Active Management

    The trading of securities to take advantage of market opportunities as they occur, in contrast to passive management. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.


    An investment approach that accepts above-average risk of loss in return for potentially above-average investment returns.

    Aggressive Growth Fund

    An investment fund that takes higher risk of loss in return for potentially higher returns or gains.


    An increase in the value of an investment.


    Anything with commercial or exchange value owned by a business, institution or individual. Examples include cash, real estate and investments.

    Asset Allocation

    A method of investing by which investors include a range of different investment classes such as stocks, bonds, and cash alternatives or equivalents in their portfolios. See Diversification.

    Asset Class

    A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (e.g., stocks), fixed income (e.g., bonds), and cash alternatives or equivalents (e.g., money market funds).

    Balanced Fund

    A fund with an investment objective of both long-term growth and income, through investment in both stocks and bonds.

    Basis Point

    One-hundredth of one percent, or 0.01%. For example, 20 basis points equal 0.20%. Investment expenses, interest rates, and yield differences among bonds are often expressed in basis points.


    A debt security which represents the borrowing of money by a corporation, government, or other entity. The borrowing institution repays the amount of the loan plus a percentage as interest. Income funds generally invest in bonds.


    A person who acts as an intermediary between the buyer and seller of a security, insurance product, or mutual fund, often paid by commission. The terms broker, broker/dealer, and dealer are sometimes used interchangeably.

    Brokerage Window

    A plan feature that permits participants to purchase investments that are not included among the plan’s general menu of designated investment alternatives.

    Capital Gain

    An increase in the value of an investment, calculated by the difference between the net purchase price and the net sale price.

    Capital Preservation

    An investment goal or objective to keep the original investment amount (the principal) from decreasing in value.

    Cash Alternative or Cash Equivalent

    An investment that is short term, highly liquid, and has high credit quality.

    Collective Investment Fund

    Investments created by a bank or trust company for employee benefit plans, such as 401(k) plans, that pool the assets of retirement plans for investment purposes. They are governed by rules and regulations that apply to banks and trust companies instead of being registered with the SEC. These funds are also referred to as collective or commingled trusts.

    Common Stock

    An investment that represents a share of ownership in a corporation.


    The cumulative effect that reinvesting an investment’s earnings can have by generating additional earnings of their own.


    An investment approach that accepts lower rewards in return for potentially lower risks.

    Corporate Bond

    A bond issued by a corporation, rather than by a government. The credit risk for a corporate bond is based on the re-payment ability of the company that issued the bond.

    Credit Risk

    The risk that a bond issuer will default, meaning not repay principal or interest to the investor as promised. Credit risk is also known as "default risk."

    Current Yield

    The current rate of return of an investment calculated by dividing its expected income payments by its current market price.


    The opposite of inflation a decline in the prices of goods and services.


    The practice of investing in multiple asset classes and securities with different risk characteristics to reduce the risk of owning any single investment.


    Money an investment fund or company pays to its stockholders, typically from profits. The amount is usually expressed on a per-share basis.

    Emerging Market

    Economies that are in the process of growth and industrialization, such as Brazil, Chile, China, Colombia, Hungary, Indonesia, India, Malaysia, Mexico, Peru, Philippines, Russia, South Africa, Thailand and Turkey which may hold significant growth potential in the future. Investing in these economies may provide significant rewards, and significant risks. May also be called developing markets.


    A security or investment representing ownership in a corporation, unlike a bond, which represents a loan to a borrower. Often used interchangeably with “stock.”

    Exchange Traded Fund (ETF)

    An investment company, such as a mutual fund, whose shares are traded throughout the day on stock exchanges at market-determined prices.

    Expense Ratio

    A measure of what it costs to operate an investment, expressed as a percentage of its assets or in basis points. These are costs the investor pays through a reduction in the investment's rate of return. See Operating Expenses and Total Annual Operating Expenses.

    Financial Industry Regulatory Authority (FINRA)

    A self-regulatory organization for brokerage firms doing business in the United States. FINRA operates under the supervision of the SEC. The organization’s objectives are to protect investors and ensure market integrity.

    Fixed Income Fund

    A fund that invests primarily in bonds and other fixed-income securities, often to provide shareholders with current income.

    Fund Family

    A group or “complex” of mutual funds, each typically with its own investment objective, and managed and distributed by the same company. A Fund Family also could refer to a group of collective investment funds or a group of separate accounts managed and distributed by the same company.

    Glide Path

    he change over time in a target date fund’s asset allocation mix to shift from a focus on growth to a focus on income. The glide path creates an asset allocation that typically becomes more conservative (i.e., includes more fixed-income assets and fewer equities) as a fund gets closer to the target date.

