Investment Terms Dictionary

Last updated: April 9, 2016

Definitions of Technical Terms

*The information on this page is credited to IPT and Kiplinger. Their original materials are made available by the Kansas Securities here.

401(k) Plan

An employer-sponsored retirement plan that permits employees to divert part of their pay tax-free into the plan. Money invested in the 401(k) may be matched by the employer, and earnings accumulate tax-deferred until they’re withdrawn. Some companies offer a Roth 401(k) option that permits employees to invest after-tax money, the earnings on which are tax-free in retirement.


A legal process, generally run by the Financial Industry Regulatory Authority (FINRA) or another regulatory body in which you argue a dispute with a broker or other financial adviser in hopes of gaining compensation.


A lump sum invested with an insurance company in return for monthly payouts for a specific period or for the rest of your life, no matter how long you live.

Bear Market

A period when a market declines.


An interest-bearing security that obligates the issuer to pay a specified amount of interest for a specified time (usually several years) and then repay the bondholder the face amount of the bond.

Book Value (A.K.A. Shareholder Equity)

This is the difference between a company’s assets and its liabilities.


A financial adviser who sells stocks, bonds and other investment products on commission.

Bull market

A period when a market increases.

Capital gain (or Loss)

The difference between the price at which you buy an investment and the price at which you sell it.

Central Registration Depository (CRD)

A computerized database that contains information about most brokers, their representatives and the firms they work for.

Certificate of Deposit

Usually called a CD, a certificate of deposit is a short- to medium-term instrument (one month to five years) issued by a bank or savings and loan to pay interest at a rate higher than that paid by a regular savings account.

Compound Interest

This is really interest paid on interest. When interest is earned on an investment and added to the original amount of the investment, future interest payments are calculated on the new, higher total.


The method of balancing risk by investing in a variety of securities.


Company earnings that are paid out to stockholders.

Dollar-Cost Averaging

A program of investing a set amount on a regular schedule regardless of the price of the shares at the time.

DRIP (short for Dividend Reinvestment Plan)

It’s a program under which a company automatically reinvests a shareholder’s cash dividends in additional shares of stock.


A company’s after-tax profits. Commonly expressed as earnings per share, or total earnings divided by shares outstanding.

Exchange-Traded Funds (ETFs)

Mutual funds that trade like stocks on the exchanges. Their portfolios generally track an index that represents a particular market or a slice of a market.

Expense Ratio

A fund’s annual operating expenses as a percentage of its total assets. This ratio covers the cost of management, legal, accounting, printing and other costs of doing business. It may also include marketing expenses. An expense ratio of 1.0% means a fund extracts $10 per year for every $1,000 invested.

Financial Planner

An adviser whose primary role is to work with individuals and families on big-picture issues such as estate planning and saving for college or retirement. A certified financial planner is one who has earned the CFP credential.


The Financial Industry Regulatory Authority, which licenses and disciplines more than 600,000 registered representatives (brokers) and thousands of securities firms. It also runs the largest arbitration program for investors.

Form ADV

A personal disclosure form that registered investment advisers, including many financial planners, file with the Securities and Exchange Commission (SEC).

Home Equity

The difference between the market value of a home and the outstanding balance on the mortgage and any home-equity line of credit.

Individual Retirement Account (IRA)

A tax-favored retirement plan. Contributions to a traditional IRA may be tax-deductible, depending on your income and whether you are covered by a retirement plan at work. Earnings grow tax-deferred, and withdrawals are taxable. Contributions to a Roth IRA are never deductible, but earnings accumulate tax-free and withdrawals are tax-free in retirement.


A sales commission charged by many mutual funds. Some are front-end loads (the fee is paid when the shares are purchased); others are back-end loads (the fee is paid when the shares are sold).

Money-Market Fund

A mutual fund that invests in short-term corporate and government debt and passes the interest payments on to shareholders.

Mutual Fund

A professionally managed portfolio of stocks, bonds or other investments divided up into shares.

Net Asset Value (NAV) Per Share

The result of dividing a fund’s total assets by the number of shares outstanding. Equivalent to the fund’s share price.

North American Securities Administrators Association (NASAA)

Membership organization for state securities regulators who work to protect investors’ interests. Visit their website at

Opportunity Cost

The cost of passing up one investment in favor of another.


An employer-provided retirement benefit paid to eligible workers based on salary and years of service. Pensions can be paid as a monthly benefit for life or as a lump sum.


The collection of all of your investments.


The document that describes a securities offering or the operations of a mutual fund, a limited partnership, or other investment.

Registered Investment Adviser

An individual who manages investors’ money for a fee and is supervised by the Securities and Exchange Commission. Registered investment advisers may also do financial planning or discuss investment strategy.

Registered Representative

The technical name for a broker, registered representatives are licensed by FINRA to sell investment products, such as stocks, mutual funds and annuities, and to maintain client accounts.

Risk Tolerance

Risk tolerance is the degree to which you are willing to risk losing some (or all) of your original investment in exchange for a chance to earn a higher rate of return. In general, the greater the potential gain from an investment, the greater the risk that you might lose money.

S&P 500 Index

Standard & Poor’s 500-stock index is a basket of stocks that is a widely followed benchmark of the overall U.S. stock-market performance.

State Securities Regulators

Agencies that work within state governments to protect investors and help maintain the integrity of the securities industry.


A share of stock represents ownership in the company that issues it. The price of the stock goes up and down, depending on how the company performs and how investors think the company will perform in the future.

Street Name

The term used to describe securities that are held in the name of your brokerage firm but that still belong to you.

Target-Date Fund

A mutual fund that invests in both stock funds and bond funds to create a diversified portfolio appropriate for your age and retirement timeline. The name contains a date, such as 2020 or 2030, that corresponds to your anticipated retirement date. The fund automatically adjusts the proportions of stocks and bonds in the portfolio to become more conservative, with the goal of protecting your nest egg as you near retirement.

Time Value of Money

The concept that money today is worth more than the same amount in the future, when inflation has reduced its value.

Total Return

An investment-performance measure that combines two components: any change in the price of the shares and any dividends or other distributions paid to shareholders over the period being measured. With mutual funds, total-return figures assume that dividends and capital-gains distributions are reinvested in the fund.


The degree to which a security varies in price. In general, the more volatile a mutual fund or stock, the more risk is involved.

Index Fund

A investment product that tracks a conglomeration of stocks that fall within a certain market sphere. For example, the S&P 500 index fund tracks the 500 largest companies on the New York Stock Exchange or NASDAQ.

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