The Investor's Field Guide to Market Gibberish

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There are times in our lives when we almost know, or don't know at all, the many things we wish to know, or at least to know better.

Case in point: you tune into FNA's monthly ChalkTALK and soon find your to Google later list growing longer than a CVS receipt. Or, in any case, when it comes to the language of the market, we may find that our understanding is fuzzy, blurry, sketchy — or just plain blank. And if asked to explain some of these things to others? Oh boy.

With this in mind, we decided to assemble a working glossary. And so we proudly present to you: The Field Guide to Market Gibberish: The decipherment of what is fairly, rarely or barely known.

Investor Lingo

Assets

Any resource with economic or monetary value that an individual, corporation, or country owns or controls that contributes to that owner’s wealth. Assets can be tangible or intangible, liquid or illiquid, and of real or expected value.

Capital

Material wealth used or available for use in the production of more wealth.

Capital gain/loss

The profit or loss that comes from selling an investment for more or less than you paid for it.

Dividend

A portion of a company's profit paid to shareholders.

Equity

The monetary value of the ownership of an investment.

Exchange

An exchange is a financial marketplace where assets such as securities, commodities, derivatives, and other financial instruments are traded. In part, their purpose is to ensure fair and orderly trading, and to efficiently disseminate price information for listed securities. The New York Stock Exchange is one well-known example.

Forward

This is an agreement between two parties to buy or sell an asset at a specified price on a given date. The terms (such as the delivery time and quantity) may be more “personalized” than is the case with standardized futures contracts.

Future

A standardized contract traded on an exchange. This is an agreement between two parties to buy or sell an asset at a specified price on a given date.

Liquid (re: assets)

An asset is liquid if it is relatively easy to find a buyer or a seller for it. Conversely, it is illiquid if the opposite is true, or if the investor would incur significant losses in selling or exchanging it for cash quickly.

Option

An investor’s right to purchase or sell a security or commodity on a specific date for a predetermined price. The investment is forfeited if the investor doesn’t exercise the options by the expiration date.

Portfolio

A collection of investments owned.

Yield

The return on a security expressed as a proportion of its price.

Types of Investment Vehicles

Alternative investment

Any investment vehicle that does not fall into a conventional investment category like stocks, bonds, or cash can be considered an alternative investment. This can include anything from hedge funds to private equity funds, managed futures, real estate, etc.

Bonds (fixed income)

Loans made to governments or corporations that pay a specified rate of interest during the life of the bond and return the principle amount — also known as the bond’s face value or par value — when the bond "matures," or comes due after a set period. They are generally more stable than stocks.

Commodities

Raw materials such as gold, oil, and agricultural products, for which contracts are bought and sold on commodities exchanges; often used as a hedge against inflation.

Exchange-traded funds (ETFs)

Similar to mutual funds in that they hold a collection of assets, but they trade on public stock exchanges like individual stocks throughout the trading day.

Fixed income

Bonds, bills, and interest-bearing notes that pay a specific interest rate over the life of a loan.

Hedge funds

A hedge fund is a private, unregistered investment fund that pools money from investors and invests in assets with the goal of getting positive returns. Hedge funds are generally limited to individuals and institutional investors who meet certain financial or sophistication criteria. They generally pursue more flexible investments and strategies than those used in things like mutual funds and ETFs, which can increase the risk of investments.

Index funds

A specific type of mutual fund or ETF designed to track the performance of a broad market index like the S&P 500, typically featuring low fees for investors.

Mutual funds

Pooled money from many investors used to buy a diversified basket of stocks, bonds, or other assets managed by a professional. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds; each share represents an investor’s part ownership in the fund and the income it generates.

Options and derivatives

Advanced contracts whose value depends on an underlying financial asset, index, or another instrument, used for speculation or risk management.

Private equity

An alternative investment class consisting of capital that is not listed on a public stock exchange, usually open only to accredited investors and high net worth individuals. Often accessing these via a private equity fund, private equity investors generally focus on long-term investment opportunities with an investment time horizon of 10 or more years. The investment strategy is often (but not always) to take a controlling interest in an operating company or business and engage actively in its management and direction in order to increase its value.

Real estate investment trusts (REITs)

REITs allow individuals to invest in large-scale, income-producing real estate. An REIT is a company that owns and typically operates this real estate or related assets. These may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans. Rather than developing real estate properties to resell them, an REIT buys and develops properties primarily to operate them as part of its own investment portfolio. Some are publicly traded on an exchange, and some are not; this difference affects the liquidity of an individual’s investment.

