Investing glossary

Mutual funds charge you 12b-1 fees to pay for their advertising and sales efforts.

The 30-day SEC yield is a government-standardized way to show what a fund actually earned over 30 days, stretched out to show what you'd make in a year. It's like a consistent measuring stick across all funds.

A 401(k) is your company's retirement savings plan where your contributions come out of your paycheck. Many employers will match what you put in.

The 52-week high/low shows the highest and lowest prices a stock hit over the past year. It shows you the stock's recent trading range.

A 529 plan is a special savings account for education expenses that comes with tax breaks. You can use it for college or even private school tuition.

An accredited investor is someone who makes enough money or has enough wealth to invest in exclusive, riskier deals that have specific income and net worth requirements.

An acquisition happens when one company buys another company outright. The purchased company usually disappears as a separate entity.

After-hours trading means buying and selling stocks outside normal market hours (9:30 AM to 4:00 PM Eastern). Prices can move differently when fewer people are trading.

An aggressive growth fund is a mutual fund that swings for the fences, investing in high-risk stocks that could either make you a lot of money or lose it quickly.

An all-or-none order is a stock order that says "fill my entire order or don't fill any of it." No partial orders allowed.

Alpha measures how much better (or worse) an investment performed compared to the overall market. Positive alpha means it beat the market.

The alternative minimum tax is a backup tax system that makes sure wealthy people and corporations can't use too many deductions to avoid paying taxes entirely.

The annual percentage rate is the real yearly cost of borrowing money, including interest plus all the fees rolled into one number.

The annual percentage yield is what you actually earn on your savings or investment in a year, including the magic of compound interest.

Appreciation happens when your investment goes up in value over time. The opposite of depreciation.

The ask is the lowest price someone is willing to sell a stock for right now. It's always higher than the bid price.

An asset is anything you own that has value and could potentially make you money. This includes stocks, real estate, cash, bonds, or even your car.

Asset allocation is how you divide your money between different types of investments like stocks, bonds, and cash. It's your investment mix strategy.

An asset-backed security is a complex investment that's backed by a pool of loans or debts, like car loans or credit card debt. The payments from those loans become your returns.

Assets under management represents the total dollar value of investments that a financial company manages for their clients. Bigger numbers usually mean more established firms.

An ATM is those machines where you get cash and check your account balance. Most charge fees if you use one that's not from your bank.

A balance sheet is a financial snapshot that shows what a company owns, what it owes, and what's left over for shareholders. Think of it as a company's financial report card.

A balanced fund is a mutual fund that splits your money between stocks and bonds, aiming for both growth and steady income. It's the investment equivalent of a diversified meal.

A bear market happens when stock prices fall 20% or more from their recent highs and stay down. People get pessimistic and sell more than they buy.

A beneficial owner is the person who actually gets the benefits from owning something, even if someone else's name is on the paperwork.

Best-in-class is an investment approach that picks the top companies in each industry based on environmental and social responsibility, not just profits.

Beta is a number that tells you how much a stock bounces around compared to the overall market. Higher than 1 means more volatile, lower means more stable.

The bid is the highest price someone is willing to pay for a stock right now. It's always lower than the ask price.

Blockchain is the technology behind cryptocurrencies. It's like a digital ledger that's shared across many computers and nearly impossible to fake or hack.

Blue chip refers to stock in large, stable, well-known companies that have been profitable for years. Think Microsoft, Coca-Cola, or Johnson & Johnson.

The board of directors is the group of people shareholders elect to oversee how a company is run. They make big decisions and hire (or fire) the CEO.

A boiler room is a sketchy operation where salespeople use high-pressure tactics to sell you questionable investments.

A bond means you're lending money to a company or government when you buy one. They promise to pay you back with interest. It's generally safer than stocks but offers lower returns.

Book value is what a company would theoretically be worth if you sold everything it owns and paid off all its debts. It's the accounting value, not necessarily the market value.

A breakpoint is the investment amount where mutual fund companies start giving you discounts on their fees. Invest more, pay lower percentage fees.

A brokerage account is your investment account where you can buy and sell stocks, bonds, and other securities. It's like a bank account, but for investments.

A budget is your plan for how you'll spend and save your money. The foundation of any solid financial strategy.

