Glossary of Investment Terms Flashcards
Alpha
The amount of return expected from an investment from its inherent value.
Alternative Minimum Tax (AMT)
Federal tax, revamped by the Tax Reform Act of 1986, aimed at ensuring that wealthy individuals, trusts, estates and corporations pay at least some tax.
Annual report
The yearly audited record of a corporation or a mutual fund’s condition and performance that is distributed to shareholders.
Annualized
A procedure where figures covering a period of less than one year are extended to cover a 12-month period.
Annualized rate of return
The average annual return over a period of years, taking into account the effect of compounding. Annualized rate of return also can be called compound growth rate.
Appreciation
The increase in value of a financial asset.
Asset allocation
The process of dividing investments among cash, income and growth buckets to optimize the balance between risk and reward based on investment needs.
Asset class
Securities with similar features. The most common asset classes are stocks, bonds and cash equivalents.
Average maturity
For a bond fund, the average of the stated maturity dates of the debt securities in the portfolio. Also called average weighted maturity. In general, the longer the average maturity, the greater the fund’s sensitivity to interest-rate changes, which means greater price fluctuation. A shorter average maturity usually means a less sensitive - and consequently, less volatile - portfolio.
Balanced fund
Mutual funds that seek both growth and income in a portfolio with a mix of common stock, preferred stock or bonds. The companies selected typically are in different industries and different geographic regions.
Bear market
A bear market is a prolonged period of falling stock prices, usually marked by a decline of 20% or more. A market in which prices decline sharply against a background of widespread pessimism, growing unemployment or business recession. The opposite of a bull market.
Benchmark
A standard, usually an unmanaged index, used for comparative purposes in assessing performance of a portfolio or mutual fund.
Best-in-class
A top performing product, service or person within a category or peer group.
A sustainable investment style that involves investing in companies that lead their peer groups with respect to sustainability performance.
Beta
A measurement of volatility where 1 is neutral; above 1 is more volatile; and less than 1 is less volatile.
Blue chip
A high-quality, relatively low-risk investment; the term usually refers to stocks of large, well-established companies that have performed well over a long period. The term Blue Chip is borrowed from poker, where the blue chips are the most valuable.
Board of Trustees
A governing board elected or appointed to direct the policies of an institution.
Bond
A bond acts like a loan or an IOU that is issued by a corporation, municipality or the U.S. government. The issuer promises to repay the full amount of the loan on a specific date and pay a specified rate of return for the use of the money to the investor at specific time intervals.
Bond fund
A mutual fund that invests exclusively in bonds.
Breakpoint
The level of dollar investment in a mutual fund at which an investor becomes eligible for a discounted sales fee. This level may be achieved through a single purchase or a series of smaller purchases.
Bull market
Any market in which prices are advancing in an upward trend. In general, someone is bullish if they believe the value of a security or market will rise. The opposite of a bear market.
Capital
The funds invested in a company on a long-term basis and obtained by issuing preferred or common stock, by retaining a portion of the company’s earnings from date of incorporation and by long-term borrowing.
Capital gain
The difference between a security’s purchase price and its selling price, when the difference is positive.
Capital gains ex-date
The date that a shareholder is no longer eligible for a capital gain distribution that has been declared by a security or mutual fund.
Capital gains long term
The difference between an asset’s purchase price and selling price (when the difference is positive) that was earned in more than one year.
Capital gains reinvest NAV
The difference between an asset’s purchase price and selling price (when the difference is positive) that was automatically in vested in more shares of the security or mutual fund invested at the security’s net asset value.
Capital gains short term
The difference between an asset’s purchase price and selling price (when the difference is positive) that was earned in under one year.
Capital loss
The amount by which the proceeds from a sale of a security are less than its purchase price.
Capitalization
The market value of a company, calculated by multiplying the number of shares outstanding by the price per share.
Cash equivalent
A short-term money-market instrument, such as a Treasury bill or repurchase agreement, of such high liquidity and safety that it is easily converted into cash.
Center for Carbon Transition (CTT)
A JPMorgan Chase initiative that provides clients in the Corporate & Investment Bank and Commercial Banking with centralized access to sustainability-focused financing, research and advisory solutions.
Climate action 100+
An investor-led initiative to encourage better climate disclosures and emission reduction strategies for a group of large greenhouse gas-emitting companies.
Common stock
Securities that represent ownership in a corporation; must be issued by a corporation.
Contingent deferred sales charge (CDSC)
A back-end sales charge imposed when shares are redeemed from a fund. This fee usually declines over time.
Corporate bond
A long-term bond issued by a corporation to raise outside capital.
Corporate engagement
Shareholders entering into discussions with company management in order to better understand the company’s management of certain risks and/or to influence a company’s decision making process.
Corporate social responsibility
A business’ commitment to their customers, employees and communities around the world to be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.
Country breakdown
Breakdown of securities in a portfolio by country.
Custodian
A bank that holds a mutual fund’s assets, settles all portfolio trades and collects most of the valuation data required to calculate a fund’s net asset value (NAV).
Cut-off time
The time of day when a transaction can no longer be accepted for that trading day.
Daily dividend factor (date)
Daily dividend distributed by a money market mutual fund.
Default
Failure of a debtor to make timely payments of interest and principal as they come due or to meet some other provision of a bond indenture.
Distribution schedule
A tentative distribution schedule of a mutual fund’s dividends and capital gains.
