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Investment Glossary

Investment glossary


12b-1 Fee

The amount of a mutual fund's assets allocated to marketing and distribution costs. The fee is disclosed in the prospectus and are deducted monthly. 

A no-load fund will not have a 12b-1 fee.

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Accounts Payable

Money a company owes to suppliers.

Accounts Receivable

Money a customers owe to a company for products or services.

Adjustable Rate Bonds

A bond whose interest rate is adjusted every six months to three years in order to be equal to a defined index. Investors use these bonds when the market is declining and they hope to get a better yield than the Treasury yield.

Adjusted Gross Income

Gross income minus the total allowable adjustments for tax purposes.


A measure of the difference between a fund's actual returns and its expected performance given its level of risk. A positive alpha, such as 0.6, is better than a negative alpha.

AMEX (American Stock Exchange)

AMEX is known as the NYSE American. A good portion of the trading on the NYSE American is in small-cap stocks. It operates as a fully electronic exchange.


The repayment of debt by regular installments over a period of time.

Annual Report

A yearly report that all publicly held companies must make available to shareholders. It contains the prior year's financial results, balance sheet, income statement, and operations. Shareholder's are more likely to read this over any other report.

Annual Return

The amount of return an investment generated over a year.


The simultaneous buying and selling of securities, currency, or commodities in different markets in order to gain a profit from the price inequalities. This results in profits without risk. If the markets are perfectly efficient there are no arbitrage opportunities.

Ask Price

The lowest price at which a seller is ready to accept to sell a specific security.

Asset Allocation

Asset allocation is dividing the money in your investment portfolio among different types of assets. The purpose of asset allocation is to balance risk and reward according to your goals.


Anything owned by an individual or company that has a convertible cash value.

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A condition in the market that occurs when future prices are less expensive in each consecutive month.

Balance Sheet

A report on a company's assets, liabilities, and owner's equity over a specific time period.


Bankruptcy is a legal proceeding involving a person or business that is unable to repay its outstanding debt. Their assets are then divided up among their creditors.

Barbell Strategy

A bond portfolio strategy where the money is invested in long and short term bonds in order to achieve the price volatility of an intermediate bond fund portfolio.

Basis Point

One basis point is equivalent to 1/100th of 1% or .01%. This is the easiest way to measure the small fluctuations in bond yields.

Bear Market

A market whose securities' prices are falling, usually 20% or more.


A tool used to determine the volatility of a particular stock in comparison to the market. A stock whose beta is less than 1 is considered to be less risky than a stock whose beta is greater than 1. A beta equal to 1 means the stock will move with the market.

Bid Price

The price that a broker/dealer or prospective buyer is prepared to pay for a given security or other asset.

Bond Ratio

See Debt Ratio.

Book Value

A company's total assets minus any liabilities or preferred stock. This is considered the amount of stockholders equity in a firm.

Breakeven Point

A financial position where there is neither profit or loss.

Bull Market

A market whose securities are rising, usually 20% or more.

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Call Option

A cal option is a financial contract giving the option buyer the right but not the obligation to buy a specific security at a specified price within a specific time period. 

Callable Bond

A bond that can be redeemed by the issuer before its maturity date.


Accumulated cash or goods used to generate more cash or goods.

Capital Gains

The gain from the sale or exchange of a capital asset. For tax purposes, it usually means the amount received minus the taxpayer's cost (basis).

Refer to your tax advisor and/or contact the IRS for various forms and publications available on this subject.

Certificate of Deposit (CD)

Savings instruments in which funds must remain on deposit for a specified time period while earning interest. They are issued by banks and saving and loans. They are considered to be low risk and low return.

Closed Fund

A fund that a mutual fund company has closed to investors due to concerns that management has about the increasing asset growth. A closed fund can be closed temporarily or permanently.


An economic good such as an agricultural product or mined materials.

Common Stock

An equity investment that entitles the shareholder to participate in electing a board of directors and voting on corporate policy, and represents ownership in a firm.

Consumer Price Index (CPI)

An index, used to measure inflation, that looks at the prices of a set group of products and service on a monthly basis.

