Investing Glossary
134 investing terms explained in plain English with real-world examples.
134 results
Exchange-Traded Fund
An exchange-traded fund (ETF) is a basket of securities that trades on a stock exchange just like an individual stock.
Expense Ratio
The expense ratio is the annual fee an ETF charges its shareholders, expressed as a percentage of your investment.
Dollar Cost Averaging (DCA)
Dollar cost averaging is the strategy of investing a fixed amount of money at regular intervals regardless of market con
Index Fund
An index fund is a type of investment fund designed to match the performance of a specific market index, such as the S&P
Dividend
A dividend is a payment made by a company or fund to its shareholders, typically from profits or investment income.
Net Asset Value (NAV)
Net asset value (NAV) is the per-share value of a fund calculated by dividing the total value of all its holdings minus
Price-to-Earnings Ratio (P/E)
The price-to-earnings ratio compares a company's or fund's current share price to its earnings per share, indicating how
Assets Under Management (AUM)
Assets under management (AUM) is the total market value of all investments held within a fund, representing its overall
Beta
Beta measures how much an investment's price tends to move relative to the overall market, indicating its volatility com
Portfolio Rebalancing
Portfolio rebalancing is the process of realigning the weightings of assets in your portfolio back to your original targ
Alpha
Alpha measures an investment's excess return compared to its benchmark index, indicating how much value a fund manager a
Annualized Return
Annualized return is the average rate of return per year over a given time period, accounting for compounding.
Ask Price
The ask price is the lowest price at which a seller is willing to sell a security, representing the cost to buyers.
Asset Allocation
Asset allocation is the strategy of dividing your investment portfolio among different asset categories like stocks, bon
Asset Class
An asset class is a group of investments that share similar characteristics and behave similarly in the market, such as
Authorized Participant
An authorized participant is a large financial institution that has the ability to create and redeem ETF shares directly
Backtest
A backtest is the process of testing an investment strategy using historical data to see how it would have performed in
Basis Point
A basis point is one-hundredth of a percentage point (0.01%), commonly used to express small differences in interest rat
Bear Market
A bear market is a prolonged decline in stock prices, typically defined as a drop of 20% or more from recent highs.
Benchmark
A benchmark is a standard index or measure used to evaluate the performance of an investment fund or portfolio.
Bid-Ask Spread
The bid-ask spread is the difference between the highest price a buyer will pay and the lowest price a seller will accep
Bid Price
The bid price is the highest price a buyer is currently willing to pay for a security.
Blue-Chip Stock
A blue-chip stock is a share of a large, well-established, financially stable company with a long track record of reliab
Bond
A bond is a fixed-income investment where you lend money to a government or corporation in exchange for regular interest
Book Value
Book value is the net value of a company's assets as recorded on its balance sheet, calculated as total assets minus tot
Bull Market
A bull market is an extended period of rising stock prices, typically defined as a gain of 20% or more from recent lows.
Capital Gain
A capital gain is the profit earned when you sell an investment for more than you originally paid for it.
Capital Loss
A capital loss occurs when you sell an investment for less than you originally paid for it.
Capitalization-Weighted Index
A capitalization-weighted index assigns more weight to companies with larger market values, so bigger companies have mor
Closed-End Fund
A closed-end fund is an investment fund that raises a fixed amount of capital through an IPO and trades on an exchange,
Compound Interest
Compound interest is interest earned on both your original investment and on the interest that has already accumulated,
Correlation
Correlation measures how closely two investments move in relation to each other, ranging from +1 (move together perfectl
Coupon Rate
The coupon rate is the annual interest rate paid by a bond, expressed as a percentage of the bond's face value.
Creation Unit
A creation unit is a large block of ETF shares (typically 25,000 to 50,000) that authorized participants can create or r
Credit Rating
A credit rating is an assessment of a bond issuer's ability to repay its debt, assigned by rating agencies like Moody's,
Currency Risk
Currency risk is the potential for investment returns to be affected by changes in exchange rates when investing in fore
Custodian
A custodian is a financial institution that holds and safeguards an investor's or fund's securities and assets for safek
Dark Pool
A dark pool is a private exchange where large institutional investors can trade securities without publicly displaying t
Debt-to-Equity Ratio
The debt-to-equity ratio compares a company's total debt to its shareholders' equity, measuring how much it relies on bo
Default Risk
Default risk is the probability that a bond issuer will fail to make required interest payments or return the principal
Deflation
Deflation is a sustained decrease in the general price level of goods and services, the opposite of inflation.
Derivative
A derivative is a financial contract whose value is based on the performance of an underlying asset, such as a stock, bo
Discount to NAV
A discount to NAV occurs when an ETF's market price is lower than the per-share value of its underlying holdings.
Diversification
Diversification is the strategy of spreading investments across different assets to reduce risk, based on the principle
Dividend Reinvestment (DRIP)
Dividend reinvestment is the automatic use of dividend payments to purchase additional shares of the same investment, co
Dividend Yield
Dividend yield is the annual dividend payment of an ETF or stock expressed as a percentage of its current share price.
