Wealth Management Terms & Definitions

Absolute Return: The percentage return that an asset achieves over a specified period, which can be positive or negative.

Appreciation: An increase in the value of an asset over time.

Assets: Anything of value or a resource convertible into cash, such as a house, car, investments, or artwork.

Balanced Investment Strategy: Combining asset classes in a portfolio to balance risk and return, often dividing between stocks and bonds.

Bear Market: A market in decline, usually having fallen 20% or more from recent highs.

Beneficiary: Any person who gains an advantage or profits from something.

Benchmark: A standard against which the performance of a security, mutual fund, or investment manager is measured.

Blue Chip Stocks: Shares in large, well-established companies known for stability and reliability.

Blue Sky Laws: State regulations that require issuers of securities to register and disclose details about their offerings to protect investors from fraud.

Bond: A fixed-income instrument representing a loan made by an investor to a corporate or governmental borrower.

Bull Market: A market on the rise with favorable economic conditions.

Capital Asset: Significant property like homes, cars, investments, stocks, bonds, and collectibles.

Capital Gain: An increase in a capital asset’s value when sold for a higher price than the purchase price.

Capital Loss: A decrease in a capital asset’s value, occurring when sold for a lower price than the original purchase price.

Certified Financial Planner (CFP): An individual with a formal designation from the Certified Financial Planner Board of Standards, helping with various financial areas.

Collateral: Assets pledged as security for a loan, serving as a guarantee for repayment.

Custodian: An institution responsible for holding and safeguarding financial assets.

Day Trading: Buying and selling financial instruments within the same trading day.

Derivative: A financial contract whose value is derived from the performance of an underlying asset.

Diversification: A risk management strategy that mixes various investments within a portfolio.

Dividend: The distribution of part of a company’s earnings to its shareholders.

Equity: The value returned to a company’s shareholders if all assets were liquidated and debts paid off.

Exchange-Traded Fund (ETF): A type of investment fund and exchange-traded product with shares that trade on a stock exchange.

Ex-Dividend Date: The date on or after which a security is traded without a previously declared dividend.

Fiduciary: A person or organization legally bound to act in another’s best interests, preserving good faith and trust.

Foreclosure: The legal process by which a lender takes possession of a property due to the borrower’s failure to meet mortgage obligations.

Futures Contract: A standardized financial contract obligating the buyer to purchase and the seller to sell an asset at a predetermined future date and price.

Hedge Fund: An investment fund that pools capital from accredited individuals or institutional investors to invest in various assets.

Hedging: A strategy used to offset or limit the risk of adverse price movements in an asset.

High Net Worth: An individual with at least $1 million in liquid financial assets.

401(k): A retirement savings plan sponsored by an employer, where employees can contribute a portion of their salary on a pre-tax basis.

Initial Public Offering (IPO): The first sale of stock by a private company to the public.

Inflation: The rate at which the general level of prices for goods and services is rising.

Investment: An asset or item acquired with the goal of generating income or appreciation to create future wealth.

Joint Tenancy: A form of property ownership where two or more individuals hold an undivided interest with right of survivorship.

Junk Bonds: High-yield, high-risk bonds typically issued by companies with lower credit ratings.

Keogh Plan: A tax-deferred retirement plan for self-employed individuals and small businesses.

Leverage: The use of various financial instruments or borrowed capital to increase the potential return of an investment.

Liquidity: How efficiently an asset can be converted into cash without affecting its market price.

Liquidity Risk: The risk that an asset cannot be sold on short notice without incurring a significant loss.

Living Will: A legal document specifying desired medical care in the event of inability to communicate wishes.

Margin Call: A demand by a broker for additional funds to cover potential losses.

Municipal Bond: A debt security issued by a state, municipality, or county to finance its capital expenditures.

Net Asset Value (NAV): The per-share market value of all securities held by a mutual fund or exchange-traded fund (ETF).

Options: Financial derivatives that give the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price.

P/E Ratio (Price-to-Earnings Ratio): A valuation ratio calculated by dividing the market price per share by the earnings per share.

Portfolio: A collection of financial investments, such as stocks, bonds, and commodities.

Preferred Stock: A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock.

Quantitative Easing: A monetary policy in which a central bank purchases government securities or other financial assets to increase the money supply and encourage lending.

Qualified Dividend: A type of dividend subject to capital gains tax rates, providing tax advantages for certain investors.

Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-generating real estate.

Roth IRA: An individual retirement account that allows tax-free withdrawals if certain conditions are met.

Risk and Return: The correlation where return rises with an increase in risk.

Risk Management: Identifying, analyzing, and accepting or removing uncertainty in investment decisions.

S&P 500: A stock market index that measures the performance of 500 large companies listed on stock exchanges in the United States.

Tax Liability: The total amount of tax debt owed to a taxing authority like the IRS.

Treasury Bond: A government debt security with a fixed interest rate and a maturity of more than 10 years.

Trust: An individual giving another, the trustee, the right to hold title for the benefit of a third party, the beneficiary.

Trustee: A person or firm holding and administering property or assets for the benefit of a third party.

Underlying Asset: The financial instrument upon which a derivative’s price is based.

Venture Capital: Funding provided by venture capital firms to startup companies and small businesses.

Wealth Management: A financial advisory service for affluent individuals, combining multiple financial services.

Yield: A return percentage for an investment over a set period of time.