An investment strategy in which an investment portfolio is divided among different asset classes according to an investor's risk tolerance and investment goals.
Bear Market:
A market in which prices of a certain group of securities experience a prolonged price decline, typically when securities prices fall 20% or more from recent highs.
Bull Market:
A market in which prices of a certain group of securities experience a sustained period where prices rise.
Cost Basis:
The price paid for an asset. This price is used to calculate capital gains or losses when the asset is sold.
Capital Gain:
The profit realized when a capital asset is sold for a higher price than the price it was purchased for.
Capital Loss:
The loss incurred when a capital asset is sold for a price lower than the price it was purchased for.
Long-Term Capital Gain/ Loss:
The profit/ loss realized on the sale of a capital asset that has been owned for more than 12 months.
Short-Term Capital Gain/ Loss:
The profit/ loss realized on the sale of an asset that has been owned for 12 months or less.
Diversification:
The process of including a wide variety of investments within a portfolio to minimize risk by minimizing the impact of any one security on the overall portfolio performance.
Dividend:
A distribution of a corporation’s earnings, in the form of cash, stock or property.
ETF (Exchange Traded Fund):
An ETF is a basket of securities that tracks an index, sector, or other asset. Like stocks, ETFs are traded throughout the day on an exchange. Unlike mutual funds, ETF prices fluctuate throughout the day as they are bought and sold. Mutual funds can be traded only once a day after the market closes.
Fiduciary:
A person who holds a legal or ethical relationship of trust with their clients and is required to act in the client’s best interest at all times. At One Day In July, all financial advisors are fiduciaries.
Liquidity:
The ease with which an asset can be converted to cash at its fair market value. High liquidity is present when there are a large number of buyers and sellers and a high volume of trading activity.
Market Value:
The price at which investors buy or sell a share of common stock or a bond at any given time.
Types of Securities:
Security:
Any piece of securitized paper that can be traded for value.
Stocks:
A type of security that represents ownership of a share in a company.
Large-Cap Stocks:
Stocks of a public company with a market capitalization of $10 billion or more.
Mid-Cap Stocks:
Stocks of a public company with a market capitalization of $2 billion to $10 billion.
Small-Cap Stocks:
Stocks of smaller companies with market capitalization of $300 million to $2 billion.
Bond:
A fixed income financial instrument that represents a loan made by an investor to a borrower, most commonly corporations or governments, and in return the investor receives interest. Type and rating of bonds vary.
High-Yield Bonds:
A bond with a rating below investment grade and characterized by a return proportionate to the higher risk (Also known as: junk bonds).
Treasury Bonds:
A bond believed to have the highest credit quality, as they are backed by the full faith and credit of the U.S. Government.
Index Fund:
A financial instrument that provides exceptional diversity at a low cost. When purchased, investors are investing in all of the companies in the index that the fund tracks.
Mutual Fund:
A financial instrument that is actively-managed by a financial professional and utilizes a pool of investor funds to trade in a collection of stocks, bonds, or other securities according to the goals of the fund. When working with Mutual Funds, it is important to know the various classes of mutual funds. Mutual funds can also be passively managed.
