glossary

A

Allocation/Asset Allocation

An investment strategy that aims to balance risk, and reward, by apportioning portfolio assets according to an individual’s goals, risk for tolerance and investment horizon.

Alternative Investment/Sector

An investment outside the three traditional asset types (stocks, bonds and cash) including hedge funds, managed futures, commodities and derivatives.

Annual Dividend Yield

The return on investment for a stock

Asset Allocation Strategy

An investment strategy that involves periodically rebalancing the portfolio in order to reach a long-term goal.

Asset Classes

A group of securities that exhibit similar characteristics, and behave similarly, in the marketplace.

Asset Preservation

An strategy to prevent the loss of an investment’s total value and produce a return at least equal to the rate of inflation.

Audit

An independent examination, and evaluation, of the financial statements of an individual or organization.

B

Benchmarks

A standard or point of reference against which things may be compared or assessed.

Bond

A security in which an investor loans money to an entity, for a defined period of time, at a fixed interest rate.

C

Capital Gain

An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.

Capital Preservation

A strategy to ensure a portfolio is producing a return that is at least equal to inflation.

Certified Financial Planner—CFP

Official designation of an individual who has successfully completed certification requirements of the Certified Financial Planner Board of Standards, Inc. Recognized as the standard of excellence for competent and ethical personal financial planning.

Certified Pension Consultant—CPC

Designation conferred by American Society of Professional Pension Actuaries (ASPPA) to benefits professionals with at least three years of pension consulting experience and who have demonstrated competence in various aspects of pension and related employee benefits consulting. CPCs work alongside employers to formulate, implement, administer and maintain qualified retirement plans.

Certified Public Accountant—CPA

A designation granted by the American Institute of Certified Public Accountants to those who have passed the Uniform CPA Examination and met educational, experience and ethical requirements. CPAs help ensure that professional standards for the industry are enforced.

Certified Securities Operations Professional—CSOP

Certification designed to recognize professionals working in wealth management and trust organizations who are competent in securities operations. This designation is granted by the American Bankers Association to those who have met experience and education requirements and who have proven knowledge in securities, regulation and compliance, audit, controls and reconciliation.

Certified Senior Advisor—CSA

Professional credentialing of the Society of Certified Senior Advisors.

Certified Trust and Financial Advisor—CTFA

A professional credential offered by the American Bankers Association to financial professionals who have demonstrated knowledge and experience in the trust and advisory fields.

Certified Wealth Strategist—CWS

Professional certification by Cannon Financial Institute.

Chartered Financial Analyst—CFA

A professional designation awarded by the CFA Institute to those who have successfully completed its graduate level program. This is globally recognized as the definitive standard by which to measure investment professionals.

Commodities

Basic goods, such as grains, gold, beef, oil and natural gas, used in commerce that are interchangeable with other commodities of the same type.

Compliance

To be in accordance with a law, ruling or other generally-accepted practice.

Consumer Price Index

A measure associated with the cost of living that examines the weighted average of prices of a group of consumer goods and services, such as transportation, food and medical care.

D

Diversification

A risk management technique that mixes a wide variety of investments, within a portfolio, in order to produce higher returns and lower volatility than an individual investment.

Dividends

E

Encrypted

The process of applying a secret code to important data so that it cannot be accessed by unauthorized persons.

Equity Investment/Equity Sector

A stock or any other security which represents an ownership interest.

Estate Plan

A plan that serves to manage an individual’s assets in the event of incapacitation or death.

Executor

An individual or corporation appointed to administrate the estate of a deceased person.

Expense Ratio

A measure of what it costs an investment company to operate a mutual fund.

F

Fee Structure

A chart or list showing the dollar amounts that a business charges for various services or activities.

Fee-only Compensation

An advisor’s compensation based solely on a set percentage of the client’s assets.

Fiduciary

A person to whom property or power is entrusted for the benefit of another. A fiduciary is required to put the other person’s interests ahead of his/her own.

Financial Models

The process by which a firm constructs a financial representation, of some or all aspects of financial events, which provides direction regarding possible action or alternatives.

Firewalls

A device, or series of devices, that separate, and secure internal networks, from unauthorized external access.

H

Hedge Fund

An aggressively managed portfolio of investments that uses advanced investment strategies, such as leveraged, long, short and derivative positions in both domestic and international markets, in order to generate high returns.

