Financial Glossary
Demystify investment jargon with our comprehensive glossary of financial terms.
Asset Allocation
The implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals, and investment time frame.
Bear Market
A market condition in which the prices of securities are falling, and widespread pessimism causes the stock market's downward trend to continue. Investors anticipate losses in a bear market.
Bond
A debt instrument issued by governments, corporations, or other entities to raise capital. When you buy a bond, you are lending money to the issuer, who promises to pay you interest over a specified period and return your principal at maturity.
Bull Market
A market condition in which the prices of securities are rising or are expected to rise. Bull markets are characterized by optimism, investor confidence, and expectations that strong results will continue.
Diversification
A strategy that mixes a wide variety of investments within a portfolio. The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
ETF (Exchange-Traded Fund)
A type of investment fund that trades on stock exchanges, much like stocks. ETFs hold assets such as stocks, commodities, or bonds and generally operate with an arbitrage mechanism designed to keep their trading price close to their net asset value.
Mutual Fund
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.
Risk Tolerance
The degree of variability in investment returns that an investor is willing to withstand. An investor with a high risk tolerance is willing to take on significant risk in exchange for higher potential returns, while an investor with a low risk tolerance prefers investments with lower risk and more stable returns.
Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. Owning stock means you are a shareholder.
Volatility
A statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. It is often measured by the standard deviation or variance between returns from that same security or market index.