Convertible Bond

Bonds that, at the owner's request, can be converted into common stock. The conversion amount is a preset number that the holder agrees on when they purchase the bond.

Convertible Security

A security which can be converted into another form of the security, usually common stock. The security is converted at a pre-determined price or ratio.

Corporate Bond

A bond issued by a corporation and sold to investors. The company gets the capital it needs and in return the investor is paid a pre-established number of interest payments.


The annual interest rate paid on a bond, expressed as a percent of the face value and paid from issue date until maturity.

Coverage Ratio

A tool used to measure the safety of a bond. The figure compares earnings to the amount of times it will cover its debt for a specific time frame.

Credit Risk

The possibility of a bond issuer defaulting.


Something circulated generally as a medium of exchange for goods and services.

Currency Risk

The risk associated with an investment's value falling when currency exchange rates are fluctuating.

Custodial Fee

The fee charged to an individual by a custodian. This fee covers the expense of managing an investor's accounts.

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Day Order

An order to buy or sell stock that is canceled at the end of the trading day if it hasn't been executed.


Traders who make markets by offering to buy or sell certain over-the-counter securities, out of their inventory, at stated prices.


A corporate bond that is offered without any collateral besides existing credit. These bonds usually carry a higher risk and consequently the potential for a higher rate of return.

Debt Ratio

A tool used to analyze the risk associated with a corporation's bond. It is found by dividing total face value of the outstanding bonds by total capitalization.

Debt Securities

A security such as a bond that represents a loan from the investor to the issuer. The issuer agrees to pay a pre-determined interest amount in exchange for the loan. The loan is then re-paid on a predetermined future date. Common entities that issue these are corporations, federal government, federal agencies, and municipalities.

Debt/Equity Ratio

A ratio used to measure financial leverage. It is calculated by dividing total long-term debt to total shareholder's equity.

Deferred Fees

Mutual fund fees that are also known as a back-end sales charge. The fee is deducted only when investors withdraw money from the account. The fee usually diminishes over time.


A financial instrument used to hedge portfolio risk or to increase overall portfolio strategy. A derivative is based on an underlying security such as a futures contract, bond, or option.


A decrease in the value of a currency relative to the price of gold or another country's currency.


In reference to the selling price of a bond, meaning the price is below the bond's par value.

Discount Bond

A bond that is selling on the market under its face value. See discount.

Dow Jones Industrial Average

The oldest market indicator.  Stock market index that tracks 30 large, publicly owned blue-chip companies trading on the New York Stock Exchange.


A measure of a fund's interest rate sensitivity. The numerical figure tells an investor how a bond will react to different interest rate scenarios.

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EAFE Index

The EAFE Index is a stock index offered by the Morgan Stanley Capital International (MSCI) Europe, Australia, Far East Index. A market capitalization-weighted index of publicly traded stocks around the world, with the exception of the United States and Canadian equity markets.

Earnings per Share

This is calculated by taking a company's profit and dividing by the number of outstanding shares. This is used to measure the value of a company's earnings for each share of stock.

Emerging Market

A financial market of a developing nation.

Exercise Price

The specific price at which a call option buyer can initiate their contract to buy the underlying security. For a put option buyer it is the price at which they can sell the underlying security.

Expense Ratio

The lower the ratio the higher the percentage of returns the fund can distribute to its' shareholders.

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Face Value

Also known as par value. It's the value printed on the bond although the bond may be selling higher or lower than the actual amount. The investor will receive this amount once the bond is mature.

Fannie Mae (FNMA)

The Federal National Mortgage Association buys conventional mortgages and government agency mortgages. It is publicly held.

Federal Funds Rate

The interest rate banks or institutions charge to one another for overnight loans. The rate is a good indication of U.S. interest rates trends.

Federal Reserve System

The U.S. central bank system whose primary responsibility is to control the flow of money and credit.

Fee Waiver

A marketing technique mutual funds use in order to make their returns more competitive, where all or part of the fees are waived.

Foreign Exchange Rate

The rate that a currency can be converted into another currency.

Foreign Exchange Rate Risk

The risk assumed when an investor is trading in different currencies. There's always the potential that one of the currencies will become unfavorable in comparison to the other currency rate.