Securities

Investment contracts that are sold to investors as tradable financial assets by corporations and governments to raise capital. There are both equity securities, which denote ownership in a company, and debt securities, which represent borrowed money with agreed repayment terms. The most common securities are stocks and bonds.

Stocks (equities)

Shares that represent partial ownership in a company. They offer high growth potential but may have more volatility and carry higher risk than other investment options.

Stock Market Terms

Bid/Ask

A pair of prices, where “bid” is the price at which a trader is prepared to buy and “ask” (or sometimes “offer”) is the price at which the trader is prepared to sell the security. (See also Spread)

Broker

A platform or person that executes trades for an investor.

IPO

Abbreviation for initial public offering, the inaugural issuance of stock or other securities by a company for sale to the public.

Liquidity (re: stocks)

How easily you can buy or sell a stock without changing its price.

Market index

A market index is a group of stocks or other asset classes that tracks the performance of a market segment. Examples include the Dow Jones, S&P 500, and Nasdaq Composite.

Points (re: stocks)

For individual stocks, one point is usually equivalent to one dollar per share. In the context of a stock index, however, the actual value of a point varies widely depending on the index and how it’s calculated. As such, point changes for indexes are less important in their absolute values and more so in the context of each specific index’s trends and total point values.

Spread

The difference between the bid and the ask price. (See also Bid/Ask)

Shorting a stock

Selling a stock one doesn’t yet own. Investors who sell short believe the price of the stock will decrease in value. If the price drops, the investor can buy the stock at the lower price and make a profit; if the price of the stock rises and the investor must buy it back later at the higher price, they will incur a loss.

Market & Economic Performance

Buying power

Also called purchasing power, it is the amount of goods and services that can be purchased by a given unit of currency, taking into account the effect of inflation.

Consumer Confidence Index (CCI)

An economic indicator that measures how optimistic or pessimistic consumers are about the health of the economy and their personal financial situations, published monthly by The Conference Board, a nonprofit research organization. It reflects people's willingness to spend money — which can ultimately influence things like stock prices, business decisions, and economic policies.

Consumer Price Index (CPI)

A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas.

The Fed

The Federal Reserve System, often called the Federal Reserve or just the Fed, is the central banking system of the United States. One of its main functions is to conduct the nation’s monetary policy, which has a direct influence on borrowing costs, asset valuations, and overall economic liquidity.

Fed funds rate

The federal funds rate serves as the benchmark for nearly all borrowing and lending costs in the U.S. economy, acting as the Federal Reserve's main tool to control inflation and influence economic growth. Specifically, it refers to the interest rate that banks charge other institutions for lending excess cash to them from their reserve balances overnight.

Gross domestic product (GDP)

The total monetary value of all finished goods and services produced inside a country during a specific time period. In the U.S., official GDP metrics are published each quarter by the Bureau of Economic Analysis (BEA). At the risk of oversimplifying: when GDP grows quickly, investors often buy riskier assets like stocks for higher returns; when GDP slows down, investors tend to move money into safer assets like bonds.

Estate Planning

Estate tax

A tax on the value of property owned upon death. It considers everything the deceased owned or had certain interests in at the date of death. There is a federal estate tax, and some states have their own estate taxes.

Irrevocable trust

Once created, an irrevocable trust cannot be changed or terminated. An irrevocable trust can be established during the estate planning process. Most trusts can be irrevocable. An irrevocable trust tends to offer the most protection of assets from creditors and lawsuits.

Probate

Probate is the court-supervised process of authenticating a deceased person's will and distributing their estate according to their wishes, or state law if no will exists. Certain assets like life insurance, retirement accounts, and joint ownership may bypass probate. The probate process can be lengthy and expensive, but individuals can avoid exorbitant costs and complexities by having an easily authenticated will or a trust.

Revocable trust

A revocable trust allows the grantor — the person who created the trust — to change or end the trust at any point during their lifetime. Revocable trusts are also known as living trusts or revocable living trusts. Transferring assets to a revocable trust can help to avoid or simplify the probate process.

Testamentary trust

Rather than creating and funding a trust immediately, it’s possible to create a trust that goes into effect upon death. Known as a testamentary trust, this type of trust is created through a will or revocable trust, and the terms of the trust are spelled out within the will. Assets used to fund a testamentary trust may be subject to probate.

Trust

A trust is a legal document used to establish a "container" that holds assets, like money or property. The trust's assets are then managed by the person or organization establishing the trust (i.e., the grantor or trustor) or a trustee, another person or organization tasked with overseeing the trust until its assets are transferred to its beneficiaries.

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