Investing Terms and Concepts
Investing doesn't have to be complicated. Learning some basic concepts will help you take the first steps toward a sound investment strategy. We’ve explained some common investing terms to help you live brighter on your investment journey.
- Evaluating Performance: After your investments are set up, you monitor the investment’s performance. How are they working within your portfolio toward your goal? Talk with your Financial Advisor/Consultant to know what to expect with your investments and statements.
- Asset Allocation: The mix of certificates, stocks, bonds, and cash in a retirement account. The proportions aim to balance risk and reward based on the investor's goals, risk tolerance, and investment horizon. Asset allocation does not ensure a profit or protect against a loss.
- Compounding: An asset's ability to generate earnings, which are then reinvested in order to generate their own earnings. The more time money has to grow, the more opportunity you have for compounding.
- Diversification: Mixing different investments to limit financial risk. This is accomplished by spreading money across major asset classes (stocks, bonds, etc.) or different investment options within one asset class (mix of stocks from large and small companies). There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
- Rebalancing: Periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation. Often done annually, it should also be done any time your risk tolerance changes.
- Investment Risk: All Investments carry some degree of risk. When you invest, investors make choices about what to do with their financial assets. Risk is any uncertainty with respect to their investments that has the potential to negatively affect the investor’s financial welfare.
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