Freddie Mac

The Federal Home Loan Mortgage Corporation buys conventional mortgages and government agency mortgages. It is publicly held.

Front-End Loan

A mutual fund sales charge that's paid when shares are purchased.

Fund Family

A family of funds refers to a group of mutual funds managed by a single investment company. 

Fund Inception Date

The date a mutual fund was opened. When noting the inception date, the year is before the month.

Fund of Funds

A mutual fund that invests in other mutual funds.

Fundamental Investing

A process by which an investor learns about a company and its industry, and is as concerned about the price he/she must pay for the investment as the future prospects of the company.

Futures Contract

A commitment to deliver a certain amount of some specified item at some specified date in the future.

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Ginnie Mae

The Government National Mortgage Association. A government owned agency that issues passed through mortgage debt security. The agency is backed by the federal government.

Glass-Steagall Act of 1933

Federal legislation which makes it illegal for commercial banks to own, underwrite, or deal in corporate bonds and forbids investment bankers from making commercial loans.

Gross Domestic Product

The total market value of all goods and services produced in a country in one year. It includes all foreign income within the U.S. but excludes income from U.S. corporations and citizens working outside the U.S.

Gross Income

All of an individual's income regardless of the source.

Gross Profit

The profit of a corporation before expenses have been deducted.

Group Annunity Contract

An annuity furnished to a group of people through a group contract. The group annuity contract is issued by an insurance company that allows a pre-tax qualified retirement plan to purchase annuities for plan participants. 

Guaranteed Investment Contract

An unallocated group annuity contract that provides a fixed income under a defined benefit or defined contribution plan. It usually matures in 5 to 20 years and provides a fixed rate of interest compounded annually. It is described essentially as a non-tradable bond of an insurance company. The GIC works differently from mortgage debt, railroad equipment trust certificates, and escrowed bonds which are secured by specific, segregated assets. The general credit of the insurance carrier backs a GIC, rather than a lien on specific assets.

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A hedge in financial is a risk management method that reduces the price risk of an existing investment by taking an offsetting position in another asset or security that moves in the opposite direction. 

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An investment that is not easily converted into cash. An example of this is stock versus land.

Income Ratio

Ratios that analyze the company's performance in market during a period of time. 

Income Statement

A report showing a corporations revenues and expenses for the fiscal year.


A comparison using numbers to measure the general behavior of stock prices by measuring the current price behavior of a representative group of stocks in relation to a base value.

Index Fund

A mutual fund or exchange-traded fund that is based on a preset basket of stocks or index. It tracks the performance of a market index.

Inflation Risk

The risk that an amount of money today won't have the same purchasing power tomorrow. Also called purchasing power risk.

Initial Public Offering (IPO)

An initial public offering (IPO) is the first time that a stock of a private company is offered to the public.

Insider Trading

An illegal act of trading securities by people who have material non-public information that they can use to their advantage.

Institutional Fund

Funds designed for institutional or fiduciary investors.

Intangible Assets

Something of value that is not physical, such as a trademark, formula, or copyright.

Interest Rate Risk

The potential risk that a change in the overall interest rates will reduce the value of a bond or other fixed-rate investment.

Intermediate Term Bond

A bond that has a maturity between two and ten years from the date of issue.

International Monetary Fund (IMF)

An international organization set up to help developing nations by lending them money. The IMF is also working to lower trade barriers and stabilize currencies.

Intrinsic Value

A measure or a calculation of what an asset is worth based on its cash flows, financial performance, or other data points. It is different from the current market value, which is influenced by market conditions. 

Investment Class

Some mututal funds offer investors different types of shares, known as classes. Each class invests in the same portfolio of securities and has the same investment objectives, but each class has different shareholder services and/or distribution arrangements with different fees and expenses.


A corporation, government, agency, or investment trust that sells securities, such as stocks and bonds, to investors. 

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Junk Bond

A low quality bond, usually with a credit ranking of BB or lower. Often these bonds offer a higher yield in exchange for the high risk.

