▪ INVESTMENT TERMS GLOSSARY ▪
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Active Management – An investment strategy where a portfolio manager makes specific investments with the goal of outperforming a benchmark index.

Adjusted Basis – The original cost of an asset, modified by improvements, depreciation, and other factors, used to calculate capital gains or losses.

Aggressive Growth Fund – A mutual fund that seeks maximum capital gains by investing in high-risk, high-potential stocks, often in emerging industries.

Allocation – The process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash, to manage risk and return.

Alpha – A measure of an investment’s performance on a risk-adjusted basis, representing the excess return compared to a benchmark index.

Amortization – The gradual reduction of a debt over time through regular payments, or the spreading of an intangible asset’s cost over its useful life.

Annual Report – A comprehensive report on a company’s activities and financial performance throughout the preceding year, provided to shareholders.

Annuity – A financial product that provides regular payments to an individual, typically used for retirement income, often purchased through insurance companies.

Appreciation – The increase in the value of an asset over time, due to market demand, economic factors, or company performance.

Arbitrage – The practice of taking advantage of a price difference between two or more markets by buying low in one and selling high in another.

Asset – Anything of value owned by an individual or entity that can be converted into cash, including stocks, bonds, property, and equipment.

Asset Allocation – An investment strategy that aims to balance risk and reward by distributing investments across various asset classes.

Balance Sheet – A financial statement that shows a company’s assets, liabilities, and shareholders’ equity at a specific point in time.

Basis Point – A unit of measurement equal to one one-hundredth of a percent (0.01%), commonly used to describe changes in interest rates or yields.

Bear Market – A market condition characterized by a prolonged decline in investment prices, typically 20% or more from recent highs.

Benchmark – A standard or index against which the performance of a security, mutual fund, or investment manager is compared.

Beta – A measure of a stock’s volatility in relation to the overall market; a beta above 1 indicates higher risk and potential return.

Bid-Ask Spread – The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask).

Blue Chip Stock – A stock from a well-established, financially sound company with a reliable performance record, often paying regular dividends.

Bond – A fixed-income investment where an investor loans money to an entity (corporate or government) in exchange for periodic interest payments and return of principal at maturity.

Book Value – The net value of a company’s assets as recorded on the balance sheet; calculated as total assets minus total liabilities.

Broker – A person or firm that facilitates the buying and selling of securities for clients and may also offer investment advice.

Bull Market – A market condition in which prices are rising or are expected to rise, often fueled by investor confidence and strong economic indicators.

Buy and Hold – An investment strategy that involves purchasing securities and holding them for a long period, regardless of market fluctuations.

Capital Gain – The profit made from selling an asset at a higher price than its purchase cost; may be short-term or long-term depending on holding period.

Capital Loss – The loss incurred when an asset is sold for less than its purchase price; can be used to offset capital gains for tax purposes.

Capital Market – A financial market where long-term debt or equity-backed securities are bought and sold, such as stock or bond markets.

Cash Flow – The total amount of money being transferred into and out of a business, investment, or project, especially in relation to liquidity.

Certified Financial Planner (CFP) – A professional certification for financial planners who meet education, experience, and ethical requirements and pass a comprehensive exam.

Closed-End Fund – An investment fund with a fixed number of shares that are traded on an exchange, differing from mutual funds which issue and redeem shares on demand.

Commission – A fee paid to a broker or advisor for executing a trade or providing investment advice, usually a percentage of the transaction amount.

Commodities – Basic goods used in commerce that are interchangeable with other goods of the same type, such as oil, gold, or wheat.

Compound Interest – Interest calculated on both the original principal and on the accumulated interest from previous periods.

Consumer Price Index (CPI) – A measure that examines the weighted average of prices of a basket of consumer goods and services; used to gauge inflation.

Convertible Bond – A type of bond that can be converted into a predetermined number of shares of the issuing company’s stock.

Correction – A short-term decline in stock market prices, typically defined as a drop of 10% or more from a recent peak, often seen as a natural market adjustment.

