Financial literacy - Common Investing Terms

  • Rebalancing: Over time investments have gains or losses.  This causes them to become a larger or smaller percentage of your portfolio.  Rebalancing is the action taken to sell some or buy more until the investment is back to your target percentage.
  • Promissory Note:  An instrument in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms.  *Like an IOU.

  • Banknote: Often known as a bill, paper money, or simply a note.  A promissory note, made by a bank, payable to the bearer on demand.
  • Bond: An instrument of indebtedness of the bond issuer to the holders.
    • The issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date.
    • Corporate Bond: The issuer is a corporation. Many times they are used to raise financing for a variety of reasons such as to ongoing operations, Mergers & Acquisition, or to expand business. 
    • Governmental Bond: The issuer is a national government.  Sometimes referred to as a sovereign bond
    • Municipal Bond: The issuer is a state, municipality or county.
  • Stock: A type of investment that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
    • Common Stock: ownership stake in a corporation.  Usually entitles the owner to receive dividends and vote on certain company issues, such as electing the board of directors.  However, a company can have both a voting and non-voting class of common stock. 
    • Preferred Stock: Ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights. Preferred stock combines features of debt, in that it pays fixed dividends, and equity, in that it has the potential to appreciate in price. 
  • Securities: A tradable financial asset
    • Asset: Anything one owns/possesses which has value
    • Debt Securities: investments such as banknotes and bonds.
    • Equity Securities: investments such as common stock.
  • Portfolio: A range of investments held by a person or organization.
  • Index: An imaginary portfolio of securities representing a particular market or a portion of it.  For instance: S&P 500, Dow Jones Industrial Average, Russell 2000, MSCI EAFE, Lehman Brothers Aggregate Bond Index, and the list goes on.
  • Net Asset Value (NAV):  The value of an entity's assets minus the value of its liabilities.
    • Represents the per-share price investors would spend to purchase a single share of the investment.
  • Mutual Fund (MF): A professionally managed investment fund that pools money from many investors to purchase securities
  • Exchange-Traded Fund (ETF): An investment fund traded on stock exchanges, much like stocks.
    • An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day.
    • Most ETFs track an index, such as a stock index or bond index
  • indexed fund: Index funds are a type of investment fund, typically a Mutual Fund or Exchange-Traded Fund (ETF), whose portfolio is constructed to match/track a market index, such as the Standard & Poor's 500 Index (S&P 500).
  • Passive vs Active investing: Better rephrased as evidence-based vs conventional management – see ZFilosophy Investment Philosophy Series
  • Risk Tolerance: Describes the extent to which an investor is willing to risk their money.  How much loss one can take before abandoning an investment strategy.
  • Asset Class:  A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.
    • The three main asset classes are equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments). Alternatives, such as real estate and commodities, can also be considered a separate asset class.
  • Economic Sector: An industry or market sharing common characteristics.  Examples include: technology, healthcare, energy, utilities and telecommunications.
  • Style Class: The investment approach or objective that a fund manager uses to make choices in the selection of securities for the fund's portfolio.  Below are the three most common styles
    • rowth vs Value and Blends:
      • Growth companies: are expensive relative to earnings but investors think the price is justified by high potential for future growth.  
      • Value companies: are low priced relative to earnings, dividends, or book value
      • Blend: A mixture of value and growth
    • Company Size: The specific size parameters for stocks are large, medium and small-sized companies, which are determined by market capitalization (Cap).
      • Large-Cap: The company's value exceeds about five billion dollars.
      • Medium-Cap: The company's value is usually around one to five billion dollars.
      • Small-Cap: The company's value is below one billion dollars.
      • Micro-Cap: The company's value is below 300 million dollars.
    • Company Location: This is where a company is based.
      • Domestic or U.S.: Companies based in the U.S.A
      • Foreign Developed: Non-U.S. based companies with developed economies and generally accepted currencies
      • Foreign Emerging: companies in countries with relatively undeveloped economies, generally thought to be a more volatile, riskier class, but with higher expected returns.  Think of the BRIC countries (Brazil, Russia, India, and China) which are the largest emerging stock markets
  • Diversified Portfolio: a portfolio which contains many investments (amount defined by the investment manager) across multiple asset classes, economic sectors and style classes.
  • Broker: An individual that charges a fee or commission for executing buy and sell orders submitted by an investor. The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.
  • Dealer: A person or firm in the business of buying and selling securities for their own account
  • Broker/Dealer: A person or firm in the business of buying and selling investments, operating as both a broker and a dealer, depending on the transaction. The term broker-dealer is used in U.S. securities regulation to describe stock brokerages, because most of them act as both agents and principals.
    • The vast majority of firms fall under this description.  Can you see the inherent conflicts of interest?
    • Zora Financial is not a Broker-Dealer
  • Transaction Cost: Expenses incurred when buying or selling an investment. Transaction costs include brokers' commissions and spreads
    • Broker's Commission: The fees that you agree to pay a broker for facilitating a transaction
    • Spreads: The difference between the price the dealer paid for a security and the price the buyer pays
  • Sales Charges or Loads: The amount an investor pays, which goes to compensate a sales intermediary (broker, financial planner, investment advisor, etc.) for his or her time and expertise in selecting an appropriate fund for the investor.
    • Front-end Load: Sometimes referred to as A-Shares, this load is paid up front at the time of purchase
    • Back-end Load: Sometimes referred to as B-Shares, this load is paid when the investment is sold
    • Level-Load: Paid as long as the fund is held by the investor
    • Regularly 5.75% or more
    • *Zora Financial does not use investments which have loads
  • 12b-1 fee: An annual marketing or distribution fee on a fund. The 12b-1 fee is considered an operational expense and, as such, is included in a fund's expense ratio.  
    • 1% is the maximum allowed of a fund's net assets. 
    • They are used to pay the companies and individuals through which investors buy fund shares. So investors are paying those agents indirectly, through charges that reduce their funds' returns.
    • *Not all funds have this fee
    • See this Wall Street Journal article for more information
  • Expense Ratio: The annual fee that all funds or ETFs charge their shareholders. It expresses the percentage of assets deducted each fiscal year for fund expenses, including 12b-1 fees, management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund. 
    • Depending on the type of fund, expenses vary widely. The largest component of operating expenses is the fee paid to a fund's investment manager/advisor. Other costs include recordkeeping, custodial services, taxes, legal expenses, and accounting and auditing fees.
    • Expenses are not billed to the investor.  They are taken out of a fund's assets and therefore lower the return of the fund.
    • The expense ratio does not include sales charges, redemption fees, or brokerage commissions.
    • *When reviewing an investment this is commonly abbreviated as: Exp Ratio
  • Investment Costs: The all-in cost of an investment.  Includes: transaction costs, loads, and expense ratios.  
  • More terms coming soon 