A bull market happens when stock prices are rising and investors feel optimistic. People are buying more than selling, and confidence is high.

A call option is a contract that gives you the right (but not the obligation) to buy a stock at a specific price within a certain time. You're betting the price will go up.

A callable bond is a bond that the issuer can pay back early if they want to. This usually happens when interest rates drop and they can borrow money cheaper elsewhere.

Capital is the money you have available to invest or the money a business uses to operate and grow.

Capital gains are the taxable profit you make when you sell an investment for more than you paid for it.

A capital loss happens when you sell an investment for less than you paid for it. The silver lining? You can use these losses to offset your realized gains.

Cash equivalents are investments that are so safe and liquid they're basically like having cash. Think money market funds or short-term government bonds.

Cash flow is the money flowing in and out of a business. Positive cash flow means more money coming in than going out.

A certificate of deposit is a savings account where you agree to leave your money alone for a specific period in exchange for a guaranteed interest rate. Break the agreement early, and you'll pay penalties.

A checking account is your everyday bank account for paying bills and making purchases. It's liquid but usually doesn't earn much interest.

A closed-end fund is an investment fund that issues a fixed number of shares that then trade on the stock exchange like individual stocks. The price can be different from what the underlying investments are actually worth.

Collateral is something valuable you pledge to secure a loan. If you can't pay back the loan, the lender can take your collateral.

Compound interest is when you earn interest on your interest. Einstein allegedly called it the eighth wonder of the world, and for good reason.

Consumer discretionary refers to companies that sell things people want but don't necessarily need, like restaurants, cars, and entertainment. These stocks often do well when the economy is strong.

Consumer staples are companies that sell things people need regardless of how the economy is doing, like food, household products, and utilities. More stable but less exciting than discretionary stocks.

A corporate bond means you're lending money to a corporation by buying their bond. Riskier than government bonds but typically pays higher interest.

Credit is your ability to borrow money based on your track record of paying it back. Also refers to the actual borrowed money itself.

A credit report is a detailed history of how you've managed borrowed money. Lenders check this before deciding whether to loan you money.

A credit score is a three-digit number (usually 300-850) that summarizes your creditworthiness. Higher scores get better loan terms.

Cryptocurrency is digital money that's secured by complex computer codes. Bitcoin is the most famous, but there are thousands of others.

A custodian is a financial institution that holds and protects your investment assets. They're like a secure warehouse for your money.

A dark pool is a private trading system where big investors can buy and sell large amounts of stock without everyone else seeing their moves. It prevents their big trades from moving the market.

A day order is a buy or sell order that automatically expires at the end of the trading day if it hasn't been filled.

A dead cat bounce is a temporary price increase in a stock that's been falling. The name comes from the idea that even a dead cat will bounce if you drop it from high enough.

Debt is money you owe to someone else. It could be a mortgage, credit card balance, or student loan.

A deductible is the amount you pay out of pocket before your insurance starts covering costs. Higher deductibles usually mean lower premiums.

A defined benefit plan is a traditional pension where your employer promises you a specific monthly payment in retirement based on your salary and years of service.

A defined contribution plan is a retirement plan like a 401(k) where you and possibly your employer contribute money, but your final benefits depend on how well your investments perform.

A digital wallet is an app on your phone that stores your payment information so you can pay for things without pulling out a physical card.

Direct deposit is when your paycheck or other payments go directly into your bank account electronically instead of getting a paper check.

A distribution is money that a mutual fund or other investment pays out to its shareholders, either from income earned or profits from selling investments.

Diversification means not putting all your eggs in one basket. Spreading your investments across different types of assets to reduce risk.

A dividend is a cash payment that some companies make to their shareholders, usually quarterly. It's like getting paid for owning the stock.

A dividend reinvestment plan means instead of receiving dividend payments in cash, you automatically use them to buy more shares of the same stock.

Dividend yield is the annual dividend payment expressed as a percentage of the stock's current price. It tells you what kind of income the stock provides.

Dollar-cost averaging means investing the same amount of money at regular intervals regardless of whether the market is up or down. This helps smooth out the ups and downs.

Due diligence means doing your homework before making an investment. Research the company, understand the risks, and know what you're buying.

