Financial Definitions

02 Feb 2022

Understanding financial terms that you might come across in your investing journey can help you feel more comfortable and confident when you have to make decisions about your money. Here’s a few that come up often and are important for you to know:

Diversification: A risk management strategy that includes a variety of investments within a portfolio. The idea is that a portfolio made of different types of assets will, generally, yield higher long-term returns and lower the risk.

The portfolio can be diversified not just across asset classes, but also within classes by investing in different sections of the class such as foreign and domestic markets. In the end the we want the investments that are getting positive returns to outweigh the dips of others. Learn more about how diversification can help you meet your goals.

Stocks: A stock represents the ownership of a fraction of a company. The owner of the stock owns a proportion of the company’s assets and profits equal to how much stock they own. Units of stock are “shares.”

ETFs: Exchange Traded Funds (ETFS) are a collection of assets classes likes stocks and bonds that may be purchased together for one price. ETFs may be bought and sold during the trading day just like a stocks. This is in contrast to mutual funds that are only traded once after trading has closed for the day and the price is set.

Our LifeGoals Funds are ETFs that are able to cater to every risk level to meet your goals.

Dividends: Dividends are when a company gives a portion of its earnings to it’s investors. When a company realizes a profit, they have two choices: reinvest in the business or share some of that profit with shareholders. When they do pay it out to shareholders, it’s given out as a dividend. Usually this payment is made quarterly but could be annually or semi-annually.

Passive Investing: This strategy is generally used for long-term strategies, stocks are not generally traded daily but are rebalanced to achieve a certain investment goal. It can often be a less risky option and more cost-effective, as this strategy employs limiting the amount of buying and selling that happens with their portfolios. Interested in learning more about passive vs active investing? Learn more.

Active Investing: This strategy is usually employed when someone hires a portfolio manager to choose individual stocks they believe will out perform the market and they hope to time the market buying low and selling high.

Custodian: A custodian is an institution that holds customers’ assets for safekeeping to prevent them from being stolen or lost. We use a custodian to ensure our clients assets are as kept safe as possible.