Frequently Used Terms
Financial Terms, Made Clear
Plain-English definitions to support confident decisions.
Our industry vernacular can be difficult to navigate. This glossary is designed to build your understanding of financial terms and concepts so you can make informed decisions and get the most out of working with your advisor—reflecting our commitment to clarity and transparent communication.
Investment Glossary (Plain-English, Professional Definitions)
A concise reference to common investing terms and concepts. Use this to clarify language in proposals, reports, and reviews.
Roles & Approaches
Fiduciary
A person or entity legally obligated to act in a client’s best interest when managing assets or providing advice.
Formula Investing
An investment method that follows preset rules (for allocation and/or timing) rather than discretionary judgment.
Quantitative Trading
Rules-driven trading that uses statistical models and large data sets to identify and execute opportunities.
Securities & Investment Vehicles
Securities
Tradable financial instruments representing value or ownership, such as stocks, bonds, ETFs, and derivatives.
Stocks (Equities)
Fractional ownership in a company, with potential for dividends and capital appreciation.
Bonds
Debt instruments through which investors lend money to issuers (corporate or governmental) in exchange for interest and principal at maturity.
Mutual Funds
Pooled investments managed by professionals to meet stated objectives; priced once daily and subject to fund expenses.
ETFs (Exchange-Traded Funds)
Pooled funds that trade intraday like stocks; may track indexes or be actively managed. Typically lower expense ratios than comparable mutual funds.
Leveraged ETFs
ETFs designed to deliver a multiple (e.g., 2× or 3×) of daily index returns. Exposure resets daily and can deviate over longer periods; volatility can be high.
Portfolio Basics & Risk
Portfolio
A collection of investments structured to pursue goals within a stated risk tolerance and time horizon.
Risk Tolerance
An investor’s ability and willingness to endure fluctuations and potential loss in pursuit of returns.
Risk Premium
The expected excess return for taking on risk above the risk-free rate.
Systematic vs. Unsystematic Risk
Systematic: market-wide risks (e.g., rate changes) that affect most assets. Unsystematic: asset- or industry-specific risks that diversification can reduce.
Diversification
Mixing assets across issuers, sectors, and styles to reduce unsystematic risk and smooth outcomes.
Asset Allocation
Apportioning a portfolio among asset classes to balance risk and return for objectives and horizon.
Measures & Metrics
Standard Deviation
A statistical measure of variability in returns; higher values indicate greater volatility around the average return.
Sharpe Ratio
Risk-adjusted return: (portfolio return − risk-free rate) ÷ standard deviation.
Beta
Sensitivity of an asset’s returns to movements in a benchmark (≈1 moves with the market; >1 more volatile; <1 less volatile).
Dividend
A company’s cash distribution to shareholders, typically from earnings or cash flow.
Dividend Yield
Annual dividends per share ÷ current share price; context for income, not a guarantee.
Market Capitalization
Share price × shares outstanding; common groupings: small-, mid-, and large-cap.
Trading & Technicals
Long vs. Short
Long: benefit from price rises. Short: sell borrowed securities aiming to repurchase lower; carries unique risks.
Overbought / Oversold
Conditions suggesting prices have risen or fallen too far, too fast relative to recent trends.
Technical Analysis
Evaluation using price, volume, and patterns to inform timing and risk management.
Moving Average
Average price over a defined lookback (e.g., 50-day); used to assess trend direction.
Golden Cross
A shorter moving average crossing above a longer one (often seen as bullish).
Divergence / Rounding Bottom / MFI
Examples of technical concepts: indicator vs. price mismatch (divergence), U-shaped base (rounding bottom), and a momentum/volume-weighted indicator (Money Flow Index).
Markets, Instruments & Strategy
Bull / Bear Market
Bull: broadly rising prices. Bear: broadly falling prices.
Asset Class
Group of investments with similar characteristics/behavior (e.g., equities, fixed income, cash).
Volatility
The degree of variation in returns over time; a common risk proxy.
Market Index
A basket of securities representing a market segment (benchmark/passive uses).
Hedging
Taking an offsetting position to reduce adverse price impacts.
Cash Equivalents
Highly liquid, short-term instruments (e.g., T-bills, money markets).
Fixed Income & Specialty
Debt Securities
Corporate/government obligations that pay interest and return principal at maturity.
High-Yield Corporate Debt
Below-investment-grade bonds that offer higher yields with higher default risk.
REIT
Companies that own/operate/finance real estate; often distribute a large share of income.
ADR
U.S.-traded certificates representing shares of non-U.S. companies.
Planning Concepts
Capital Appreciation
Increase in an asset’s market value over the purchase price.
Aggressive vs. Conservative Investing
Aggressive: higher return target with higher volatility. Conservative: capital preservation and steadier outcomes.
Monte Carlo Simulation
Modeling technique estimating probabilities via repeated random trials.
FNA (Financial Needs Analysis)
Comprehensive review of finances, goals, risk tolerance, and horizon to inform strategy.
Net Worth
Assets minus liabilities.
Black Swan Event
Rare, unpredictable event with major market impact.
Retirement & Benefits
Qualified Plan
A retirement plan meeting IRS requirements and receiving tax advantages.
Non-Qualified Plan
A plan that does not meet qualified standards; typically lacks the same tax advantages and follows different rules.
Note: Definitions are educational and simplified. Investing involves risk, including loss of principal. Consider objectives, risk tolerance, fees, and time horizon before investing.
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