Duration
Duration measures a bond or bond fund's sensitivity to interest rate changes, expressed in years -- the higher the durat
Earnings Per Share (EPS)
Earnings per share is a company's net profit divided by its number of outstanding shares, showing how much profit each s
Efficient Market Hypothesis
The efficient market hypothesis proposes that stock prices already reflect all available information, making it nearly i
Emerging Market
An emerging market is a country with a developing economy that is becoming more engaged with global markets, offering hi
Equal-Weight Index
An equal-weight index gives every stock in the index the same percentage weight, regardless of market capitalization.
Equity
Equity represents ownership in a company through shares of stock, or more broadly, the value of an asset after subtracti
ETF Wrap
An ETF wrap is a managed investment account where a financial advisor builds and manages a portfolio of ETFs for a clien
Stock Exchange
A stock exchange is a regulated marketplace where securities like stocks, ETFs, and bonds are bought and sold.
Face Value (Par Value)
Face value is the nominal value of a bond stated on the certificate, typically $1,000, which is the amount the issuer pr
Fiduciary
A fiduciary is a person or entity legally obligated to act in another party's best interest, such as a financial advisor
Fixed Income
Fixed income refers to investments that provide regular, predictable interest payments, primarily bonds and bond-like se
Float
Float is the number of shares of a stock that are available for public trading, excluding shares held by insiders, execu
Front-Running
Front-running is the illegal practice of trading a security based on advance knowledge of pending orders from other inve
Fundamental Analysis
Fundamental analysis is the method of evaluating a security by examining the underlying financial and economic factors t
Futures Contract
A futures contract is a standardized agreement to buy or sell an asset at a predetermined price on a specific future dat
Gross Domestic Product (GDP)
Gross domestic product is the total value of all goods and services produced within a country during a specific time per
Growth Investing
Growth investing is a strategy focused on buying stocks of companies expected to grow their earnings faster than the ove
Hedge
A hedge is an investment made to reduce the risk of adverse price movements in another investment, acting as a form of f
High-Yield Bond (Junk Bond)
A high-yield bond is a bond rated below investment grade that pays higher interest to compensate for its greater risk of
Holdings
Holdings are the individual securities -- stocks, bonds, or other assets -- that make up an ETF's portfolio.
Illiquid
An illiquid investment is one that cannot be easily bought or sold without significantly affecting its price, often due
Index
An index is a standardized collection of securities that represents a specific segment of the financial market, used as
Inflation
Inflation is the rate at which the general level of prices for goods and services rises over time, reducing the purchasi
Interest Rate
An interest rate is the cost of borrowing money or the return earned on lending money, expressed as a percentage of the
Inverse ETF
An inverse ETF is designed to deliver the opposite return of its benchmark index on a daily basis, rising when the marke
Initial Public Offering (IPO)
An IPO is the process through which a private company offers its shares to the public for the first time, becoming liste
Large-Cap
Large-cap refers to companies with a market capitalization typically above $10 billion, representing the biggest and mos
Leverage
Leverage is the use of borrowed money or financial instruments to amplify the potential returns of an investment, which
Leveraged ETF
A leveraged ETF uses derivatives and debt to multiply the daily return of an underlying index, typically by 2x or 3x.
Limit Order
A limit order is an instruction to buy or sell a security at a specific price or better, giving you control over the exe
Liquidity
Liquidity refers to how quickly and easily an investment can be bought or sold without significantly affecting its price
Load (Sales Charge)
A load is a sales commission or fee charged when buying or selling shares of a mutual fund, which does not apply to ETFs
Long Position
A long position means you own a security and profit when its price rises -- the standard way most investors hold investm
Management Fee
A management fee is the charge levied by a fund manager for overseeing and operating an investment fund, which is a comp
Margin
Margin is borrowed money from a brokerage that allows you to buy more investments than your cash alone would permit, amp
Market Capitalization
Market capitalization is the total value of a company's outstanding shares, calculated by multiplying the stock price by
Market Maker
A market maker is a firm that continuously quotes both buy and sell prices for a security, providing liquidity and facil
Market Order
A market order is an instruction to buy or sell a security immediately at the best available current price.
Maturity
Maturity is the date on which a bond's principal is repaid to the investor and interest payments cease.
