investing

Investing glossary of terms

19. 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 a portfolio.

20. 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.

21. ETF -- Exchange-traded funds hold a basket of securities like mutual funds but 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.

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

23. Federal funds rate -- The short-term interest rate that banks charge other banks to borrow money overnight at the Federal Reserve. The actual rate, or effective rate, changes daily and may be above or below the targeted rate. The FOMC sets the rate at its regularly scheduled meetings, but may opt to change it between meetings should economic conditions warrant a change.

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

25. Growth fund -- A more speculative and volatile fund with the goal of capital appreciation. These funds invest in companies that are in an expansion period and whose stock is expected to appreciate more than the broad market over the long term.

26. Growth stocks -- Companies with high levels of expected growth. Often, rather than paying dividends, these companies reinvest the money into further expansion.

27. Index -- A selection of companies picked to represent the market or a portion of it. Indexes are used as statistical composites and serve as benchmarks for financial performance.

28. Index fund -- A fund made up of stocks represented in a particular index. Stocks are weighted in the fund proportionally to their representation in the index. Generally, the bigger the company, the higher its weighting.

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29. International fund -- A mutual fund or ETF that invests in companies located in countries with developed markets such as Japan, Great Britain and Australia. Companies established in the home country will not be included in these funds.

30. Large cap -- A company with a market capitalization value of more than $10 billion.

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