If you’re new to the investment world and the industry-specific terms you often read or hear about, try this handy glossary.


Keep in mind that building wealth typically requires more than just knowing the lingo and major investment concepts. It takes discipline, time and often a partnership with your investment advisor.


  1. Asset Class: A group of securities that show similar characteristics or behave similarly in the marketplace and are subject to the same laws and regulations. The three primary asset classes are stocks (equities), bonds (fixed-income), and cash equivalents (money market instruments). Other asset classes might include real estate, commodities and alternative investments.
  2. Asset allocation: The process of dividing your investment portfolio among the major asset classes, with the primary purpose of reducing risk by investing the portfolio across uncorrelated assets. Appropriate asset allocation varies with each investor and depends on their risk tolerance, goals and time frame.
  3. Rebalancing: The process of realigning the weighting percentages in an investment portfolio to the investor’s original desired target level by selling over-weight asset classes and buying under-weight asset classes.
  4. Cash (money market): An investment in short-term obligations that provides return in the form of interest payments. Cash investments generally offer lower returns and lower risk when compared to other investments. Examples are money market accounts, some short-term CDs, and treasury bills.
  5. Stock (equity): A type of security that signifies ownership in a company and represents a claim on the company’s assets and earnings. The price of stock traded on the markets changes daily due to supply and demand. Some stocks pay out dividends to shareholders. Stocks are generally more risky than cash or bonds, since they sit lowest in the capital structure and have less of a claim on company assets, but historically have outperformed other assets in the long term.
  6. Bond (fixed income): A type of security that is a loan or IOU. The issuer of the bond owes the holder a debt, and depending on the terms of the bond, is obligated to pay the holder interest and/or repay the amount loaned (principal) at a later date at the terms specified.
  7. Mutual fund: An investment vehicle that pools the funds of investors. Mutual funds are operated by investment managers who purchase securities on the investors’ behalf. A mutual fund’s portfolio of investments is structured and maintained to match the investment objectives of its prospectus. Mutual funds can provide investment diversification and active professional management at a reasonable price for investors.
  8. Index fund: A type of passive fund with an investment portfolio constructed to track or match the components of a market index, such the Standard & Poor’s 500 (S&P 500). Investing in an index fund can provide investors with simplicity, tax efficiency and low operating expenses.
  9. Exchange Traded Fund (ETF): Comprised of baskets of securities, ETFs have some of the characteristics of mutual funds but trade throughout the day, similar to individual stocks. Investing in ETFs can provide investors with flexibility, relatively low costs, and tax efficiency.
  10. Target-date fund (similar to lifecycle, dynamic-risk or age-based fund): A mutual fund or similar collective investment that automatically adjusts the mix of stocks, bonds and cash in its portfolio according to a selected time frame or goal. These types of funds can provide diversification and simplicity for investors. They are particularly popular as investments inside 401(k) plans.
  11. Price-to-earnings ratio (P/E): Compares a firm’s stock price to its reported earnings and is just one valuation metric among many that provide insight into whether a stock in overvalued or undervalued.
  12. Prospectus: A legal document required by the Securities and Exchange Commission (SEC). For a mutual fund, the prospectus details the fund’s objective, investment strategies, risks, distribution policy, fees and expenses, and fund management.


To learn more about investing, contact a Boulay advisor at 952-893-9320 or learnmore@BoulayGroup.com.


File Download: New to Investing? Understand these Terms


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Boulay PLLP and Boulay Financial Advisors, LLC are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc. Prime Global is not affiliated with ValMark Securities, Inc. and ValMark Advisers, Inc.