Investing Terms & Definitions

Financial Advisor Glossary

An illustrative glossary of common investing & financial advice terms and definitions. 

finance & investment definitions

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Alphabetical list of terms, phrases, or jargon relevant to finance and financial advisors along with their definitions or explanations. The purpose of this glossary page is to provide you with a convenient reference resource to help you understand and navigate complex or specialized terminology used within the context of Blue Alpha Wealth's website content.

Investing Explained

How to implement asset allocation

Investing Glossary

Asset Allocation: Investing Explained

Asset allocation is a fundamental concept in the world of investing. It refers to the strategy of dividing an investment portfolio among different asset categories such as stocks, bonds, and cash. The process of determining which mix of assets to hold in a portfolio is a personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.

Asset Class: Investing Explained

In the world of investing, the term 'Asset Class' is a fundamental concept that every investor should understand. An asset class is a group of investment vehicles that behave similarly and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds), and cash equivalents (money market instruments). This article will delve into the intricacies of each asset class, their characteristics, advantages, and disadvantages, and how they fit into an investment portfolio.

Bear Market: Investing Explained

The term 'bear market' is derived from the way a bear attacks its prey, swiping its paws downward. This is symbolic of the downward trend in market prices that characterizes a bear market. It's a period of generally falling prices in an investment market, often caused by widespread pessimism among investors.

Bull Market: Investing Explained

The term 'bull' is used because of the way a bull attacks its opponents. A bull thrusts its horns up into the air, while a bear swipes its paws downward. These actions are metaphors for the movement of a market. If the trend is up, it's a bull market. If the trend is down, it's a bear market.

Capital Gains: Investing Explained

It refers to the increase in value of an investment or real estate that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. 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.

Diversification: Investing Explained

The idea behind diversification is simple: don't put all your eggs in one basket. By investing in a variety of assets, you can protect yourself from the volatility of the market, as the performance of one investment may offset the poor performance of another. This article will delve into the intricacies of diversification, its benefits, strategies, and its role in portfolio management.

Dividend: Investing Explained

Dividends are a portion of a company's earnings that are distributed to shareholders as a reward for their investment. They are a key source of income for many investors, especially those who focus on income-generating investments. Understanding dividends is crucial for any investor, as they can significantly impact the total return of an investment portfolio.

Dollar-Cost Averaging: Investing Explained

Investors who employ the dollar-cost averaging strategy typically invest their money in equal parts, at regular intervals. For example, an investor might invest $1,000 in a mutual fund every month, regardless of the fund's share price. Over time, this strategy can provide a lower average cost per share, given that more shares are purchased when prices are low, and fewer shares are purchased when prices are high.

Equity: Investing Explained

Equity investing refers to the purchase and ownership of shares in a company with the expectation of receiving a return on the investment. This return can come in the form of dividends, which are a share of the company's profits, or capital gains, which arise from an increase in the price of the shares.

Exchange-Traded Fund (ETF): Investing Explained

An Exchange-Traded Fund (ETF) is a type of investment fund and exchange-traded product, traded on stock exchanges much like individual stocks. An ETF holds assets such as stocks, bonds, or commodities, and aims to track the performance of a specific index. ETFs are attractive as investments due to their low costs, tax efficiency, and stock-like features.

Financial Advisor: Investing Explained

Investing, at its core, is about growing your money. It involves putting your money into various types of assets, such as stocks, bonds, or real estate, with the expectation that your investment will generate a return over time. However, the world of investing can be complex and fraught with risks, which is where the expertise of a financial advisor comes in.

Fixed Income: Investing Explained

Fixed income refers to a type of investment in which real return rates or periodic income is received at regular intervals and at reasonably predictable levels. Fixed income investments are usually in the form of government, municipal, and corporate bonds, as well as money market instruments, preferred stock, and certain types of derivatives. These investments are considered a safer option compared to equities, as they provide a steady income stream to the investor.

Fund Manager: Investing Explained

A fund manager, also known as a portfolio manager, is a professional who oversees and makes decisions about the investments within a fund. This role is pivotal in the financial and investment industry, as the fund manager's decisions directly influence the performance and returns of the fund.

Growth Investing: Investing Explained

Growth investing is a strategy and style of investment where an investor seeks out companies that are expected to grow at an above-average rate compared to other companies in the market. The primary goal of growth investing is to achieve capital appreciation.

Index Fund: Investing Explained

An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor's 500 Index (S&P 500). Index funds provide broad market exposure, low operating expenses, and low portfolio turnover. 

Initial Public Offering (IPO): Investing Explained

The Initial Public Offering (IPO) is a significant event in the life of a company. It marks the transition from a private entity to a public one, opening up opportunities for growth and expansion.

Investment Horizon: Investing Explained

Investment horizon refers to the total length of time that an investor expects to hold a security or a portfolio. This term is often used in the context of mutual funds, pension plans, and other long-term investment vehicles. The investment horizon is a critical factor in deciding the appropriate investment strategy and asset allocation for an investor. It is also a key determinant of the risk tolerance of an investor.

Market Capitalization: Investing Explained

Market capitalization, often referred to as market cap, is a key concept in the world of investing. It provides a measure of a company's size and overall value, and is frequently used by investors to compare different companies within the same industry or sector. Understanding market capitalization is crucial for making informed investment decisions, as it can help to assess the risk and potential return of an investment.

Mutual Fund: Investing Explained

A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities, which is managed by an investment company. Mutual funds pool money from many investors to purchase broad range of investments, such as stocks. 

Portfolio: Investing Explained

A portfolio, in the context of investing, refers to a collection of financial investments like stocks, bonds, cash equivalents, mutual funds, and exchange-traded funds. The composition of a portfolio depends on the investor's financial goals, risk tolerance, and investment horizon.

Rebalancing: Investing Explained

Rebalancing is a critical concept in the world of investing. It refers to the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk.

Risk Tolerance: Investing Explained

Risk tolerance is a critical concept in the field of investing. It refers to the degree of variability in investment returns that an investor is willing to withstand. Understanding your risk tolerance is crucial as it can influence your investment decisions and the overall composition of your portfolio.

Securities: Investing Explained

Securities are a broad category of financial instruments that represent some type of financial value. They can be divided into two main categories: equity securities (such as stocks) and debt securities (such as bonds). 

Stock Market: Investing Explained

Investing in the stock market can be a powerful way to grow wealth and achieve financial goals. However, it's not without risks. Understanding these risks, along with the potential rewards, is crucial for making informed investment decisions.

Value Investing: Investing Explained

Value investing is a strategy of investing that involves buying securities that appear underpriced by some form of fundamental analysis. The term "value investing" was coined by Benjamin Graham and David Dodd, both professors at Columbia Business School and teachers of many famous investors. In terms of a broader investment philosophy, it stands in contrast to growth investing, the other main strategy for stock picking.