Aspirations A to Z Investment Terms

– A –

Annualized rate of return – The average annual return over a period of years, taking into account the effect of compounding. It can be called compound growth rate.

Asset allocation – The process of dividing investments among cash, income and growth buckets to optimize the balance between risk and reward based on investment needs.

– B –

Benchmark – A standard, usually an unmanaged index, used for comparative purposes in assessing performance of a portfolio or mutual fund.

Blue chip – A high-quality, relatively low-risk investment; the term usually refers to stocks of large, well-established companies that have performed well over a long period. The term ‘blue chip’ is borrowed from poker, where the blue chips are the most valuable.

– C –

Capitalization – The market value of a company, calculated by multiplying the number of shares outstanding by the price per share.

– D –

Diversification – The process of owning different investments that tend to perform well at different times in order to reduce the effects of volatility in a portfolio, and also increase the potential for increasing returns.

Dividend – A dividend is a portion of a company’s profit paid to common and preferred shareholders. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends.

– E –

Equities – Shares issued by a company which represent ownership in it. Ownership of property, usually in the form of common stocks, as distinguished from fixed-income securities such as bonds or mortgages. Stock funds may vary depending on the fund’s investment objective.

– F –

Fixed income fund – A fund or portfolio where bonds are primarily purchased as investments. There is no fixed maturity date and no repayment guarantee.

– G –

Growth investing – Investment strategy that focuses on stocks of companies and stock funds where earnings are growing rapidly and are expected to continue growing.

– I –

Index – An investment index tracks the performance of many investments as a way of measuring the overall performance of a particular investment type or category. The S&P 500 is widely considered the benchmark for large-stock investors. It tracks the performance of 500 large U.S. company stocks.

Inflation – A rise in the prices of goods and services, often equated with loss of purchasing power.

Interest rate – The fixed amount of money that an issuer agrees to pay the bondholders. It is most often a percentage of the face value of the bond. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength.

– J –

Junk bond – A lower-rated, usually higher-yielding bond, with a credit rating of BB or lower.

– L –

Liquidity – The ability to have ready access to invested money. Mutual funds are liquid because their shares can be redeemed for current value (which may be more or less than the original cost) on any business day.

– M –

Market price – The current price of an asset.

Maturity – The date specified in a note or bond on which the debt is due and payable.

– N –

Net Asset Value per share (NAV) – The current dollar value of a single mutual fund share; also known as share price. The fund’s NAV is calculated daily by taking the fund’s total assets, subtracting the fund’s liabilities, and dividing by the number of shares outstanding. The NAV does not include the sales charge. The process of calculating the NAV is called pricing.

– P –

Portfolio – A collection of investments owned by one organization or individual, and managed as a collective whole with specific investment goals in mind.

Price-to-earnings (P/E) Ratio – A stock’s price divided by its earnings per share, which indicates how much investors are paying for a company’s earning power.

– Q –

Quality distribution – The breakdown of a portfolio’s assets based on quality rating of the investments.

– R –

Ratings – Evaluations of the credit quality of bonds usually made by independent rating services. Ratings generally measure the probability of timely repayment of principal and interest on debt securities.

Recession – A downturn in economic activity, defined by many economists as at least two consecutive quarters of decline in a country’s gross domestic product.

Risk tolerance – The degree to which you can tolerate volatility in your investment values.

– S –

Sector – A group of similar securities, such as equities in a specific industry.

Securities – Another name for investments such as stocks or bonds. The name ‘securities’ comes from the documents that certify an investor’s ownership of particular stocks or bonds.

– T –

Time horizon – The amount of time that you expect to stay invested in an asset or security.


United Nations-Supported Principles for Responsible Investment (PRI) – An official network of investors that works to promote sustainable investment through the incorporation of environmental, social and governance factors.

– V –

Valuation – An estimate of the value or worth of a company; the price investors assign to an individual stock.

Value investing – A strategy whereby investors purchase equity securities that they believe are selling below estimated true value. The investor can profit by buying these securities then selling them once they appreciate to their real value.

Volatility – The amount and frequency with which an investment fluctuates in value.

– W –

Weighted average market cap – Most indexes are constructed by weighting the market capitalization of each stock on the index. In such an index, larger companies account for a greater portion of the index. An example is the S&P 500 Index.

– Y –

Yield – Annual percentage rate of return on capital. The dividend or interest paid by a company expressed as a percentage of the current price.

– Z –

Zoo – Great place to take the kids to learn about animals… hahaha