Earnings per share is a company's total profit divided by the number of shares outstanding. It tells you how much profit each share represents.

Emerging markets are developing countries with growing economies and stock markets. Higher potential returns but also higher risks than developed markets.

Equity means ownership. In stocks, it means owning a piece of a company. In real estate, it's the portion of your home's value that you actually own.

ESG is a way to evaluate companies based on their environmental impact, social responsibility, and how they're managed, not just profits.

Estate planning means getting your financial affairs in order so your assets are distributed according to your wishes when you die.

The ex-dividend date means if you buy a stock on or after this date, you won't receive the upcoming dividend payment. The previous owner gets it instead.

An exchange-traded fund is like a mutual fund that trades on the stock exchange like an individual stock. It usually tracks an index and has low fees.

The expense ratio is the annual fee that mutual funds and ETFs charge, expressed as a percentage of your investment. Lower is better for your returns.

FDIC insurance is government protection for your bank deposits up to $250,000 per account. If your bank fails, you don't lose your money.

The federal funds rate is the interest rate that banks charge each other for overnight loans. When this goes up or down, it affects all other interest rates.

A fiduciary is someone who is legally required to put your financial interests ahead of their own. Not all financial advisors are fiduciaries.

A fill-or-kill order is a stock order that must be completed immediately and in full, or it gets canceled entirely. No partial fills, no waiting.

Fintech refers to financial technology companies that use apps and digital tools to provide banking and investment services. Think Venmo, Robinhood, PayPal or Truthifi.

A front-end load is a sales fee you pay upfront when buying certain mutual funds. It reduces the amount of money that actually gets invested.

Futures are contracts to buy or sell something at a specific price on a future date. Originally used by farmers and commodity traders, now used by speculators.

Gross domestic product is the total value of everything a country produces in a year. It's the main way to measure how well an economy is doing.

A growth fund is a mutual fund that invests in companies expected to grow faster than average. Higher potential returns but usually more volatile.

A health savings account is a special savings account for medical expenses that comes with triple tax benefits. You can invest the money and use it for healthcare costs.

A hedge fund is an investment fund for wealthy investors that uses complex strategies to try to make money regardless of market conditions, typically charging high fees and requiring high minimum investments.

Home equity is the difference between what your home is worth and what you still owe on your mortgage. You can borrow against this through home equity loans.

Impact investing means investing in companies or funds that aim to create positive social or environmental change alongside financial returns.

An index fund is a mutual fund or ETF that simply buys all the stocks in a market index, like the S&P 500, offering low fees and broad diversification.

Inflation happens when the prices of goods and services increase over time. Your money loses purchasing power, which is why investing is important.

An initial public offering is when a private company sells shares to the public for the first time. The company goes from private to publicly traded.

Insurance provides protection against financial loss. You pay premiums, and if something bad happens, the insurance company pays for covered damages.

An interest rate is the price of borrowing money, expressed as a percentage. Higher rates make loans more expensive and savings more attractive.

Investment grade bonds are ones that rating agencies consider safe investments with low risk of default. They pay lower interest than junk bonds but are much safer.

Junk bonds are high-risk bonds that pay higher interest rates because there's a greater chance the issuer might not be able to pay you back.

Large-cap refers to big companies with market values over $10 billion. They're typically more stable but grow more slowly than smaller companies.

A letter of intent is a document where you commit to investing a certain amount of money over time to qualify for reduced fees on mutual funds.

A liability is money you owe or legal obligations you have. On a balance sheet, it's debts the company must pay.

A limit order is an order to buy or sell a stock only at a specific price or better. You get price control but might not get filled if the market doesn't reach your price.

Liquidity is how quickly and easily you can convert an investment to cash without significantly affecting its price. Cash is perfectly liquid; real estate is not.

A load is a sales fee charged by some mutual funds. Front-end loads are charged when you buy, back-end loads when you sell.

A management fee is what you pay investment managers for picking and managing your investments. Usually a percentage of your invested assets.

Market capitalization is the total value of a company's stock, calculated by multiplying share price by the number of shares outstanding.

A market order is an order to buy or sell a stock immediately at whatever the current market price is. You get speed but give up price control.

Market share is the percentage of total industry sales that a company captures. Higher market share often means competitive advantages.

