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| A Micro-Glossary of Investing Terms:
a, b, c, d, e, f, g, h, i, j, k, l, m, n, o, p, q, r, s, t, u, v, w, x, y, z. |
| The Four Pillars of Investing : Lessons for Building a Winning Portfolio
by William J. Bernstein. Explains how to construct an investment portfolio that will let you sleep at night, give you a return on your investment, and protect you from the sharks of the financial community. Read our review on The Four Pillars of Investing. |
| The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk
by Neurologist William J. Bernstein Read our review on The Intelligent Asset Allocator. |
a.
aggressive growth funds. Mutual funds that invest in small, emerging companies that the fund manager believes to offer maximum growth potential.
appreciation. An increase in an investment's value.
assets. Possessions with present or future economic value to the owner.
b.
back-end. Back-end load funds charge a commision to sell fund shares.
balanced funds. Mutual funds that invest in both stocks (for their growth potential) and bonds (for their relative stability).
basis. The original price paid by an investor.
bear market. A declining stock market.
beta. A risk measure, in terms of statistical volatility of a stock relative to the overall stock market.
bid price. The price at which shares are bought on the market. This is usually the NAV.
Blue chip stocks. Stock in large and well established companies, viewed as relatively safe investments; usually pay good dividends.
bond. An IOU issued by a corporation, government agency, or municipality. In purchasing a bond, you lend money to the issuer of this investment vehicle. In exchange, the issuer pays you interest, a fixed income at regular intervals for a fixed time until maturity of the bond, and then repays the loan at the bond's maturity at a pre-agreed maturity date. The principal types of bond are:
broker. Buyer or seller of securities on behalf of clients.
bull market. A rising stock market.
c.
capital appreciation/depreciation. An increase or decrease in the value of an investment, such as a mutual fund portfolio of securities, compared to its original purchase price.
capital gain/loss. The difference between the sale price of an asset (a bond, mutual fund, stock, etc.) and the original asset cost.
capital gains. The profit made when a security is sold at a higher price than was paid for it. In mutual funds, payments to mutual fund shareholders of their portion of the profits from the sale of securities in the fund's portfolio. Usually distributed annually, instead of at the time that the security was sold.
capital gains distribution. A payment to an investor in a mutual fund of profits on the sale of securities within the fund's portfolio.
capital return. Gain or loss in the price of your investment. Influenced primarily by change in interest rates, as in this sample:
| Maturity | Rates rise 8% to 9% | Rates fall 8% to 7% |
| 2 year (short-term) | -2% | +2% |
| 5-year (intermediate term) | -4% | +4% |
| 10-year (long term) | -7% | +7% |
capitalization. An approximation of a company's value, calculated by multiplying the price per share by the total number of company stock shares that are outstanding.
| Small-cap (Small capitalization) | Mid-cap | Large-cap |
| Market capitalization below $1B | Market capitalization between $1B and $5B | Market capitalization over $5B |
cash equivalents. An increase or decrease in the value of an investment, such as a mutual fund portfolio of securities, compared to its original purchase price.
certificate of deposit (CD). A deposit made (usually to a bank) for a specified period of at least one month and at most perhaps 7 years. The deposit is repaid at the end of that period. Early withdrawal is possible at a cost.
Corporate bonds. Issued by large and small corporations. A credit rating indicates the bond's risk. When interest rates fall, a corporate bond may be redeemed early and the debt refinanced.
current assets. Everything that an investor or firm owns and that can be invested quickly. Current liabilities are paid from current assets.
current liabilities. Debts due in one year or less. They are paid by current assets.
custodian. An organization that holds assets (securities and cash) in safekeeping.
d.
depreciation. A decline in investment's value.
distribution. The payment of dividends and capital gains.
diversification. The allocation of investments among diverse securities (stocks, bonds, money market funds) in order to reduce overall risk of investing money.
dividend. A payment or distribution of income or earnings by securities of stock or bonds.
dividend yield. A dividend. as a percentage of a bond or a mutual fund's offering price or NAV.
e.