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Day Trading – The practice of buying and selling financial instruments within the same trading day, often to capitalize on short-term market movements.

Debenture – An unsecured debt instrument backed only by the creditworthiness of the issuer, not by collateral.

Debt-to-Equity Ratio – A financial ratio that compares a company’s total debt to its shareholders’ equity, used to evaluate financial leverage.

Default – The failure of a borrower to meet the legal obligations of a loan, such as missing a scheduled payment.

Defensive Stock – A stock that tends to remain stable or perform well during economic downturns, often from sectors like utilities or consumer staples.

Deflation – A decrease in the general price level of goods and services, often associated with reduced consumer spending and economic slowdown.

Derivatives – Financial contracts whose value is derived from the performance of an underlying asset, index, or rate, such as options or futures.

Diversification – A risk management strategy that mixes a wide variety of investments within a portfolio to reduce exposure to any single asset or risk.

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

Dividend Yield – A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.

Dow Jones Industrial Average (DJIA) – A widely followed stock market index that tracks 30 large, publicly owned U.S. companies.

Duration – A measure of the sensitivity of a bond’s price to changes in interest rates; higher duration means greater sensitivity to rate changes.

Earnings Per Share (EPS) – A company’s net profit divided by the number of outstanding shares; a key indicator of a company’s profitability.

Economic Indicator – A statistic used to gauge the overall health of the economy, such as GDP, unemployment rate, or inflation figures.

Efficient Market Hypothesis (EMH) – The theory that all known information is already reflected in stock prices, making it impossible to consistently outperform the market.

Emerging Markets – Nations with developing economies that are progressing toward becoming advanced, often offering high growth potential along with higher risk.

Equity – The value of an ownership interest in a company, typically represented by shares of stock.

Equity Fund – A mutual fund or ETF that invests primarily in stocks, aiming for capital appreciation and/or dividend income.

Escrow – A financial arrangement where a third party holds funds or assets on behalf of two other parties until certain conditions are met.

Estate Planning – The process of organizing and managing an individual’s asset base in the event of incapacitation or death, including wills and trusts.

ETF (Exchange-Traded Fund) – An investment fund traded on stock exchanges that holds a diversified portfolio of assets and typically tracks an index.

Eurobond – A bond issued in a currency not native to the country where it is issued, often used by multinational corporations to raise capital globally.

Ex-Dividend Date – The cutoff date on which a stock begins trading without the value of its next dividend payment; investors who buy on or after this date do not receive the dividend.

Expense Ratio – The annual fee expressed as a percentage of assets that mutual funds and ETFs charge to cover management and administrative costs.

Fair Value – The estimated worth of an asset, based on a rational calculation or market comparison, rather than its current market price.

Fiduciary – An individual or organization legally obligated to act in the best interests of another party, such as a financial advisor managing client funds.

Financial Advisor – A professional who provides financial planning, investment advice, and portfolio management services to clients.

Financial Statement – Formal records of a company’s financial activities, including the income statement, balance sheet, and cash flow statement.

Fixed Income – Investments that provide regular, set payments, such as bonds or preferred stocks, typically offering lower risk than equities.

Float – The total number of a company’s shares that are available for trading by the public, excluding restricted shares.

Foreign Exchange (Forex) – The global marketplace for buying and selling national currencies.

Forward Contract – A customized agreement between two parties to buy or sell an asset at a specified future date and price.

Fundamental Analysis – The evaluation of a company’s financial health and business prospects to determine the intrinsic value of its stock.

Futures Contract – A standardized contract traded on an exchange to buy or sell an asset at a predetermined price on a specific future date.

Futures Market – A marketplace where futures contracts are bought and sold, used for hedging or speculation.

F volatility – The degree of variation of a trading price series over time, often measured by standard deviation or variance; indicates risk.

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Gains – The increase in value of an asset or investment over time. Gains can be realized (sold for profit) or unrealized (value increased but not yet sold).

