Fiduciary

A person or entity legally obligated to act in a client’s best interest when managing assets or providing advice.

Formula Investing

An investment method that follows preset rules (for allocation and/or timing) rather than discretionary judgment.

Quantitative Trading

Rules-driven trading that uses statistical models and large data sets to identify and execute opportunities.

Securities

Tradable financial instruments representing value or ownership, such as stocks, bonds, ETFs, and derivatives.

Stocks (Equities)

Fractional ownership in a company, with potential for dividends and capital appreciation.

Bonds

Debt instruments through which investors lend money to issuers (corporate or governmental) in exchange for interest and principal at maturity.

Mutual Funds

Pooled investments managed by professionals to meet stated objectives; priced once daily and subject to fund expenses.

ETFs (Exchange-Traded Funds)

Pooled funds that trade intraday like stocks. Often track indexes; may be passive or active. Generally lower expense ratios than comparable mutual funds, but fees still apply.

Leveraged ETFs

ETFs designed to deliver a multiple (e.g., 2× or 3×) of daily index returns. Exposure resets daily; may deviate from the multiple over longer periods and can be volatile.

Portfolio

A collection of investments structured to pursue defined goals within a stated risk tolerance and time horizon.

Risk Tolerance

An investor’s ability and willingness to endure fluctuations and potential loss in pursuit of returns.

Risk Premium

The expected excess return for taking on risk above the risk-free rate.

Systematic vs. Unsystematic Risk

Systematic: market-wide risks (e.g., rate changes) that affect most assets. Unsystematic: asset- or industry-specific risks that diversification can reduce.

Diversification

Mixing assets across issuers, sectors, and styles to reduce unsystematic risk and smooth outcomes.

Asset Allocation

Apportioning a portfolio among asset classes (e.g., equities, fixed income, cash) to balance risk and return for objectives and horizon.

Standard Deviation

A statistical measure of variability in returns; higher values indicate greater volatility around the average return.

Sharpe Ratio

Risk-adjusted return: (portfolio return − risk-free rate) ÷ standard deviation. Higher is better, all else equal.

Beta

Sensitivity of an asset’s returns to movements in a benchmark (beta = 1 moves with the market; >1 more volatile; <1 less volatile).

Dividend

A company’s cash distribution to shareholders, typically from earnings or cash flow.

Dividend Yield

Annual dividends per share ÷ current share price. Useful for income context; not a guarantee of future payments.

Market Capitalization

Share price × shares outstanding. Broad groupings (which vary by provider) include small-cap, mid-cap, and large-cap companies.

Long vs. Short

Long: benefit from price rises. Short: sell borrowed securities aiming to repurchase at lower prices; carries unique risks.

Overbought / Oversold

Technical conditions suggesting prices have risen or fallen too far, too fast relative to recent trends; not guarantees of reversal.

Technical Analysis

Evaluation of securities using price, volume, and patterns to inform timing and risk management.

Moving Average

The average price over a defined lookback (e.g., 50-day). Used to assess trend direction and dampen noise.

Golden Cross

A shorter-term moving average crossing above a longer-term average (often viewed as a bullish signal).

Divergence / Rounding Bottom / Money Flow Index

Examples of technical concepts: mismatch between price and indicator (divergence), U-shaped basing (rounding bottom), and a momentum/volume-weighted indicator (MFI).

Bull / Bear Market

Bull: broadly rising prices. Bear: broadly falling prices. Investor positioning may be “bullish” or “bearish.”

Asset Class

A group of investments with similar characteristics and behavior (e.g., equities, fixed income, cash equivalents).

Volatility

The degree of variation in returns over time; a proxy for risk in many models.

Market Index

A basket of securities intended to represent a segment of the market (used for benchmarking and passive strategies).

Hedging

Taking an offsetting position to reduce the impact of adverse price movements.

Cash Equivalents

Highly liquid, short-term instruments (e.g., T-bills, money market funds) used for capital preservation and liquidity.

Debt Securities

Corporate or government obligations that pay interest and return principal at maturity (commonly called “bonds”).

High-Yield Corporate Debt

Lower-rated (“below investment grade”) corporate bonds that offer higher yields in exchange for higher default risk.

REIT (Real Estate Investment Trust)

Companies that own, operate, or finance real estate; often distribute a large share of income to investors.

ADR (American Depositary Receipt)

U.S.-traded certificates representing shares of non-U.S. companies, simplifying access to foreign equities.

Capital Appreciation

Increase in an asset’s market value over the purchase price; distinct from income (dividends/interest).

Aggressive vs. Conservative Investing

Aggressive: seeks higher returns with higher volatility. Conservative: prioritizes capital preservation and steadier outcomes.

Monte Carlo Simulation

A modeling technique that estimates the probability of outcomes (e.g., retirement success) through repeated random trials.

FNA (Financial Needs Analysis)

A comprehensive review of current finances, goals, risk tolerance, and time horizon to inform strategy and allocation.

Net Worth

Assets minus liabilities (often excluding the primary residence for planning comparisons).

Black Swan Event

A rare, unpredictable event with major market impact, typically rationalized only in hindsight.

Qualified Plan

A retirement plan meeting IRS requirements and receiving tax advantages (e.g., many employer-sponsored plans).

Non-Qualified Plan

A plan that does not meet qualified standards; typically lacks the same tax advantages and follows different rules.