Emerging stocks. Also known as speculative stocks. Stock in young, small companies with unestablished histories.
equity. Net worth of a company after subtracting liabilities from assets.
ex-dividend date. For a fund, the date when declared income dividends and/or capital gains distributions are deducted from a fund's assets before it calculates its NAV.
expense ratio. The cost of doing business, such as for a mutual fund; usually expressed as the percent of a fund's average net assets. This pays its annual expenses and reduces return to the investors. In includes management fees, administrative fees, and 12b-1 fees.
f.
fiscal. [Lat. fiscus (purse)] Of or pertaining to the treasury or finances of a government.
Foreign bonds. Foreign companies and governments issue bonds at various maturities to global investors. They are subject to the additional risks of currency fluctuations and political uncertainties abroad (while escaping politican uncertainties in the U.S.A.).
front-end. Front-end load funds charge a commision to buy fund shares.
g.
GDP. Gross domestic productivity.
global funds. Mutual funds that concentrate their investments in companies outside the U.S.A.
Government agency bonds. Issued by mortgage-related agencies (like GNMA (the Government National Mortgage Association)) and by the Federal Farm Credit System. Not always backed by the federal government but considered a relatively safe bond investment.
growth and income funds. Mutual funds that invest in stocks of well-established companies that pay dividends reliably.
growth funds. Mutual funds that invest in stock of relatively established companies. The primary goal of such funds is to increase the value of your stock rather than to generate a flow of dividends.
Growth stocks. Stock in companies believed to have strong growth potential, particularly by being in established businesses that are expanding into new areas or increasing their sales in other ways.
h.
Housing Starts This economic indicator is reported monthly and shows the number of new houses that were worked on that month.
i.
income dividend. Money paid to fund shareholders of stock dividends and bond interest generated by the securities of the fund. Operating expenses are deducted before payment.
Income stocks. Stock in companies that pay out the majority of their earnings to shareholders in the form of dividends. Once utilities and banks were in this category, but some (like PGE) have cancelled dividends. Speculative stocks.
indicators. The health of the economy is summarized by various summaries that suggest the health of the economy. The main indicators are:
CES (Current Employment Statistics) This economic indicator
Consumer Confidence Survey This economic indicator
CPI (Consumer Price Index) This economic indicator
GDP (Gross Domestic Product) This economic indicator
Manufacturing and Trade Inventories and Sales This economic indicator
M2 (Money supply) This economic indicator
PPI (Producer Price Index) This economic indicator
Retail Trade Sales and Food Services Sales This economic indicator
S&P 500 Stock Index This economic indicator
interest. Money paid in return for the use of borrowed money.
international funds. Mutual funds that concentrate their investments in companies outside the U.S.A.
j.
k.
l.
liabilities. Debts; financial obligations.
liquidity. Extent to which an asset can be converted into cash without significant loss compared to the current value.
load. Sales charge. The percentage of an investment charged to the investor when you buy shares in a mutual fund.
m.
management fee. Annual expense paid by investor in a mutual fund to its investment advisors.
market capitalization. An estimate of the size and value of a company. Calculated by multiplying a company's share price by the total number of shares in the company. Mutual funds are categorized by the market capitalization of companies that they hold.
maturity. The date when the principal of a bond becomes due and payable. Bond funds have an "average-weighted" maturity.
monetary. [Lat. monetaris (of a mint)] Of or pertaining to coinage or currency.
money market fund. An investment fund of (mainly) short-term fixed obligations. Highly liquid. A relatively secure place to put monry, but not insured or guarenteed by the U.S.A. government.
municipal bond. Debt instrument issued by state or local government and exempt from federal income tax. Usually long-term debt. Often exempt from state income tax in the state where the bond is issued.
mutual fund. A pool of money invested in stocks and bonds.
Funds are categorized by their objectives and the following lists them in what is often perceived as decreasing level of risk:
n.