Gearing – A financial ratio that compares a company’s debt to its equity. High gearing means a company relies more on borrowing, which can increase risk and returns.

General Obligation Bond – A municipal bond backed by the credit and taxing power of the issuer (like a city or state), rather than specific revenues from a project.

Geopolitical Risk – The risk of investment losses due to political instability or conflict in a country or region, such as war, elections, or sanctions.

Gilts – UK government bonds, considered low-risk securities. Similar to U.S. Treasury bonds, they are used to finance public spending.

Global Depositary Receipt (GDR) – A certificate issued by a bank that represents shares in a foreign company, allowing international investors to trade in global markets.

Global Fund – A mutual fund or ETF that invests in assets across multiple countries, including the investor’s home country.

Going Public – The process by which a private company offers its shares to the public for the first time through an Initial Public Offering (IPO).

Golden Parachute – A large financial compensation package given to top executives if they are terminated due to a merger or takeover.

Good ‘Til Cancelled (GTC) Order – A type of order to buy or sell a security that remains active until executed or manually cancelled, instead of expiring at the end of the trading day.

Growth Investing – An investment strategy focused on buying stocks of companies expected to grow at an above-average rate compared to others.

Growth Stock – A share in a company expected to grow earnings significantly faster than the market average. Often reinvests profits rather than paying dividends.

Hard Asset – A tangible asset with intrinsic value such as real estate, precious metals, or commodities, often used to hedge against inflation.

Hedge – An investment made to reduce the risk of adverse price movements in an asset, typically by taking an offsetting position.

Hedge Fund – A private investment fund that uses a range of strategies, including leverage and short selling, to seek high returns for wealthy investors.

High-Frequency Trading (HFT) – A form of algorithmic trading that uses powerful computers to execute a large number of orders at extremely high speeds.

High-Yield Bond – A bond with a lower credit rating and higher risk of default, offering a higher return to compensate for the added risk; also called a junk bond.

Holding Period – The amount of time an investor owns an asset between its purchase and its sale.

Holding Company – A company that owns enough voting stock in other companies to control their policies and management, without directly producing goods or services itself.

Horizontal Merger – A merger between two companies that operate in the same industry and are usually direct competitors.

Hostile Takeover – An acquisition attempt by one company to purchase another without the approval of the target company’s management or board.

Hot Issue – A newly issued stock or IPO that is in high demand and likely to trade above its offering price once listed.

Household Equity – The portion of household net worth that is held in the form of equities (stocks), used as an indicator of market exposure.

Hybrid Security – A financial instrument that combines features of both debt and equity, such as convertible bonds or preferred shares.

Illiquid Asset – An asset that cannot easily be sold or exchanged for cash without a substantial loss in value, such as real estate or collectibles.

Income Fund – A mutual fund or ETF that focuses on generating regular income for investors, typically through dividends or interest payments.

Income Stock – A stock that pays regular and often high dividends, providing steady income to shareholders rather than focusing on growth.

Index – A statistical measure that tracks the performance of a group of assets, such as the S&P 500 or the Dow Jones Industrial Average.

Index Fund – A type of mutual fund or ETF designed to replicate the performance of a specific market index, offering broad market exposure with low costs.

Inflation Risk – The danger that the purchasing power of returns will be eroded over time due to rising prices, reducing real investment gains.

Initial Coin Offering (ICO) – A fundraising method in the cryptocurrency industry where investors buy tokens in exchange for funding a new blockchain project.

Initial Public Offering (IPO) – The first time a private company offers its shares to the public on a stock exchange to raise capital.

Insider Trading – The illegal practice of trading a company’s stock based on non-public, material information about the company.

Interest Rate Risk – The risk that an investment’s value will decline due to changes in interest rates, especially relevant to bondholders.

Intrinsic Value – The perceived or calculated true value of an asset, based on fundamentals rather than its current market price.

Investment Grade – A rating that indicates a bond or debt instrument has a relatively low risk of default, making it suitable for conservative investors.