Glossary

Something that you purchase which you expect to have greater value in the future. Your investment portfolio is made up of individual assets.

Each stock, bond, investment property (or even savings account) that you have is considered an asset. For example, if you have one share of Apple stock, that's an asset.

An asset class is a category of assets, such as stocks.

There are four major asset classes which include stocks, bonds, real estate and cash. There are also many alternative asset classes. It is common and advisable to utilize investments in the four major asset classes, but alternative asset classes can also be useful to diversify and balance your portfolio, depending on your goals. One of the videos in our Basics of Investing course is dedicated to asset classes.

Alternative asset classes are any asset class outside the four major classes (stocks, bonds, real estate, and cash).

Private securities (the shares of a privately-owned company) are an example of an alternative asset class.

The risk involved with alternative asset classes varies from asset to asset.

When you put money into a savings account that pays you back in interest, the amounts you make are small at first.  

But the money you make from interest makes your saved amount bigger over time, which means you'll make an even larger sum from interest the next year. Each year the growth of "interest on interest" spikes higher. In a retirement savings account like a 401k, starting saving in your twenties rather than your thirties can mean a difference of double the retirement savings because of compound interest.

Here's a graph by the New York Times that illustrates compound interest through the lens of retirement.

Diversification refers to keeping your assets balanced, both across asset classes and within asset classes. A diverse portfolio means less risk.

If you don't diversify, then your loss will be greater if there is an economic crisis, or if you're only invested in a particular asset and something happens to the value of that asset.

A fiduciary is also an investment manager or investment advisor (RIA for short), but not all managers/advisors are fiduciaries.

The term fiduciary communicates the advisor's formal obligations. A fiduciary is required to act only in the client's best interests.

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An initial public offering (also called an IPO) is a transition a company makes when it becomes publicly owned via the stock market. When a company makes its IPO, it selects a ticker symbol and that stock becomes available for anyone to buy on the stock market.

Putting your time, effort or capital at risk, expecting that you'll get something of greater value in return.

Investing requires risk but the risk can be managed through an investment framework.

An investment manager is someone who is licensed to manage clients assets and advise them how to invest their capital.

Investment managers are also known as RIA's (registered investment advisors). The term RIA is an industry term and specifies the type of licensing the individual has. Some investment advisors/managers are referred to as fiduciaries. Fiduciary denotes an extra level of formal accountability (see definition).

A return is the amount of money you make from investing a particular asset or set of assets.

Returns are the entire goal of investing. The way we achieve returns comes about through a careful and data-driven process called the investment framework.

Investment risk is equivalent to how likely it is to achieve the outcome (or returns) that you're hoping for.

Generally speaking, the bigger the risk, the broader the possibilities. If you're aiming for a big return, you're going to need to take a bigger risk in order to achieve the goal.

Sometimes it's not wise to take big risks, and sometimes it can be worth it. We use our investment framework to help you determine which is true for you, then set goals and start a plan most likely to achieve them. Rather than taking big risks because you are hoping for a particular outcome, we help you plan the likeliest path to achieving that outcome based on the data-driven methodology that we've adopted.

Our video "What is Investing?" covers the basics of risk and the role it plays in your investment strategy.

The SEC is the government organization that regulates the investing industry. It determines licensing and holds advisors, broker-dealers, and is intended to keep all other industry professionals accountable.

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A stock (also known as a security) is a type of asset. It's probably the most commonly talked-about category because stocks are the type of asset bought and sold on the public stock exchange.

Stocks are available in different markets, but all public ones.

A ticker symbol is a few letters and/or numbers that symbolize an individual stock.

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When a company makes its initial public offering (also known as 'going public'), stock from that company becomes available to the public on the stock market. That new public stock gets a name. That name is called a ticker, or ticker symbol. Companies can choose their ticker symbol from available tickers. It's a lot like choosing an Instagram handle—tickers can be abbreviations or acronyms, but are also sometimes randomly selected.

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Tax loss harvesting is a practice advisors and investors often employ to avoid excessive taxes on money made quickly in the stock market. When an investor makes a large amount of money in one year thanks to one or more security's increase in value, they may end up owing thousands of dollars in capital gains tax. But if one of those assets—let's use a stock as an example—takes a dip in value, the investor now can sell that asset at a loss and report the difference as a decrease in income. This can save thousands in taxes per year.

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A type of life insurance that covers a person for a set period of time. If you buy a term insurance policy for yourself, it's meant to cover expenses you'd otherwise be responsible for, especially if you have family members who rely on you. Unlike permanent life insurance, term insurance only has cash value upon death of the insured person. The insured can let the policy expire or, in many cases, can consult with the life insurance provider and convert the plan to a permanent coverage option.

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A category of life insurance that doesn't expire. While term insurance is only payable to a trust or beneficiary, permanent life insurance accrues cash value over time which the covered person may use at a later date.

Upon the death of the covered person, the policy has a set payout to the named beneficiary in addition to the cash value of the policy.

There are two main types of permanent life insurance: universal life and whole life.

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A high-cost option for permanent life insurance that includes a death benefit and an additional saved amount to the covered person or their beneficiary at a guaranteed rate of growth. Permanent life insurance is best understood as insurance-as-an-investment-strategy, reaching beyond the requirements for trust and estate protection in favor of putting life insurance dollars towards life savings.

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An investment advisor gives advice on investment decisions. There are different licenses advisors can hold, and some hold multiple licenses at once. The obligation advisors have towards clients varies by license.

This term isn't complicated, but it can be confusing. An investment advisor can be a broker-dealer, an investment product sales representative (with certain legal obligations) or registered investment advisor representative—which implies fee-based advising under fiduciary duty.

A type of permanent life insurance, but with a low-cost premium. As permanent life insurance, it includes cash benefits to the covered person, but the amount of the cash benefit element relies on market performance. Beneficiaries only receive the death benefit amount.

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A registered investment advisor (or RIA) isn't a term for a professional—it's actually a term for a firm operating under fiduciary requirements.

The firm must be registered with the SEC (Securities and Exchanges Commission) or a similar securities agency within their state. They are allowed to give investment advice with fee-based compensation. The firm employs registered investment advisor representatives—which implies fee-based advising under fiduciary duty.

Some firms have dual registration as RIAs and as broker-dealers, which allows them to offer fiduciary services as well as sell commission products.

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An annuity is an insurance product that's used as an income stream for retirees. It's a long-term investment strategy that isn't always as productive as it may appear in sales brochures.

They're less flexible than other retirement savings plans, and do not have any of the tax benefits of a 401k or Roth account. Annuities can have complicated tax requirements, and historically substantially underperform the stock market.

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