Investing your money can be a bit intimidating, especially if you’re new to investment management. There are so many risks to understand, strategies to plan, and lots of jargon and new terms to confuse you when you start. Understanding these investment buzzwords and terms can go a long way to feeling confident in investing your money, no matter whether you live near Bartley Financial’s offices in Bedford, NH and Andover, MA or on the other side of the nation.

And it’s important to get comfortable with these terms because you don’t want to miss out on the benefits of investing your money – growing your wealth, taking charge of your financial future, and ensuring you’ll have a safe and comfortable retirement to look forward to.

If you’re looking to develop an investment strategy but don’t know where to start, working with an investment advisor can help you get and stay on the right path. Understanding these key investment terms will help you communicate more effectively with your advisor as well, so let’s get learning! 

Bear Market: a prolonged period where stock prices are falling, typically a decline in value of 20% or more. In these markets, prices decline, unemployment tends to grow, and there may be a recession. A bear market can be a “correction,” which is a short 20% or more decline, or it can be a “secular” bear market, which generally lasts for years and the market loses more than 50%.

Bond: a bond acts like an IOU or a loan from a business, municipality, or the US government. The bond issuer makes a promise to repay the full loan on a certain date, and to pay a specific rate of interest for the use of the investor’s money. Think of it like a mortgage where you are the bank.

Bull Market: a market where prices are advancing upwards and investors have confidence that the market and securities will rise. This is the opposite of a bear market. However, like a bear market, a bull market can be a “correction,” which is a short rise, or it can be a “secular” bear market, which generally lasts for years.

Capital: the funds a company invests on a long-term basis. The company gets these funds by borrowing, keeping a portion of their earnings, or issuing stock.

Capital Gain: when a security is sold for more than it was purchased for, and the investor makes a gain.

Capital Loss: when a security is sold for less than it was purchased for, and the investor takes a loss.

Distribution Schedule: a schedule of the dividends and capital gains of a fund.

Diversification: a strategy of owning a range of different investments that perform well at different times, which helps reduce volatility and risk in your portfolio. It helps to smooth out the ups and downs of your portfolio.

Equities: shares in a company that give you partial ownership in that company. The word “equity” is synonymous with “stocks”. Equities don’t offer guaranteed income.

Exchange Traded Fund (ETF): enables investors to pool their money with other investors in order to invest in stocks, bonds, and other securities. Exchange Traded Funds tend to be affordable, have high liquidity, and offer substantial diversification. Many ETF’s mirror an index such as the S&P 500 or various other domestic or foreign stock and bond markets. One of the primary differences between ETFs and mutual funds is that ETFs trade intraday. Mutual funds only trade at the end of the trading day.

Expense Ratio: the ratio between the operating expenses of a fund for a year and the average value of its assets. The bigger the expense ratio, the more you’re paying the fund, which means less money in your account.

Fund: a group of investors pooling their money to purchase securities. Funds can be offered by companies in the securities business (called mutual funds or exchange traded funds (ETF)), or by bank trust departments (called collective funds).

Index: a collection of stocks or bonds that represent a certain piece of the financial markets. Indexes can give investors a good idea of how the stock or bond market is doing. The S&P 500 is the biggest index out there and considered a good benchmark for US large company stocks. .

Liquidity: how fast you can get access to your money. Funds are very liquid, because you can cash them out for their current value on any business day and have your money within a couple of days. If an investment is not readily liquid an investor generally demands a higher rate of return. Considering liquidity for money you may need access to quickly is an important part of your investment strategy.

Loads: these are the sales charges on funds, annuities, or other securities or insurance products. Loads can be assessed when you redeem, at the time of purchase, or you can have no-load which doesn’t have sales charges. Obviously, investors should prefer no-load.

Market Capitalization: also known as Market Cap, is the value of all of the company’s shares of stock. They calculate the Market Cap by multiplying the total number of outstanding shares of a company’s stock by the price per share.

Mutual Fund: enables investors to pool their money with other investors in order to invest in stocks, bonds, and other securities. Mutual funds tend to be affordable, have  high liquidity, and offer substantial diversification. They are also professionally managed. One the primary differences between mutual funds and Exchange Traded Funds (ETFs) is that mutual funds trades are executed at the end of the trading day, not intraday like ETFs.

Net Asset Value per Share: also known as the NAV, this is the current dollar value of a single share of a fund, or the share price. They  calculate the NAV of a fund by taking the total assets of the fund, subtracting liabilities, and dividing by the number of outstanding shares.

P/B Ratio: also known as the price-to-book ratio, it is calculated by dividing the price of all of the company’s outstanding stock shares (see market cap above) by the book value of the company (the value of assets minus liabilities). You can use this ratio to compare the value of one company against another.

P/E Ratio: also known as the price-to-earnings ratio, this is a stock’s price divided by earnings per share. This ratio will tell you how much investors are paying for the earning power of a certain company. It can be used to compare one company to another in the same industry.

Sharpe Ratio: a ratio to understand the risk-adjusted return of an investment, – the higher the Sharpe ratio, the better. It measures the performance of an investment compared to a risk-free asset, after adjusting for risk, and will tell you the additional amount of return an investor gets per unit of increased risk. This ratio can be used to compare the performance of comparable funds.

Turnover Ratio: the percentage of holdings in a fund sold within a specified time period, typically a calendar year or 12-month period. It tells you the proportion of stocks or bonds that have changed in that period of time.

Yield: the annual percentage rate of return on capital, or the interest or dividend paid by a company as a percentage of the current price. 

If you’re looking to get educated on the ins and outs of investing, learning the language is a great place to start. The more you understand about the risks, rewards, and ways to measure an investment or fund, the brighter your prospects look for your financial future.

But investing is complicated, and you could benefit from having an experienced guide to get you to your goals effectively. An investment advisor can help you understand the market, pick the right path for your risk tolerance and goals, and adjust to any changes in your life or the market along the way.

Investment Management by Bartley Financial

Bartley Financial is built around a client-first ethos. At our offices in Andover, MA and Bedford, NH, we are as committed to exhibiting high levels of professionalism as we are to building relationships with clients built on trust and mutual respect. That’s why we only offer a transparent, fee-only compensation structure, so that our clients never need to be concerned about a conflict of interest.

Bartley Financial has an experienced team of CPAs and CFPs® that help clients manage their investment portfolios, plan for retirement, strategize taxes, or execute any other initiatives in pursuit of optimum financial health and minimal financial stress.

We are experienced and dedicated financial planners and investment advisors. We have experience creating comprehensive strategies to ensure that your wealth is being leveraged to move your goals closer. We execute a core and explore investment strategy that will optimize your ability to meet your goals and live the life you desire. We will start by crystallizing your goals, in order to “Begin With the End in Mind.”

Contact us today to begin a relationship with a team of knowledgeable, trustworthy professionals who put their clients first.