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The strategy of using borrowed capital expecting the profits made to be greater than the interest payable.


Term used to describe a security that's easy to transfer into cash without extreme price fluctuation.

Loan Adjusted Returns

Total returns figured after all fund expenses, except taxes.

Long Hedge

The purchase of a futures contract(s) in anticipation of actual purchases of securities or commodities. Often used by processors or exporters as protection against an increase in the price of a commodity.

Related: Hedge, Short hedge

Long Position

The term long position is a situation or a strategy in which you buy and keep an asset such as a security or derivative with the expectation that it will rise in value. You only make money from a long position when the asset prices increases.

Related: Short position

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Management Fee

The amount charged to an investor for the services associated with managing the fund. A management fee is levied by an investment manager for managing the investment fund.


Margin is the collateral that an investor has to deposit in which the broker lends the investor money to buy more securities than they could otherwise buy with the balance in their account.

Margin Account

A margin account is an account offered by brokerage firms that allows investors to borrow money to buy securities. 

Margin Call

Notification that an investor must deposit additional funds into their margin account. This usually happens because a security has declined in value, below a minimum level.

Market Capitalization

The total value of publicly traded company's outstanding common shares owned by shareholders.

Maturity Date

The date a bond or debt becomes due for payment. On that date, the principal is repaid.


A type of average which represents the annualized total return. The standard deviation is calculated from the mean.

Median Market Capitalization

The average of all companies market capitalization in a portfolio. The portfolio consists of half of the companies having larger than the average portfolio median market capitalization and half the companies having smaller.


An investment process that emphasizes a company's stock price growth and/or profit growth.

Morningstar (Morningstar, Inc.)

A financial services firm that evaluates performance of registered mutual funds and other investments. It provides an array of investment research and investment management services.

Morningstar Style Box

Morningstar Style Box is a grid of nine squares used to identify the investment style of stock and bonds according to size (small, mid and large) and fund investment style (value and growth). 


Loan on real estate made to two groups of borrowers. Companies have commercial mortgages for buildings. Individuals have residential mortgages for homes. The interest and principal are repaid by the borrower.

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Net Asset Value (NAV) Erosion

The declining of a NAV due to distributions to shareholders that exceed the earnings of the fund. This is common in fixed income funds that pay a pre-determined yield regardless of their actual earnings.

Nominal Return

A nominal rate of return is the amount of money generated by an investment before factoring in expenses such as taxes, investment fees, and inflation. 

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Odd Lot

A stock order for less than the standard 100 shares.

Opportunity Cost

The loss of potential gain from alternatives when one alternative is chosen. 


A contract that gives the buyer the right to buy or sell a specified amount of an underlying security within a specified period of time.

Over-the-Counter Market

A decentralized market, which participants trade stocks, commodities, currencies, or other instruments between two parties without a central exchange or broker.  Securities that aren't listed on a stock exchange are traded in the OTC market. NASDAQ is an OTC market. OTC markets do not have physical locations, instead, trading is conducted electronically. 

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Par Value

The stated, or face, value of a stock or bond. Regarding debt securities, the amount assigned to the security that will be repaid at maturity.

Passive Portfolio

A portfolio that essentially mirrors a market index. It is the opposite of an active management portfolio strategy. .

Potential Capital Gains Exposure (PCGE)

An estimate of the percent of a fund's assets that represents gains. PCEG measure how much the fund's assets have appreciated and it can be an indicator of possible future capital gain distributions.

Preferred Stock

Preferred stockholders have a higher claim to dividends or asset distributions than common stockholders. Preferred stockholders usually have no or limited voting rights.


The amount above par value that an investor may have to pay if the coupon on the bond is higher than today's interest rate.

Present Value

The value in today's dollars of a future payment or cash flow.

Price/Book Ratio

A tool used to compare a stock's market value to the value of total assets minus total liabilities. This is figured by dividing the current stock price by the common stock holder equity per share.

Price/Earnings Ratio

A financial ratio used to compare the company's current market value to its book value. This ratio is found by dividing a stock's current market price by earnings per share.

Prime Rate

The lowest interest rate at which money may be borrowed commercially to preferred customers, or those with he highest credit ratings.