NAV. Net asset value.
no-load funds. Mutual funds that investors may buy or sell without sales charges.
net working capital. The difference between current assets and current liabilities. For a company, if this decreases over a series of years, there may be a liquidity problem.
net worth. The difference between one's assets and liabilities.
no-load. A mutual fund selling its shares at NAV without any front-end or back-end sales charges.
o.
offering price. For a share, it's the NAV plus sales charges.
p.
portfolio manager. The person in charge of decisions on buying, selling, and tracking the assets in a mutual fund's portfolio, and to ensure that a fund's investments objectives are met.
portfolio turnover. Percentage of a mutual fund's value that is bought/sold during a year. It is said that high portfolio turnover sometimes indicates "churning" to benefit the fund organizers with extra transaction charges.
principal. The money originally put into the original investment.
prospectus. The legal document describing (to prospective and current shareholders) a mutual fund's investment policies, operating expenses, operating policies, and procedures.
q.
r.
rate of return. Expected interest or dividend on and investment, plus its appreciation if it is a property or a security.
recession. GDP slightly below 0%.
recovery, slow. See slow recovery.
return. The dividends received over the lift of the investment plus what the investment was sold for minus your basis.
risk. The uncertainty or variability in return of an investment. The possibility of losing money or gaining less than anticipated. Includes:
s.
SEC. Securities and Exchange Commission. A federal agency that is supposed to regulate mutual funds. It is not clear in late 2003 to what extent the SEC has ethical responsibility for some of the ethical failures being investigated by the New York Attorney General.
safety. An optimist's or salesman's euphemism for the level of risk involved in an investment.
sell price. The price at which shares are sold on the market. This is usually the NAV.
share. A unit of ownership in a mutual fund, corporation, or partnership.
slow recovery. GDP slightly above 0%.
socially responsible investment. Investments that will have a social benefit. Co-op America has suggested government securities issued by a housing agency or the Student Loan Marketing Association. They say, "These bonds support worthy causes, offer safety, and pay better yields than regular treasury bonds."
speculative stocks. Also known as emerging stocks. Stock in young, small companies with unestablished histories.
stocks. Also called equities. Represent partial ownership of a corporation. The principal types of stock are:
stock holders' equity. The difference between total assets and total liabilities.
t.
T-bills. Treasury bills. Government issued securities that offer a guaranteed rate of return. Backed by the Treasury.
tax bracket creep. When increasing accumulated returns push the investor into a higher tax bracket.
taxable equivalent yield. The yield that an investor would have to learn on a taxable investment so that she obtains the same yield as on a tax-free investment. Calculate it by dividing the tax-free investment rate (say 5%) by "1 minus the marginal tax rate" (say 1-30% = 70%): 5%/.7 ~ 7.1%.
tax shelter. An investment that lets the investor protect her money from taxes. e.g., municipal bonds.
total return. The percentage change of the value of an investment over a given period. It assumes that all distributions (capital gains and income dividends) are reinvested and includes the change in the market value of the investment.
trust. A formal agreement where a person (or organization) holds title to property and administer it and its income according to the terms agreed when the trust was established.
u.
U.S. government bonds. Issued by the U.S. Treasury as:
v.
Value stocks. Stock in companies that are considered to be temporarily undervalued. People who shop and read the newspapers will have their guesses of what are value stocks. The sellers of mutual funds often claim that they deserve high fees because they have an inner eye, voodoo, or a scientific analysis that gives them the secrets of what stock are undervalued.
w.
x.
y.
yield. Rate of return of an investment over a year (or other period of time). For a bond, take the coupon rate of interest. For a stock, take the dividend paid per share. Divide by the basis - the purchase price paid.
z.
12b-1 fees. Fees charged by some funds to pay for distribution costs. This includes the commissions paid to dealers, as well as for advertising.
| A Micro-Glossary of Investing Terms:
a, b, c, d, e, f, g, h, i, j, k, l, m, n, o, p, q, r, s, t, u, v, w, x, y, z. |
|
| The Four Pillars of Investing : Lessons for Building a Winning Portfolio
by William J. Bernstein. Explains how to construct an investment portfolio that will let you sleep at night, give you a return on your investment, and protect you from the sharks of the financial community. Read our review on The Four Pillars of Investing. |
|
| The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk
by Neurologist William J. Bernstein Read our review on The Intelligent Asset Allocator. |