  1. Investment Philosophy - Part 1
  2. Investment Philosophy - Part 2
  3. Investment Philosophy - Part 3

Estate Planning


  • Terms coming soon




  • Terms coming soon


Possible blog topics: What Coverage Do I Really Need? Health Insurance & Family Planning: High Premium/Low Deductible or vice versa?

Retirement Planning


  • 401(K) vs 403(b): A 403(b) is a tax-deferred retirement plan that is very similar to a 401(k). The basic difference is that a 403(b) is used by nonprofit companies, religious groups, school districts, and governmental organizations.
  • IRA: Individual Retirement Arrangement or Account. A trust or custodial account set up for the exclusive benefit of taxpayers or their beneficiaries which provides tax advantages for retirement savings in the United States.
  • Traditional IRA vs Roth IRA: There are multiple differences in the two, but the largest is that Roth IRAs contain after-tax money and when the investor makes a qualified distribution it is withdrawn tax free.  Whereas, a Traditional IRA allows investments to grow on a tax-deferred basis and are taxable when distributed.
  • More terms coming soon


Debt Planning


  • Terms coming soon


  1. Student Loans

Possible blog topics: To Rent or Buy? First Time Homebuyer considerations

Generally Speaking


  • Assets: Anything one owns/possesses which has value
  • Assets Under Management (AUM): A term typically used by investment companies or managers.  It is the aggregate market value of the assets they manage on behalf of their clients. 
  • Fiduciary:
  • More terms coming soon

Financial Literacy - General Blogs 

Possible blog topics: 'Happy Money' Concepts: Time is Money? The Power of Giving


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