Diversification
The process of owning different investments that tend to perform well at different times in order to reduce the effects of volatility in a portfolio, and also increase the potential for increasing returns.
Dividend
A dividend is a portion of a company’s profit paid to common and preferred shareholders. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends.
Dividend paid
Amount paid to the shareholder of record a security or mutual fund.
Dividend reinvest NAV
Dividends paid to the shareholder of record that are automatically invested in more shares of the security or mutual fund that are purchased at the security’s net asset value.
Dividend yield
Annual percentage of return earned by a mutual fund. The yield is determined by dividing the amount of the annual dividends per share by the current net asset value or public offering price.
Dollar cost averaging
Investing the same amount of money at regular intervals over an extended period of time, regardless of the share price. By investing a fixed amount, you purchase more shares when prices are low, and fewer shares when prices are high. This may reduce your overall average cost of investing.
Dow Jones Industrial Average (Dow)
The most commonly used indicator of stock market performance, based on prices of 30 actively traded blue chip stocks, primarily major industrial companies. The Average is the sum of the current market price of 30 major industrial companies’ stocks divided by a number that has been adjusted to take into account stocks splits and changes in stock composition.
Environmental, social and governance (ESG) integration
The systematic inclusion of financially material ESG factors in investment analysis and investment decisions, with the goal of enhancing long-term, risk adjusted financial returns:
Environmental - Factors that relate to the quality and functioning of the natural environment, and natural systems, e.g., carbon emissions, environmental regulations, water stress and waste.
Social - Factors that relate to the rights, well-being, and interests of people and communities, e.g., labor management, health & safety.
Governance - Factors that relate to the management and oversight of companies and investee entities, e.g., board structure, pay.
EPS
The portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability.
Equities
Shares issued by a company which represent ownership in it. Ownership of property, usually in the form of common stocks, as distinguished from fixed-income securities such as bonds or mortgages. Stock funds may vary depending on the fund’s investment objective.
Exclusions
An investment process that excludes specific investments or classes of investment from the investment universe based on specific values or norms-based criteria.
A sustainable investment style that excludes certain sectors, companies or practices based on specific values or norms-based criteria from a fund or portfolio. For example, certain industries, such as defense, tobacco or fossil fuel producers, can systematically be excluded from investment.
Ex-Dividend
The interval between the announcement and the payment of the next dividend for a stock.
Ex-Dividend date
The date on which a stock goes ex-dividend. Typically about three weeks before the dividend is paid to shareholders of record.
Exchange privilege
The ability to transfer money from one mutual fund to another within the same fund family.
Expense ratio
The ratio between a mutual fund’s operating expenses for the year and the average value of its net assets.
Expense ratio (date)
Amount, expressed as a percentage of total investment that shareholders pay annually for mutual fund operating expenses and management fees.
Federal Funds Rate (Fed Funds Rate)
The interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks needing overnight loans to meet reserve requirements. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate, which are periodically changed by banks and by the Federal Reserve Board.
Federal Reserve Board (The Fed)
The governing board of the Federal Reserve System, it regulates the nation’s money supply by setting the discount rate, tightening or easing the availability of credit in the economy.
Financial materiality
An event or information that are reasonably likely to impact the financial condition or operating performance of a company and should be considered during the investment decision-making process.
Fixed income fund
A fund or portfolio where bonds are primarily purchased as investments. There is no fixed maturity date and no repayment guarantee.
Fixed income security
A security that pays a set rate of interest on a regular basis.
Fund
A pool of money from a group of investors in order to buy securities. The two major ways funds may be offered are (1) by companies in the securities business (these funds are called mutual funds); and (2) by bank trust departments (these are called collective funds).
Green bonds
A type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental friendly projects.
Green Bond Principles
Voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond.
Growth investing
Investment strategy that focuses on stocks of companies and stock funds where earnings are growing rapidly and are expected to continue growing.
Growth stock
Typically a well-known, successful company that is experiencing rapid growth in earnings and revenue, and usually pays little or no dividend.
Growth-style funds
Growth funds focus on future gains. A growth fund manager will typically invest in stocks with earnings that outperform the current market. The manager attempts to achieve success by focusing on rapidly growing sectors of the economy and investing in leading companies with consistent earnings growth. The fund grows primarily as individual share prices climb.
Impact investing
A sustainable investment style that seeks to generate measurable positive social or environmental impact alongside financial return. Investment themes include activities such as affordable housing, education and healthcare.
Investment stewardship
Engaging with companies and voting proxies to ensure our clients’ interests are represented and protected and the company is focused on responsible allocation of capital and long-term value creation.
Index
An investment index tracks the performance of many investments as a way of measuring the overall performance of a particular investment type or category. The S&P 500 is widely considered the benchmark for large-stock investors. It tracks the performance of 500 large U.S. company stocks.
Individual Retirement Account (IRA)
A tax-deferred account to which an eligible individual can make annual contributions up to $3,000 ($6,000 for a single-income married couple filing a joint income tax return).
Inflation
A rise in the prices of goods and services, often equated with loss of purchasing power.
Interest rate
The fixed amount of money that an issuer agrees to pay the bondholders. It is most often a percentage of the face value of the bond. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength.
Interest-rate risk
he possibility of a reduction in the value of a security, especially a bond, resulting from a rise in interest rates.