Market timing means trying to predict when to buy and sell investments based on market movements. Sounds smart but is incredibly difficult to do successfully.

A merger happens when two companies combine to form one company. Usually one company absorbs the other.

Mid-cap refers to medium-sized companies with market values between $2-10 billion. They often offer a balance between growth potential and stability.

Mobile banking means managing your bank accounts through smartphone apps instead of going to a physical branch or website.

A money market account is a savings account that typically pays higher interest than regular savings but may require higher minimum balances and limit transactions.

A mortgage is a loan to buy real estate where the property itself serves as collateral. If you don't pay, the lender can take the property.

A mutual fund is a pooled investment where many people's money is combined and managed by professionals to buy a diversified portfolio of stocks, bonds, or other securities.

NASDAQ is one of the major U.S. stock exchanges, known for technology companies. It's completely electronic with no physical trading floor.

Net asset value is the per-share value of a mutual fund, calculated by dividing the fund's total assets minus liabilities by the number of shares outstanding.

Net worth is your total assets minus your total liabilities. It's the number that shows your overall financial position.

A no-load fund is a mutual fund that doesn't charge sales commissions when you buy or sell shares. You get more of your money actually invested.

An open-end fund is a mutual fund that can create new shares or redeem existing shares on demand. Most mutual funds work this way.

Options are contracts that give you the right to buy or sell a stock at a specific price within a certain time period. You can make or lose money quickly.

Ordinary income is income that's taxed at your regular income tax rates, like wages or interest. Different from capital gains, which often get better tax treatment.

An overdraft happens when you spend more money than you have in your account. Banks usually charge hefty fees for this privilege.

The P/E ratio is a stock's price divided by its annual earnings per share. It tells you how much investors are willing to pay for each dollar of company earnings.

Power of attorney is legal authority to make financial or other decisions for someone else. Useful if you become unable to manage your own affairs.

Preferred stock is a type of stock that pays fixed dividends and gets paid before common stockholders if the company goes bankrupt. Less upside potential than common stock.

A premium is what you pay for insurance coverage. Also, when something trades for more than its underlying value.

Principal is the original amount of money you invest or borrow, before any interest or returns.

Private equity means investment in companies that aren't publicly traded. Usually requires large minimum investments and long-term commitments.

Profit margin is the percentage of revenue a company keeps as profit after paying all expenses. Higher margins usually indicate more efficient companies.

A prospectus is a legal document that explains everything you need to know about an investment, including risks. It's long and boring but important.

A put option is a contract that gives you the right to sell a stock at a specific price within a certain time. You're betting the price will fall.

A real estate investment trust is a company that owns income-producing real estate and passes most of the rental income to shareholders as dividends.

Rebalancing means adjusting your portfolio back to your target asset allocation by selling investments that have grown too large and buying more of what's underweighted.

A redemption fee is a fee some mutual funds charge when you sell shares, usually to discourage short-term trading that can hurt long-term investors.

Refinancing means replacing your current loan with a new one, usually to get a better interest rate or different terms.

A registered investment advisor is a financial advisor who is registered with regulators and has a fiduciary duty to put your interests first.

The relative strength index is a technical indicator that measures whether a stock is overbought or oversold. Used by traders to time their buying and selling.

A required minimum distribution is the amount you must withdraw from retirement accounts each year starting at age 73.

Return on investment is a measure of how much profit you made relative to how much you invested. Higher ROI is better.

Revenue is the total amount of money a company brings in from selling its products or services before subtracting any expenses.

Risk is the possibility that your investment will lose money or not perform as expected. Generally, higher potential returns come with higher risk.

A robo-advisor is an automated investment service that uses computer algorithms to manage your portfolio based on your goals and risk tolerance.

A Roth IRA is a retirement account where you pay taxes on contributions now but withdrawals in retirement are tax-free. Great for younger investors.

A routing number is a nine-digit number that identifies your bank for electronic transactions like direct deposits and wire transfers.

The S&P 500 is a stock market index that tracks 500 of the largest U.S. companies. It's often used as a benchmark for the overall stock market.

A savings account is a basic bank account that earns interest on your deposits. Safe and liquid but typically offers low returns.

The SEC is the federal agency that regulates the investment industry and protects investors from fraud.

