Asset: An item of value such as stocks and bonds.
Asset class: A category of finanical asset, such as stocks, bonds or real estate.
Bond: A financial asset that represents a loan made by the investorr to the bond issuer. The issuer is legally bound to repay the face value of the bond at a set point in time. Many bonds also pay interest.
Budget: Financial statement that forecasts income and expenses for a future period of time.
Corporate bond: Debt issued by a company. Typically, these bonds make periodic interest payments and repay the principal amount at maturity.
Current liabilities: Debts that must be paid within a short time, usually less than one year.
Diversification: A means of managing risk by investing in several different securities within an asset class, across asset classes and globally.
Emerging markets investment: Investing via individual securities or mutual funds in less developed markets and economies, e.g. China, Indonesia, Mexico and Turkey.
Exchange rate risk: Risk due to the need to convert the firm's revenues and/or expenses to/from another currency, incremental to business risk and political risk. Changes in currency exchange rates can impact the value of an international investment.
Financial risk: Risk due to a company having debt, incremental to business risk.
Fixed expense: An expense that does not fluctuate month to month. Examples include rent, car payment and insurance premiums.
Fundamental analysis: A form of financial analysis that emphasizes the operating results and financial condition of the entity being evaluated.
Income statement: Financial statement that summarizes cash receipts and payments for a given past period of time.
Inflation risk: Risk due to decrease in value of an investment caused by rising price levels.
Insolvency: The inability to pay debts when they are due because the value of the liabilities exceeds the value of the assets or because of insufficient cash flow.
Investment horizon: Point in time at which investment funds will be needed for their intended purpose. For example, a 50-year-old person's investment horizon for a retirement fund may be 20 years.
Large cap stocks: Stocks of a company with a total market value (market capitalization) of more than $4-$5 billion.
Liquidity: Ease with which an asset may be converted to cash without loss of value. Short-term T-bills are highly liquid; shares of a privately-held foreign company are generally not.
Liquid assets: Cash and other items of value that are easily converted to cash without loss of value.
Liquidity risk: Risk due to a relative difficulty of converting an investment to cash without forfeiting value.
Long-term liabilities: Debts that do not have to be paid until more than one year from the current time.
Market Capitalization: The size of the corporation measured as the total dollar value of all of the company's shares outstanding.
Maturity risk (bonds): Risk due to possible changes in value caused by fluctuations in interest rates.
Money market fund: A mutual fund that invests in short-term, low-risk securities including Treasury bills and certificates of deposit.
Net worth: The difference between total assets and total liabilities.
Net worth statement: A financial statement that reports what an individual or a family owns and owes;
sometimes called a balance sheet.
Political risk: Risk due to the political situation in the firm's country, incremental to business risk and exchange risk.
Portfolio: A group of assets held at one time.
Real estate investment trust (REIT): A management company that invests in various real estate investments; investors can purchase shares on exchanges and over-the-counter.
Reinvestment risk: Risk due to the possibility of not being able to reinvest the proceeds from an investment at an acceptable rate of return.
Return: Change in value of a security or portfolio over an evaluation period; may consist of interest, dividends, and/or change in market price.
Risk: Degree of uncertainty of the expected rate of return of a security or a portfolio.
Risk aversion: A perference to avoid risk or to be adequately compensated for investing in a risky investment.
Small cap stocks: Stocks of a company with a total market value (market capitalization) of less than $1 billion; firms normally have annual revenues of less than $250 million.
Stock: A financial asset that represents ownership of a corporation. The corporation is not legally bound to make any payments of other forms of return to the investor.
Systematic risk: Risk associated with the random movements of the market; it normally cannot be elminiated by diversification. Also called market risk or nondiversifiable risk.
Technical analysis: A form of financial analysis that relies on historical information and patterns.
"The Market": The entire stock market, including all exchanges. Commonly a broad-based market inde such as the S&P500 serves as a proxy for the "market".
Treasury bill: A short-term debt security issued by the US government; also known as a T-bill.
Treasury bond: A long-term government issued security, issued with a 10- to 30-year maturity, which pays a fixed interest rate two times a year; also known as a T-bond.
Treasury note: An intermediate-term government debt security issued with a 2- to 10-year maturity; also known as a T-note.
Unsystematic risk: Risk associated with a particular asset. It can be reduced by holding the asset within a portfolio. Also called perculiar risk or diversifiable risk.
Variable expense: An expense that may change month to month. Examples include gas for your car, groceries and entertainment expense.
Acknowledgement
Terminology borrowed from Financial Literacy Training for High School Students, eight independent instructional modules and handouts by the Center for Financial Studies / South New Hampshire University. The publication was made possible by a grant from the FINRA Investor Education Foundation.
