Investment Terms

Risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management occurs when an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment, such as a moral hazard, and then takes the appropriate action (or inaction) given the fund's investment objectives and risk to...

Mid-cap or mid-capitalization is the term that is used to designate companies with a market cap or market value between $2 and $10 billion. As the name implies, a mid-cap company falls in the middle between large-cap (or big-cap) and small-cap companies. Classifications, such as large-cap, mid-cap, and small-cap are approximations of a company's current value; as such, they may change over time. T...

The internal rate of return is a metric used in financial analysis to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. IRR calculations rely on the same formula as NPV does. the higher an internal rate of return, the more desirable an investm...

A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date.1? Dividends may be paid out as cash or in the form of additional stock. Dividends must be approved by the shareholders thro...

The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital. Investors expect to be compensated for risk and the time value of money. The risk-free rate in...

Exchange-traded notes or ETNs are types of unsecured debt securities that track an underlying index of securities and trade on a major exchange like a stock. ETNs are similar to bonds but do not have interest payments. Instead, the prices of ETNs fluctuate like stocks An ETN is typically issued by financial institutions and bases its return on a market index. ETNs are a type of bond. At maturity,...

Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency. Through tax planning, all elements of the financial plan work together in the most tax-efficient manner possible. Tax planning is an essential part of an individual investor's financial plan. Reduction of tax liability and maximizing the ability to contribu...

A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date. There are two types of options: puts, which is a bet that a stock will fall, or calls, which is a bet that a stock will rise. There are two different styles of options: American and European. American options can be exercised at any time between the purchase and expiration d...

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and main...

A brokerage account is an arrangement where an investor deposits money with a licensed brokerage firm, who places trades on behalf of the customer. Although the brokerage executes the orders, the assets belong to the investors, who typically must claim as taxable income any capital gains incurred from the account. There are multiple types of brokerage accounts and brokerage firms, giving investors...

A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. Bear markets are often associated with declines in an overall market or index like the S&P 500, but individual securities or commodities can also be considered to be in a bear...

Capital gain is an increase in a capital asset's value. It is considered to be realized when you sell the asset. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes. While capital gains are generally associated with stocks and funds due to their inherent price volatility, a capital gain can occur on any security that is sold for...

A dead cat bounce is a temporary recovery of asset prices from a prolonged decline or a bear market that is followed by the continuation of the downtrend. A dead cat bounce is a small, short-lived recovery in the price of a declining security, such as a stock. Frequently, downtrends are interrupted by brief periods of recovery—or small rallies—where prices temporarily rise. The name dead cat bounc...

Savings is the money a person has left over when they subtract their consumer spending from their disposable income over a given time period. Savings can be used to increase income through investing. Savings comprise the amount of money left over after spending. For example, Nana's monthly paycheck is $5,000. Her expenses include a $1,300 rent payment, a $450 car payment, a $500 student loan payme...

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, which attempts to evaluate a security's value based on business results such as sales and earnings, technical analysis focuses on the study of price and volume....

Investment term of the day: Credit Score Become a supporter of this podcast: https://www.spreaker.com/podcast/investment-terms--4432332/support .

An exchange-traded fund, or ETF, is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies. ETFs are in many ways similar to mutual funds; however, they are listed on exchanges and ETF shares trade throughout the day just like ordinary stock. An ETF is cal...

Quantitative easing is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment. QE usually involves the central bank purchasing longer-term government bonds as well as other types of assets such as mortgage-backed securities. Buying these securities adds new mon...

The investment term of the day is 'Market Indexes' Become a supporter of this podcast: https://www.spreaker.com/podcast/investment-terms--4432332/support .

Ultra-high net-worth individuals are defined as people with investable assets of at least $30 million, usually excluding personal assets and property such as a primary residence, collectibles, and consumer durables. UHNWIs comprise the wealthiest people in the world and control a disproportionate amount of global wealth. Although they constitute only .003% of the world’s total population, they hol...

Derivative are financial securities with a value that is reliant upon or derived from, an underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and ma...

A restricted stock unit is a form of compensation issued by an employer to an employee in the form of company shares. Restricted stock units, or RSUs, are issued to an employee through a vesting plan and distribution schedule after achieving required performance milestones OR upon remaining with their employer for a particular length of time. RSUs give an employee interest in company stock but the...

The Nasdaq is a global electronic marketplace for buying and selling securities. Nasdaq was created by the National Association of Securities Dealers to enable investors trade securities on a computerized, speedy and transparent system. It commenced operations on February 8, 1971. The term, “Nasdaq” is also used to refer to the Nasdaq Composite, which is an index of more than 3,000 stocks listed o...

A tariff is a tax imposed by one country on the goods and services imported from another country. Tariffs are used to restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers. There are two types of tariffs: A specific tariff is levied as a fixed fee based on the type of item, such as a tariff on a car. An ad-v...

Tax efficiency is an attempt to minimize tax liability when given many different financial decisions. A financial decision is said to be tax-efficient if the tax outcome is lower than an alternative financial structure that achieves the same end. Tax efficiency refers to structuring an investment or a financial plan so that the least possible taxation occurs. A taxpayer can open income-producing a...