Terms, Terms, Terms

This blog is going to be very objective in that all that will be going on here is providing the definition of many terms I use in this blog. This can serve as a beginners starting point or a more experienced or knowledgeable investor’s reference. This won’t be the most exciting entry, but I think it’s important to cover there. Thanks goes to Wells Fargo and Investopedia for providing many of these. So without further ado:

  • Bond: A debt instrument, a bond is essentially a loan that you are giving to the government or an institution in exchange for a pre-set interest rate paid regularly for a specified term. The bond pays interest (a coupon payment) while it’s active and expires on a specific date, at which point the total face value of the bond is paid to the investor. If you buy the bond when it is first issued, the face or par value you receive when the bond matures will be the amount of money you paid for it when you made the purchase. In this case, the return you receive from the bond is the coupon, or interest payment. If you purchase or sell a bond between the time it is issued and the time it matures, you may experience losses or gains on the price of the bond itself.

  • Stock: A type of investment that gives you partial ownership of a publicly traded company.

  • Mutual fund: An investment vehicle that allows you to invest your money in a professionally-managed portfolio of assets that, depending on the specific fund, could contain a variety of stocks, bonds, market-related indexes, and other investment opportunities.

  • Allocation of investments: Also known as asset allocation, this term refers to the types of investments/asset categories you own and the percentage of each you have in your investment portfolio.

  • Diversification: This is a risk management technique that mixes a wide variety of investments to potentially minimize your investment risk.

  • Index: A portfolio of securities representing a particular market or industry or a portion of it. Indices often serve as benchmarks for measuring investment performance– for example, the Dow Jones Industrial Average or the S&P 500 Index. Although investors cannot directly purchase an index, they are able to invest in mutual funds and exchange-traded funds that are based on the indexes. These types of vehicles enable investors to invest in securities representing broad market segments and/or the total market.

  • Yield: The income return on an investment. This refers to the interest or dividend received from a security based on the investments cost or face value.

  • vested: A person’s right to the full amount of some type of benefit, most commonly employee benefits such as stock options, profit sharing or retirement benefits. Sometimes an employee can be partially vested. An example of this would be if your company allowed full-vesting after four years of employment with 25% vesting occurring each year. This means that, in regards to a 401(k) match with your employer contributing $1 for every $1 invested, if you quit working for them after two years, you would receive half of the $1 they matched. However if you stay with them for at least four years, you will then be fully vested and are entitled to the full $1 match.

  • 401(k): A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.
  • Roth IRA: An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawal.
  • Traditional IRA: An individual retirement account (IRA) that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status and other factors.

I tried to get the main ones here. I hope this helps!

Until Next Time,


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