Investing Terms

By Nathan Goodwin


Someone recently told me he enjoyed following the stock market, but he didn’t understand much of the terminology that comes up in conversation and on TV. I’m sure he’s not alone. Below is a list of basic investment terms. Take a minute to test yourself and brush up on your investing vocabulary.

Should any of these terms raise questions about your personal investments, please feel free to give us a call or set up an appointment at your convenience.

Alpha – The return of an investment adjusted for risk.

Back-End Load Mutual Fund – Additional charges and fees paid out annually rather than initially, unless money is withdrawn early, then a surrender charge or deferred sales charge takes affect.

Balanced Fund – A mutual fund that invests in both stocks and bonds.

Bear Market – A declining market.

Beta – The measure of the volatility of an investment in comparison to the market as a whole.

Blue Chip Stocks – Shares of a large, mature company with a steady record of profits and dividends and a high probability of continued earnings.

BondA long term promissory note, prices go up when interest rates go down.

Bull Market – A rising market.

Long Term Capital Gains – The difference between an asset’s purchase price and selling price, on holdings of more than 12 months.

Capital Preservation – Protecting the initial investment from loss of principal, typically accomplished by investing in conservative or guaranteed vehicles.

Closed-End Mutual Fund – Issues a limited number of shares and does not redeem those that are outstanding. Trades at a premium or discount to NAV as share prices determined by pressures of supply and demand.

Cost Basis – Original price of an asset, used in determining capital gains. It usually is the purchase price, but in the case of an inheritance it is the appraised value of the asset at the time of the donor’s death.

Distribution – Pay out of realized capital gains on securities in the portfolio of the fund or closed end investment company.

Diversification – Spreading of risk by putting assets in several categories of investments or with a broad range of stocks in one portfolio.

Dividend – A share of a company’s net profits distributed by the company to its stockholders.

Dollar Cost Averaging – A formula-investment plan requiring periodic fixed-dollar-amount investments. This practice tends to average the unit cost of an investment over time.

Dow Jones Industrial Average – The most popular and widely used measure of the US stock market. It consists of a price-weighted list of 30 highly-traded Blue Chip companies.

Emerging Markets – Developing foreign markets, involving greater volatility and higher risk than established markets.

Equities – A stock or other security representing an ownership interest.

Growth stocks – Investments that will provide capital appreciation over the long-term.

Index Fund – A fund whose portfolio is matched to an index, such as S & P, and whose performance therefore mirrors the market as a whole.

Inflation Protection – Investing a portion of the portfolio in growth stocks or funds in order to keep up with the rise in the price of goods and services.

Junk Bonds – High-risk bonds, usually promising a very high indicated return coupled with a larger risk of default.

Load Fund – Mutual fund with shares sold at its NAV plus a sales charge (typically 4-8%) of the net amount invested.

Long Position – The ownership of stocks or other securities, as opposed to a short position where one has sold securities that are not owned and want the price to go down.

Money-Market Account – An interest bearing account where cash is held, generally a safer haven.

Municipal Bond – A debt security issued by a state, municipality or county to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes.

Mutual Fund – An investment company that combines the money from a large group of investors to buy stocks and other investments.

Net Asset Value (NAV) – The per-share market value of a mutual fund’s portfolio.

No-Load Fund – A fund whose shares are bought and sold directly at the fund’s NAV. Unlike a load fund, no agent or sales fee is involved, true no loads avoid deferred sales charges and 12b-1 fees.

Penny-Stock – Low-priced stocks, usually considered under $1 per share, but sometimes includes stocks below $3.

Portfolio – A holding of one or more securities by a single owner (institution or individual).

Preferred Stock – Shares whose indicated dividends and liquidation values must be paid before common shareholders receive any dividends or liquidation payments.

Prospectus – An official document that all companies offering new securities for public sale must file with the SEC.

S&P 500 – The Standard and Poors 500 is an index made up of five hundred different stocks. The index is weighted for market capitalization. It is the benchmark for the overall market, and frequently used as the standard of comparison in terms of investment performance.

Securities – Paper assets representing a claim on something of value, such as stocks, bonds, mortgages, etc.

Stock – Ownership shares in a corporation.

Stock Split – A securities transaction exchange whereby each shareholder ends up with more shares representing the same percentage of the firm.

Total Rate of Return – An annual return on an investment including appreciation and dividends or interest.

Volatility – Characteristic of a security, commodity, or market to rise or fall sharply in price within a short period of time.

Yield – The return of an investment expressed as a percentage of its market value.

*Definitions taken from

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