    Growth Fund

    A fund that invests primarily in the stocks of companies with above-average risk in return for potentially above-average gains. These companies often pay small or no dividends and their stock prices tend to have the most ups and downs from day to day.

    Growth and Income Fund

    A fund that has a dual strategy of growth or capital appreciation and current income generation through dividends or interest payments.

    Income Fund

    A fund that primarily seeks current income rather than capital appreciation. Such funds usually hold a variety of government, municipal and corporate debt obligations, preferred stock, money market instruments, and dividend-paying stocks.


    A benchmark against which to evaluate a fund's performance. The most common indexes for stock funds are the Dow Jones Industrial Average and the Standard & Poor's 500 Index.

    Index Fund

    An investment fund that seeks to parallel the performance of a particular stock market or bond market index. Index funds are often referred to as passively managed investments.

    Interest/Interest Rate

    The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond’s issuer.

    Interest Rate Risk

    The possibility that a bond’s or bond fund’s market value will decrease due to rising interest rates. When interest rates (and bond yields) go up, bond prices usually go down and vice versa.

    International Fund

    A fund that invests primarily in the securities of companies located, or with revenues derived from, outside of the United States.

    Investment Risk

    The possibility of losing some or all of the amounts invested or not gaining value in an investment.

    Large Capitalization (Cap)

    A reference to either the stock of a large company (>$10 billion valuation) or an investment fund that invests in the stocks of large companies.

    Lifecycle Fund

    A fund designed to provide varying degrees of long-term appreciation and capital preservation.

    Lifestyle Fund

    A fund that maintains a predetermined risk level and generally uses words such as “conservative,” “moderate,” or “aggressive” in its name to indicate the fund’s risk level. Used interchangeably with “target risk fund.” Similar to “target date funds” because both invest funds towards a time-specific goal, but differ in that they usually do not shift allocation over the life of the investment.

    Management Fee

    A fee or charge paid to an investment manager for its services.

    Market Risk

    The possibility that the value of an investment will fall because of a general decline in the financial markets. 

    Mid-Capitalization (Cap)

    A reference to either the stock of a medium sized company ($2-10 billion valuation) or an investment fund that invests in the stocks of medium-sized companies.

    Money Market Fund

    A mutual fund that invests in short-term, high-grade, fixed-income securities, and seeks the highest level of income consistent with preservation of capital (i.e., maintaining a stable share price).

    Mutual Fund

    An investment company registered with the SEC that buys a portfolio of securities selected by a professional investment adviser to meet a specified financial goal (investment objective). Mutual funds can have actively managed portfolios, where a professional investment advisor creates a unique mix of investments to meet a particular investment objective, or passively managed portfolios, in which the adviser seeks to parallel the performance of a selected benchmark or index.

    Passive Management

    The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. These funds are often referred to as index funds and differ from investment funds that are actively managed.


    A collection of investments such as stocks and bonds that are owned by an individual, organization, or investment fund.


    The original dollar amount of an investment. Principal is also used to refer to the face value or original amount of a bond.

    Rate of Return

    The gain or loss on an investment over a period of time. The rate of return is typically reported on an annual basis and expressed as a percentage. 


    The process of moving money from one type of investment to another to maintain a desired asset allocation.


    The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss. .


    The potential for investors to lose some or all the amounts invested or to fail to achieve their investment objectives.

    Risk Tolerance

    An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns.


    A general term for stocks, bonds, mutual funds, and other investments.

    Share Class

    Some investment funds and companies offer more than one type or group of shares, each of which is considered a class (e.g., “Class A,” “Advisor” or “Institutional” shares). For most investment funds each class has different fees and expenses but all of the classes invest in the same pool of securities and share the same investment objectives.

    Small Capitalization (Cap)

    A reference to either the stock of a small company ($300 million - $2 billion valuation) or an investment fund that invests in the stocks of small companies.

    Stable Value Fund

    An investment fund that seeks to preserve principal, provide consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies or contracts issued by insurance companies.


    A security that represents an ownership interest in a corporation.

    Target Date Fund

    A fund designed to provide varying degrees of long-term appreciation and capital preservation based on an investor’s age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also known as a “lifecycle fund.” 

    Time Horizon

    The amount of time that an investor expects to hold an investment before taking money out.

    Value Fund

    A fund that invests primarily in stocks that are believed to be priced below what they are really worth.


    The amount and frequency of fluctuations in the price of a security, commodity, or a market within a specified time period. Generally, an investment with high volatility is said to have higher risk since there is an increased chance that the price of the security will have fallen when an investor wants to sell.