High Net Worth

A classification by the financial services industry to denote an individual or family with liquid assets over a certain figure. The most commonly quoted figure is $1 million.

I

Inflation

The rate at which the price for goods and services is rising and, subsequently, purchasing power is falling.

Inflation Adjusted

A measure of the return on an investment after subtracting inflation.

Investment Guidelines

An investor’s guide to making investment decisions based on risk tolerance, time horizon and future needs for capital. Incorporates asset allocation and buy and sell guidelines.

Investment Objectives

Incorporating the financial goals of an investor into an optimal portfolio mix. Risk tolerance, cash needs, tax situation and time horizon are all considered.

Investment Policy

A document drafted between a portfolio manager and a client that outlines general rules for the manager.

L

Liquid/Liquidity

The degree to which an asset can be bought or sold in the market without affecting the asset’s price. Liquid assets are easily bought or sold

M

Managed Futures

An alternative investment strategy in which professional portfolio managers use futures contracts to provide portfolio diversification to help mitigate risk.

Market Cycle

All markets are cyclical. They increase, peak, decline and then hit a low point, or trough. When one cycle is finished, the next begins. Full market cycles are often measured from peak to peak or from trough to trough.

Market Indexes

An aggregate value of several stocks that expresses their total value against a base value, from a specific date, with the intent of tracking the market’s changes over time.

Money Managers

Money Managers — also known as ‘portfolio manager’ or ‘investment manager. A professional responsible for managing the investment portfolio of an individual or institutional investor.

Money Markets

Financial instruments with high liquidity and very short maturities, often seen as a safe place to keep money for the short term.

Mutual Fund

An investment vehicle that is made up of funds from many investors which are invested to produce capital gains and income for the fund’s investors.

N

Negative Real Return

A financial loss, after inflation, on an investment during a specific period of time.

P

Patch Maintenance

The use of software patches to fix problems, or update a computer program of its supporting data, including fixing security vulnerabilities.

Penetration Testing

Security testing, also known as ethical hacking, in which the evaluators attempt to circumvent the security features of a computing environment, in order to insure the security of a computer system.

Portfolio Diversification

A risk management technique, in which an investor holds a wide variety of investments within a portfolio in order to produce higher returns and lower risk.

Price Earnings Ratios

A valuation ratio of a company’s current share price compared to its earnings per share.

Profit Margins

A measure of how much per dollar of sales a company keeps in earnings.

Q

Qualified Pension Administrator—QPA

Credential created by the ASPPA to recognize professionals qualified to perform the technical and administrative functions of qualified plan administration. QPAs assist employers, actuaries and consultants in performing functions such as determination of eligibility benefits, computation of benefits, plan recordkeeping, trust accounting and disclosure and compliance requirements.

R

Real Rate Return

The annual percentage of return on an investment less inflation.

Real Sales Growth

Sales growth less inflation.

Return/Rate of Return

The gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost.

Reversion to the Mean

An investment philosophy suggesting that asset prices and returns eventually return toward a long-term mean or average.

Risk Management

The process of identifying, analyzing and either accepting—or working to minimize—the uncertainty in investment decision-making.

Risk-Adjusted Returns

A return measure after adjusting for volatility.

S

S&P 500

An index of the prices of 500 large-company common stocks, considered a leading indicator for the American economy.

Short-Term Speculation

Trading securities with an above-average degree of risk in return for above-average profit potential, within a timeframe of under a year.

Stable Investment/Sector

A group of stable investments which are resistant to volatility.

Strategic Asset Allocation

An investment strategy that involves periodically rebalancing the portfolio in order to maintain a long term goal.

T

Tactical Asset Allocation

An active management portfolio strategy that varies weightings in asset classes based on valuation and economic outlook.

Tax Liability

The total amount of tax that an investor is legally obligated to pay on investment earnings.

Tax-Free Investments

Investments that do not incur the typical tax consequences of other investments.

Trustee

An individual (or business) which holds or manages assets for the benefit of another.

U

Undervalued Asset

A financial security or other type of investment that is selling for a price presumed to be below the investment’s true intrinsic value.

V

Valuation

The process of determining the current worth of an asset or company.

Glossary of Financial Terms

A