A sector fund is a mutual fund that focuses on companies in a specific industry, like technology or healthcare. More concentrated and therefore riskier than diversified funds.

The Sharpe ratio is a measure that shows how much extra return you get for the additional risk you take. Higher Sharpe ratios are better.

Short selling means borrowing shares and selling them immediately, hoping to buy them back later at a lower price. You make money when stocks fall.

Small-cap refers to small companies with market values under $2 billion. They often have more growth potential but are also riskier than large companies.

The spread is the difference between the bid and ask prices for a stock. Wider spreads usually mean less liquid investments.

Standard deviation is a statistical measure of how much an investment's returns vary from its average return. Higher standard deviation means more volatility.

A stock is a share of ownership in a company. When you buy stock, you become a partial owner and can profit from the company's success.

A stop-loss order is an order that automatically sells your stock if it drops to a certain price. It's designed to limit your losses on a declining stock.

Street name means your broker holds your stocks in their name on your behalf rather than issuing certificates directly to you. This is how most stocks are held today.

Sustainable investing means investing in companies that consider environmental, social, and governance factors, not just profits.

A systematic investment plan is an automated way to invest the same amount of money at regular intervals, like monthly or quarterly.

A target-date fund is a mutual fund that automatically adjusts its mix of stocks and bonds as you get closer to retirement. The "target date" is when you plan to retire.

A tax credit is a dollar-for-dollar reduction in the taxes you owe. Much better than a tax deduction, which only reduces your taxable income.

A tax deduction is an expense that reduces your taxable income. The benefit depends on your tax bracket.

Technical analysis means trying to predict future stock prices by studying charts and trading patterns. Popular with day traders but questioned by many academics.

Term life insurance is life insurance that covers you for a specific period, like 20 years. Cheaper than permanent life insurance but has no cash value.

Total return is your complete investment return including price appreciation, dividends, and interest. It's the most comprehensive measure of performance.

Tracking error measures how much a fund's returns differ from its benchmark index. Lower tracking error means the fund more closely follows its index.

A traditional IRA is a retirement account where you get a tax deduction for contributions now but pay taxes on withdrawals in retirement.

A transfer agent is the company that keeps track of who owns shares in a mutual fund or stock and handles transactions.

Treasury bills are short-term government IOUs that mature in a year or less. Considered the safest investment because they're backed by the U.S. government.

Treasury bonds are long-term government IOUs that mature in 10-30 years. Safe but sensitive to interest rate changes.

Treasury notes are medium-term government IOUs that mature in 2-10 years. A middle ground between bills and bonds.

A trust is a legal arrangement where one person manages assets for the benefit of someone else. Often used in estate planning.

The turnover ratio measures how frequently a mutual fund buys and sells its holdings. High turnover can mean higher costs and taxes.

An umbrella policy is extra liability insurance that kicks in after your regular insurance limits are exhausted. Provides broader protection for a relatively low cost.

An underwriter is an investment bank that helps companies go public by buying their shares and reselling them to investors.

A unit investment trust is an investment fund with a fixed portfolio that doesn't change until the trust terminates, making it less flexible than mutual funds.

A value fund is a mutual fund that invests in stocks the manager believes are undervalued by the market. The opposite approach from growth investing.

Venture capital is money invested in early-stage companies with high growth potential. Very risky but can offer huge returns if the companies succeed.

Vesting is the process of earning the right to employer contributions to your retirement plan. You might be 20% vested after one year, 100% vested after five years.

Volatility is how much an investment's price bounces around. High volatility means big price swings up and down.

Volume is the number of shares of a stock that trade during a specific period. High volume often indicates strong investor interest.

A wash sale happens when you sell an investment at a loss and buy it back within 30 days. The IRS won't let you claim the tax loss in this case.

Weighted average market cap is the average size of companies in a fund, adjusted for how much of each stock the fund owns. Tells you if the fund focuses on large or small companies.

A wire transfer is a fast way to send money electronically between banks. Usually costs more than other transfer methods but arrives quickly.

A yield curve is a graph showing interest rates for bonds of different maturities. Its shape can indicate what investors expect about future economic conditions.

Yield to maturity is the total return you'll receive if you hold a bond until it matures, assuming all payments are made as promised.