Planning

The process of arranging for the transfer of an individual's assets after death, including the creation of wills and trusts.

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.

Emerging Markets

Financial markets of developing countries with higher growth potential but also higher risk than developed markets.

Equity

The value of an investor’s ownership in an asset after deducting liabilities, commonly referred to as "shares" in the case of stocks.

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

Measure of a company's operating performance and profitability.

Earnings yield

Earnings per share for the most recent 12-month period divided by the current market price per share.

F

Fund of Funds (FoF)

An investment strategy in which a portfolio is composed of other investment funds, offering diversification across asset managers.

Free Cash Flow (FCF)

The cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Floating Rate Note (FRN)

A bond with a variable interest rate that is reset at specified intervals, often tied to a benchmark rate.

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.

Fixed Annuity

A type of insurance contract that provides periodic payments at a fixed rate, often used as part of retirement planning.

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.

Fiduciary

An individual or organization that acts in the best interests of another party like a financial advisor acting on behalf of their client.

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.

G

Growth Stock

A stock of a company expected to grow at an above-average rate compared to other companies.

Growth Rate

The annualized percentage increase in the revenue, earnings, or dividends of a company over a specific period.

Gross Profit

The total revenue of a company minus its cost of goods sold, excluding operating expenses.

Gross Margin

The difference between revenue and the cost of goods sold (COGS), expressed as a percentage of revenue, indicating the efficiency of production.

H

Holding Period

The length of time an investment is held by an investor before being sold or liquidated.

High-Net-Worth Individual

A person with a high level of financial assets, exceeding a specific threshold (usually $1 million in investable assets).

Hedge Fund

Funds targeting absolute returns through investment in financial markets and/or applying non-traditional portfolio management techniques.

I

Investment Trust

A collective investment structure where investors pool funds to invest in a diversified portfolio of assets.

Interest Coverage Ratio

A measure of a company’s ability to meet its interest payments, calculated as earnings before interest and taxes (EBIT) divided by interest expenses.

Inflation

The rate at which the general price level of goods and services is rising, eroding purchasing power.

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).

Index Fund

A type of mutual fund or ETF that aims to replicate the performance of a specific indexlike the S&P 500.

Income Statement

A financial statement that shows a company’s revenues, expenses, and profits over a specific period of time.

K

Key Performance Indicators (KPIs)

Metrics used to evaluate the performance of a business or investment relative to its strategic objectives.

L

Lock-Up Period

A window of time in which investors cannot sell certain shares or securities.

Liquidity Ratio

A measure of a company’s ability to meet its short-term obligations, often calculated as current assets divided by current liabilities.

Liquidity

The ease and speed with which an asset can be converted to cash without significantly affecting its price.

Leverage

The use of borrowed funds to increase potential returns, while also increasing the potential risk.

M

Mutual Fund

Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities or money market securities.

Mortgage-Backed Security

A type of asset-backed security that is secured by a collection of mortgages.

Mortgage

A loan secured by real estate, typically used to purchase property, where the borrower makes periodic payments over time.

Maturity Date

The date on which the principal amount of a bond or other debt instrument becomes due and is to be repaid.

Market capitalization

A measure of a company's size, calculated by multiplying the total number of shares in issue by the current share price.

Margin

Borrowing money from a broker to purchase securities, or the collateral deposited to cover the credit risk.

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

Private equity

Equity securities of companies that are not listed on a public exchange.

Principal

The initial amount of money invested or borrowed, excluding interest.

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.

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.

Potential Annual Return

The possible profit or gain an investor can earn on an investment over the course of a year.

Portfolio Turnover Rate

A measure of how frequently assets within a fund are bought and sold by the managers.

Payout Ratio

The proportion of earnings a company distributes to shareholders in the form of dividends.

Payback Period

The amount of time it takes for an investment to generate enough cash flow to recover the initial capital outlay.

R

Risk Tolerance

Level of uncertainty or variability that an individual is willing to withstand in their investment portfolio.

Risk Parity

An investment strategy that allocates risk equally among various asset classes rather than allocating capital, aiming for balanced exposure.

Retirement Plan

A financial arrangement designed to provide income during retirement, often with tax advantages.

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.

Relative risk and potential return

The amount of potential return from an investment related to the amount of risk you are willing to accept.

Recession

A period of economic decline, typically defined as two consecutive quarters of negative GDP growth.

Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment’s initial cost.

S

Swap

A derivative contract in which two parties exchange the cash flows or liabilities of different financial instruments.

Systematic Risk

Risk that affects the entire market or a segment of the market, also known as market risk, and cannot be diversified away.

Socially Responsible Investing (SRI)

An investment strategy that considers both financial return and social/environmental good, focusing on companies that meet specific ethical criteria.

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.

Sharpe Ratio

A measure used to calculate risk-adjusted returns, comparing an investment's excess return to its standard deviation.

Securities

Financial instruments, including stocks, bonds, and options, that represent ownership in a publicly-traded company or creditor relationships.

Scenario Analysis

A process of analyzing possible future events by considering alternative possible outcomes (scenarios), often used for risk management.

T

Turnover Ratio

Percentage of holdings in a mutual fund that are sold in a specified period.

Treasury Bond

A long-term interest-bearing bond issued by the U.S. government with a maturity of more than 10 years.

Time Horizon

The length of time over which an investment is expected to be held before it is liquidated.

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.

Tax-Deferred

Investment earnings like interest or dividends that accumulate tax-free until the investor withdraws them at a later date.

U

Underweight

A situation where an investor holds a smaller proportion of a particular asset or asset 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.

All

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B

C

D

E

F

G

H

I

K

L

M

N

O

P

R

S

T

U

V

W

Y

Z

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