Mid-Cap
Mid-cap refers to companies with a market capitalization typically between $2 billion and $10 billion, positioned betwee
Modern Portfolio Theory (MPT)
Modern portfolio theory is a framework for constructing portfolios that maximize expected return for a given level of ri
Momentum Investing
Momentum investing is a strategy that buys securities that have been rising in price and sells those that have been fall
Money Market Fund
A money market fund is a type of investment fund that holds short-term, high-quality debt securities and aims to maintai
Mutual Fund
A mutual fund is an investment vehicle that pools money from many investors to buy a diversified portfolio of securities
Nasdaq
The Nasdaq is a major U.S. stock exchange known for listing technology and growth-oriented companies, and home to the Na
Net Asset Value (Detailed)
The net asset value is the per-share value of a fund's assets minus liabilities, representing the true underlying worth
New York Stock Exchange (NYSE)
The NYSE is the world's largest stock exchange by market capitalization, where thousands of stocks and ETFs are listed a
Open-End Fund
An open-end fund continuously issues and redeems shares at NAV based on investor demand, unlike closed-end funds which h
Options
Options are contracts that give the holder the right, but not the obligation, to buy or sell a security at a specified p
Over-the-Counter (OTC)
Over-the-counter refers to securities that are traded directly between parties rather than on a centralized exchange.
Overweight
Overweight means allocating a higher percentage of your portfolio to a particular security, sector, or asset class than
Passive Investing
Passive investing is a strategy that aims to match market returns by tracking an index, rather than trying to beat the m
Portfolio
A portfolio is the complete collection of investments held by an individual or institution, including stocks, bonds, ETF
Premium to NAV
A premium to NAV occurs when an ETF's market price is higher than the per-share value of its underlying holdings.
Price-to-Book Ratio (P/B)
The price-to-book ratio compares a company's market value to its book value, indicating how much investors pay per dolla
Price-to-Earnings Ratio (Detailed)
The P/E ratio measures how much investors pay per dollar of a company's earnings, serving as a key indicator of valuatio
Prospectus
A prospectus is the legal document that provides detailed information about an investment fund, including its objectives
Real Estate Investment Trust (REIT)
A REIT is a company that owns, operates, or finances income-producing real estate, required to distribute at least 90% o
Recession
A recession is a significant decline in economic activity lasting more than a few months, typically defined as two conse
Risk-Adjusted Return
Risk-adjusted return measures an investment's return relative to the amount of risk taken, showing whether higher return
Risk Tolerance
Risk tolerance is the degree of variability in investment returns that an investor is willing and able to withstand.
Roth IRA
A Roth IRA is a retirement account funded with after-tax dollars, where investments grow tax-free and qualified withdraw
Russell 2000 Index
The Russell 2000 is a stock market index that tracks the performance of 2,000 small-cap U.S. companies, serving as the p
Sector
A sector is a broad grouping of companies that share similar business activities, such as technology, healthcare, energy
Securities
Securities are tradable financial instruments that hold monetary value, including stocks, bonds, ETF shares, and other i
Share Class
A share class is a version of a fund with a specific fee structure, often offering different expense ratios, minimum inv
Sharpe Ratio
The Sharpe ratio measures an investment's risk-adjusted return by dividing its excess return above the risk-free rate by
Short Position
A short position is created by selling a borrowed security with the expectation of buying it back at a lower price, prof
Short Selling
Short selling is the practice of selling borrowed securities with the intent to buy them back at a lower price, betting
Small-Cap
Small-cap refers to companies with a market capitalization typically between $300 million and $2 billion, representing s
S&P 500 Index
The S&P 500 is a stock market index tracking 500 of the largest U.S. companies, widely considered the best single measur
Standard Deviation
Standard deviation measures how much an investment's returns vary from its average return, quantifying the volatility or
Stock Split
A stock split increases the number of shares outstanding while proportionally reducing the share price, making shares mo
Stop-Loss Order
A stop-loss order automatically sells a security when its price falls to a specified level, limiting potential losses on
Tax Efficiency
Tax efficiency measures how well an investment minimizes the taxes investors owe, with ETFs being among the most tax-eff
Tax-Loss Harvesting
Tax-loss harvesting is the strategy of selling investments at a loss to offset capital gains taxes, then reinvesting in
Technical Analysis
Technical analysis is the study of past price movements and trading volume patterns to predict future price direction.
Total Return
Total return measures an investment's complete performance including both price appreciation and income from dividends o
Tracking Error
Tracking error measures how closely an ETF follows its benchmark index, with lower tracking error indicating more faithf
Treasury Bond
A Treasury bond is a debt security issued by the U.S. government with a maturity of more than 10 years, considered one o
Turnover Ratio
Turnover ratio measures how frequently a fund buys and sells securities within its portfolio over a year, with higher tu
Underweight
Underweight means allocating a lower percentage of your portfolio to a particular security, sector, or asset class than
Unrealized Gain (Paper Gain)
An unrealized gain is an increase in the value of an investment you still hold, which becomes a realized gain only when
Value Investing
Value investing is a strategy focused on buying stocks that appear underpriced relative to their fundamental worth, seek
Volatility
Volatility measures how much and how quickly an investment's price changes, with higher volatility meaning larger and mo
Trading Volume
Trading volume is the total number of shares of a security that are bought and sold during a specific time period, usual
Yield Curve
The yield curve is a graph showing the interest rates on bonds of different maturities, typically U.S. Treasuries, from
Yield to Maturity (YTM)
Yield to maturity is the total return anticipated on a bond if held until it matures, accounting for coupon payments, cu