The initial size of a loan or bond (the amount that must be repaid).


To allocate proportionately over a set amount of time.

Public Offering

Used to raise capital. Corporations sell common stock or offer additional common stock to investors.

Put Option

A contract that gives the investor the right (but not the obligation) to sell (or put) fixed numbers of shares at a fixed price within a given time frame.

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Quick Ratio

A tool used to determine a company's financial stability. It's found by subtracting inventories from current assets, then dividing by current liabilities.

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A tool used to determine how closely the performance of a benchmark index corresponds to a portfolio's performance. This also shows how much of a portfolio's performance is tied to the overall market. The number can range from 0 to 1. The closer the number is to 1, the higher the correlation is to the index.

Rights of Accumulation

A shareholders ability to qualify for a reduced sales load depending on the shareholder's total investment over a certain time period.

Round Lot

A standard number of securities to be traded on an exchange. A round lot is considered to be 100 shares or larger but can be evenly divided by 100.

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Sales Charge

A commission charged to an investor paid to a broker, financial planner, or investment advisor responsible for effecting the transactions. This fee serves as compensation to the salesperson and is expressed as a percentage of the investment value.

Sallie Mae (Student Loan Marketing Association)

A publicly held corporation, established by the federal government, which pools student loans and sells them in the secondary market.

Savings Bond

A debt security issued by the government that may not be publicly traded. These are very low risk, low interest securities.

Secondary Market

The market where most securities are sold after they're initial public offering (IPO). An example is the New York Stock Exchange.

Sector Weightings

The amount of securities proportioned, in an equity mutual fund, in each industry sector. 

Secured Debt

Debt that is backed by some sort of collateral. Examples are a mortgage or auto loan.


Investments that represent debt, business ownership, or the legal right to buy or sell a business ownership interest. Examples are stocks, bonds, and debentures.

Selling Hedge

The action of selling a futures or option to offset the effects of a decrease in the price of securities that will be sold in the future.

Share Class

The different classifications of a mutual fund. The difference between classes is the expense structure.

Shareholder Fee

A periodic payment the shareholder makes to the person or entity that sold them the investment, which pays for additional advice such as account balance inquiries. This fee is separate from the transfer agent or custodial fee.

Sharpe Ratio

A measurement tool used to show the reward relative to the risk involved in a fund. A higher ratio indicates that the fund has had better historical risk-adjusted performance.

Short Hedge

The sale of a futures contract(s) to eliminate or lessen the possible decline in value of an approximately equal amount of the actual financial instrument or physical commodity that an investor already owns.

Short Position

Occurs when an investor borrows securities and sells them in hopes of buying them back at a lower price. An investor who sells stocks he/she didn't own is said to be "short the stock".


A corporate spin-off can be defined as a creation of a new standalone business by selling or distributing shares from an existing business.

Standard Deviation

A measure of the volatility of an equity investment over a historical time period, usually 36 months.

Strike Price

The price per share that an underlying security may be bought or sold.


A money manager outside the fund family hired to manage a portfolio for the fund family.

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A one-year or less debt obligation issued by the U.S. Treasury. The minimum face value is $10,000. T-bills are sold at a discount to their face value and do not have a fixed interest rate.


A 10 to 30 year bond issued by the U.S. Treasury. They can be bought in denominations of $1000.


A 2 to 10 year debt obligation issued by the U.S. Treasury, sold in $1,000 denominations.

Turnover Ratio

A tool that measures the trading activity per year in a mutual fund. The percentage of the portfolio holdings that have been replaced in a course of a year.

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Unit Investment Trust

An investment company that is organized under a trust indenture, which sells shares in a portfolio. These shares are redeemable. The portfolio's holdings are established up front and are rarely changed.

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The magnitude and frequency of a stock's price fluctuations.

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Yield Bias

Strategy of buying stocks that pay a relatively higher dividend.

Yield to Maturity

A fixed income security's rate of return between now and maturity which figures in any interest or income and any gain or loss of principal.

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A debt security which trades at a deep discount to its face value. The bond pays no interest and has a maturity of one year or more.

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