Financial Literacy - Financial tuneup
Investment glossary of terms

4. Alpha -- A measure of a fund's performance relative to its index, adjusted for risk. Beta measures a fund's risk compared to the market. Alpha tells you how the fund is doing relative to its beta.

5. Asset allocation -- An investing strategy that strives to minimize risk and maximize returns by dividing money into different investment instruments such as stocks, bonds and cash. The allocation decisions are based on the investor's goals, risk tolerance and time horizon.

6. Balanced fund -- A hybrid fund made up of stocks and bonds. Can be either weighted more toward stocks or bonds, but such an asset mix achieves a more moderate or conservative strategy.

7. Beta -- A measure of the volatility of a stock or fund compared to the market in general. The market has a beta of one. The higher the beta, the greater the volatility and deviation from the market. The lower the beta, the lower the volatility.

8. Blend fund -- An equity mutual fund composed of value and growth stocks.

9. Bond fund -- A mutual fund that invests in bonds.

10. Bond -- A debt instrument issued by an entity, a corporation, a government or a municipality, to borrow money for a fixed amount of time and set interest rate.

11. Broker -- A company or individual who buys or sells stocks on another's behalf. A full-service broker advises clients on investing strategies and trading.

12. Capital gain -- An increase in the price of a share of stock (or any kind of asset) over and above what you paid for it. Capital gains receive more favorable tax treatment than regular income.

13. Core holding -- An investment held for a very long time in a portfolio or fund. Usually have a high quality security with a proven track record.

14. Correlation -- How two securities move in relation to one another.

15. Dividend -- The portion of a company's earnings and profits that are paid to stockholders of the company. These payments may be ordinary dividends, capital gain distributions or nontaxable distributions. You usually receive dividends in cash, but you may receive them in the form of more stock, stock rights, property or services. Companies or brokerage firms report dividend income to you on Form 1099-DIV.

16. Diversification -- A method of investing that aims to minimize risk and increase return by spreading money among a variety of assets. Allocating investments across asset classes with low or no correlation to one another smoothes out the performance of the portfolio.

17. Emerging market fund -- A mutual fund or exchange-traded fund that invests in less developed countries with high growth potential. These countries have a lower gross domestic product and include, for example, areas in eastern Europe, Asia and Latin America.

18. ETF -- Exchange-traded funds hold a basket of securities like mutual funds but they trade like a stock which means that they can be purchased at any time of the day and incur a transaction cost from the broker. More tax efficient than mutual funds, ETFs lack some of their convenience and are generally only available as indexes.


19. Expense ratio -- The fee expressed as a percentage of assets that is charged to shareholders to cover the costs of running a mutual fund.

20. Fund of funds -- A mutual fund that invests in other mutual funds.

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