Financial Services Glossary

Adjustable-Rate Mortgage (ARM): A type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. Also called variable rate or floating mortgages.

Bond (AKA Fixed Income): A loan made by an investor to a borrower in exchange for interest rate payments. Bonds are used by companies, municipalities, state, and governments to finance projects and operations.

Cash-Out Refinance: A mortgage refinance option in which an old mortgage is replaced with a new one with a larger amount than owed on the previous loan, helping borrowers use their home mortgage to access extra cash for home projects.

Concentrated Stock: An individual stock that represents more than 10% of a portfolio.

Diversification: A strategy that mixes a wide variety of investments within a portfolio to limit exposure to any single asset.

Dividend: A distribution of some of a company’s earnings to its shareholders, paid out in cash or additional stock.

Dow Jones Industrial Average (DJIA): A stock market index that tracks 30 large, publicly traded companies trading on the New York Stock Exchange or the NASDAQ.

Earnings Report: A filing (usually quarterly) made by public companies to report their performance.

Emerging Markets: Developing nations that are becoming more engaged with global markets as they grow. An emerging market country is typically transitioning from a lower income, less developed country to a more modern, industrial country with a higher standard of living.

Federal Funds Rate: The target interest rate at which commercial banks borrow and lend their excess reserves to each other overnight.

Fiduciary: A person or organization that acts on behalf of another person or persons, putting their client’s interests ahead of their own, with a duty to preserve good faith and trust.

Financial Plan: A document containing a person’s current financial situation and long-term monetary goals, as well as strategies to achieve those goals.

Gross Domestic Product (GDP): The total value of all the goods and services produced within a country’s borders in a specific time period. GDP growth is expressed as a %, both positive and negative.

Growth Stock: A share of a publicly traded company that is anticipated to grow at a rate above the average growth of the market. The stocks generally do not pay (or pay smaller) dividends.

Index: The performance of a basket of securities intended to replicate a certain area of the market. I.e., The S&P 500 Index, the Dow Jones Industrial Average (DJIA), etc.

Individual Retirement Account (IRA): A savings account with tax advantages that individuals can use to save and invest long term.

Inflation: The rise in the general level of prices, often expressed as a percentage, that a unit of currency buys less than what it did in prior periods.

Initial Public Offering (IPO): The process of offering shares of a private corporation to the public in order to raise money from public investors.

Interest Rate: The amount a lender charges a borrower, expressed as a percentage of the amount loaned. Interest rate can also apply to the amount earned at a bank, credit union, or brokerage agency on cash deposits.

Investment Bank: A financial services company that acts as an intermediary in large financial transactions. They are usually involved when a startup company prepares for it’s launch of an initial public offering (IPO) or when a corporation merges with another corporation.

Loss Aversion: The tendency to prefer avoiding losses to acquiring equivalent gains. I.e., It’s worse to lose $5 than it is to gain $5.

Market Capitalization: The total dollar value of a company’s outstanding shares of stock. It is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share.

Money Market: Very short-term investments, characterized by a higher degree of safety and lower rate of return.

NASDAQ: A global electronic marketplace for buying and selling securities.

New York Stock Exchange (NYSE): A stock exchange located in New York City that is the largest equities-based exchange in the world.

Portfolio: A collection of financial investments, like stocks, bonds, commodities, and cash.

Refinance: “Refi” for short, refers to the process of replacing the terms of an existing credit agreement, usually as it relates to a loan or mortgage. When a business or an individual decides to refinance, they seek to make favorable changes to their interest rate, payment schedule, and/or other terms outlined in their contract.

Required Minimum Distribution (RMD): The amount of money that must be withdrawn from an employer sponsored retirement plan, traditional IRA, SEP IRA, etc. by owners of retirement age.

Roth IRA: An individual retirement account (IRA) funded with after tax dollars that allows for withdrawals on a ta- free basis provided that certain conditions are met.

S&P 500 Index (Standard & Poor’s 500 Index): A market-capitalization weighted index of the 500 largest publicly traded companies in the U.S.

Securities Exchange Commission (SEC): The U.S. federal governing body that oversees investor safety.

SEP IRA (Simplified Employee Pension): An individual retirement account (IRA) that an employer or a self-employed person can establish.

Stock (AKA Equity): A security that represents the ownership of a fraction of a corporation.

Value Stock: A share of a publicly traded company that appears to trade at a lower price relative to it’s fundamentals. Generally contrasted with a growth stock. These stocks generally pay dividends.

Volatility: A measure of risk for a given security or market index. The higher the volatility, the riskier the security.

Yield: Earnings generated on an investment over a particular period of time, expressed as a percentage. Yield includes the interest earned or dividends received on a particular security.

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