Terms to Know

Question 1

After-Tax Return

Answer 1

The net return of a given investment after taxes have been paid.

Question 2

Bear Market

Answer 2

A market downturn that is 20% or more over a prolonged period.

Question 3

Blue Chip

Answer 3

Stock of a well-established company that usually pays regular dividends and carries no extensive liabilities.

Question 4

Bull Market

Answer 4

Period of rising investor confidence with rising general stock prices and market indexes.

Question 5

CD

Answer 5

Certificate of deposit. Savings deposit made for a fixed term, usually available for terms ranging from three months to five years.

Question 6

Debt

Answer 6

Created when a creditor or lender agrees to lend money or assets to a debtor. There are many variations, including private debt, public debt, secured and unsecured debt.

Question 7

Diversification

Answer 7

Mixing of a wide variety of investments with the aim of reducing risk.

Question 8

Dividend

Answer 8

Payment made by a corporation to stockholders. Can be changed (increased or suspended) at the discretion of the corporate board.

Question 9

Dollar Cost Averaging

Answer 9

Investing a level or gradually increasing amount on a periodic basis; may reduce risk of making a single large purchase.

Question 10

Economist

Answer 10

Expert in social science theory that may involve statistics, econometrics, and philosophical theories in efforts to model markets, behavior, and various types of financial phenomena.

Question 11

Edge

Answer 11

Trading methods that work over the long run have what is known in gambling as an edge. An edge refers to one’s systematic advantage over an opponent.

Question 12

Equity

Answer 12

Broad concept of share of ownershoip, the amount of value one has; non-debt securities.

Question 13

Exchange-Traded Fund (ETF)

Answer 13

Stock-like investment vehicle, traded on stock exchanges. Most track an index; can be low cost, and provide tax efficiency.

Question 14

Fiduciary

Answer 14

One who has a legal bond to act for and on behalf of another whose funds are entrusted to the fiduciary for investment the highest standard of care. A fiduciary is expected to be extremely loyal to the principal (beneficiary).

Question 15

FIC Financial-Industrial Complex

Answer 15

The concept of a group of forces that include insurance, investment, and other types of financial firms creating an environment (through lobbying the government) that maximizes profits to the industry as the primary or only goal at the expense of the consumer/investor.

Question 16

Forecast

Answer 16

Attempt to predict the future; often done by smart-sounding people who have no established record for their past forecasts.

Question 17

Hedge Fund

Answer 17

Manager of a pool of funs that is less regulated than mainstream mutual funds. Open only to a limited range of investors (accredited investors) and may take on leverage, short sales, or conduct other high-risk activities that regulated mutual funds cannot.

Question 18

Index

Answer 18

Method of measuring the general stock market or sector of the stock market through the tracking of a specified group of stocks. Many indexes have become investments products available to investors.

Question 19

Inflation

Answer 19

Rise in the general level of prices for goods and services that has generally occurred in a given economy over time; decline in purchasing power or “real” value of money.

Question 20

Inflation Risk

Answer 20

The loss in value of money that may be held in low-growth savings or investment vehicles over time.

Question 21

IRA

Answer 21

Individual Retirement Account. A retirement plan account that provides tax advantages; usually contains income that has not yet been taxed.

Question 22

Loanership

Answer 22

The practice of making long-term investments in debt and interest-bearing instruments.

Question 23

Proprietary Product

Answer 23

Financial product (mutual fund, annuity) that is sold and serviced by employees of the creator of the product; often can only be held by the financial company that created it.

Question 24

Prospectus

Answer 24

Legal document filed with the SEC that mutual funds (or other institutions) use to delineate expenses and describe the securities that are offered for purchase.

Question 25

Real Interest Rate

Answer 25

The rate of growth of a given account or investment after deducting the effect of inflation.

Question 26

Registered Investment Advisor

Answer 26

A person or firm that has registered with the SEC or a state regulatory agency; a designation that does not denote any necessary formal training beyond a FINRA series 65 exam, but rather an indication that the individual or firm is so registered and subjected itself to the requirements of the regulator; considered to be acting as a fiduciary.

Question 27

Registered Representative

Answer 27

An individual who is licesned to sell securities; legal power of an agent, required to pass FINRA series 7 and 63 exams (or a series 6 exam for limited securities activity).

Question 28

Roth IRA

Answer 28

Individual retirement account created by Taxpayer Relief Act of 1997. Contains non-deductible contributions that may be tax free if held to age 59 and a half.

Question 29

Simple IRA

Answer 29

Employer-provided salary reduction plan with low complexity and employer liability.

Question 30

Small Cap

Answer 30

A firm with a market capitalization below a certain threshold, usually between $10 or $20 billion, generalluy more volatile and risky for investors.

Question 31

Suvivorship Bias

Answer 31

The tendency for failed companies, failed concepts, or failed financial product to be excluded from studies or investors awareness due to the fact that they no longer exist. Survivorship Bias causes historical performance numbers to be misleading if the mutual fund family has funds that have been merged or discontinued.

Question 32

Tax Deferred

Answer 32

To delay paying taxes to a future time, generally used in reference to tax-deductible investments such as 401(k), 403(b), and various types of IRAs.

Question 33

Top 200 Fund

Answer 33

Mutual fund that ranks in the upper 200 based on amount of AUM.

Question 34

Total Return

Answer 34

The measurement of a given investment return, including any dividends and capital gains paid to the owner.

Question 35

Track Record

Answer 35

The history of performance of a given investment, often stated in 1-,3-,5-, or 10-year investments; provides no guarantee of future results.

Question 36

Value Averaging

Answer 36

Technique that attempts to invest an amount that will increase the investment by a target increment. May produce higher results than basic dollar cost averaging.

Question 37

Volatility

Answer 37

Another term for the statistical measurement of standard deviation; often used as an indication of the risk of an investment over a given historical time period.

Question 38

Yield

Answer 38

The nonprice-related returns of an investment; that is, a bond may have a 4% coupon yield, but may return more or less if sold before maturity.