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Glossary of Financial Terms 

Asset Allocation

Asset Allocation is the process of determining what portions of your portfolio holdings are to be invested in the various asset classes.

Asset Class

Asset Class is a standard term that broadly defines a category of investments. The three basic asset classes are Cash, Bonds, and Stocks. Bonds and Stocks are often further subdivided into more narrowly defined classes. Some of the most common asset classes are defined below.

Asset Mix

Asset Mix is the combination of asset classes within a portfolio, and is usually expressed as a percentage for each asset class.

Bear Market Loss

The Bear Market Loss shows how a portfolio would have been impacted during the Great Recession (November 2007 through February 2009) or the Bond Bear Market (July 1979 through February 1980).


Bonds are either domestic (U.S.) or global debt securities issued by either private corporations or governments. Domestic government bonds are backed by the full faith and credit of the U.S. Government and have superior liquidity and, when held to maturity, safety of principal. Domestic corporate bonds carry the credit risk of their issuers and thus usually offer additional yield. Domestic government and corporate bonds can be sub-divided based upon their term to maturity. Short-term bonds have an approximate term to maturity of 1 to 5 years; intermediate-term bonds have an approximate term to maturity of 5 to 10 years; and, long-term bonds have an approximate term to maturity greater than 10 years.


Bond Bear Market Return

The Bond Bear Market Return is the rate of return for a cash-bond-stock portfolio during the Bond Bear Market (July 1979 through February 1980), the worst bear market for bonds since the Great Depression.

Cash and Cash Alternatives

Cash typically includes bank accounts or certificates of deposit, which are insured by the Federal Deposit Insurance Corporation up to a limit per account. Cash Alternatives typically include money market securities, U.S. treasury bills, and other investments that are readily convertible to cash, have a stable market value, and a very short-term maturity. U.S. Treasury bills are backed by the full faith and credit of the U.S. Government and, when held to maturity, provide safety of principal.

Concentrated Position

A Concentrated Position is when your portfolio contains a significant amount (as a percentage of the total portfolio value) in individual stock or bonds. Concentrated Positions have the potential to increase the risk of your portfolio.

Cost Basis

The amount that you have invested into a holding.  This includes reinvested dividends.  So for example if you invest $5,000 into a mutual fund, then receive $100 of dividends throughout the year.  If these are reinvested back into the fund, your cost basis in the holding at the end of the year is $5,100.    

Current Portfolio

Your Current Portfolio is comprised of all the investment assets you currently own (or a subset of your assets, based on the information you provided for this Plan), categorized by Asset Class and Asset Mix.

Exchange Traded Funds (ETFs)

Baskets of securities that trade like stocks on an exchange, thus experiencing price changes throughout the day as the shares are bought and sold.  


Fixed Income / Income

Individual bonds, bond funds, certificates of deposit (CDs), money markets, etc.  Generally a fixed income holding pays out interest income on a pre-determined schedule.  


Great Recession Return

The Great Recession Return is the rate of return for a cash-bond-stock portfolio during the Great Recession (November 2007 through February 2009), the worst bear market for stocks since the Great Depression.


A portfolio of securities representing a particular market or a portion of it. The Standard & Poor’s 500 is one of the world’s best known indexes and is the most commonly used benchmark for the stock market.  Technically, you can’t invest directly into an index – rather you invest in a mutual fund or ETF that attempts to track an index as closely as possible.  

Inflation Rate

The Inflation Rate is the percentage increase in the cost of goods and services for a specified time period. A historical measure of inflation is the Consumer Price Index (CPI).


Liquidity is the ease with which an investment can be converted into cash.

Money Market Fund

A mutual fund that invests only in short term debt obligations such as Treasury bills, CD’s and commercial paper.  The funds price aims to remain a constant $1 per share, but the interest rate does fluctuate.  They are very liquid instruments.  

Mutual Funds

Baskets of securities – these can be stocks or bonds or some combination.  These can be used to give investors access to a diversified portfolio.  Each shareholder participates in the gain or loss of the fund.  Mutual Funds do not trade and price throughout the day – they are priced once per day at day’s end.   

Portfolio Total Return

A Portfolio Total Return is determined by weighting the return assumption for each Asset Class according to the Asset Mix.  

Real Return

The Real Return is the Total Return of your portfolio minus the Inflation Rate. 


Risk is the chance that the actual return of an investment, asset class, or portfolio will be different from its expected or average return.


Stocks are equity securities of domestic and foreign corporations.  (The term stock and equity can be used interchangeably.)

Domestic stocks are equity securities of U.S. corporations. Domestic stocks are often sub-divided based upon the market capitalization of the company (the market value of the company's stock). "Large cap" stocks are from larger companies, "mid cap" from the middle range of companies, and "small cap" from smaller, perhaps newer, companies. Generally, small cap stocks experience greater market volatility than stocks of companies with larger capitalization. Small cap stocks are generally those from companies whose capitalization is less than $500 million, mid cap stocks those between $500 million and $5 billion, and large cap over $5 billion.


Large cap, mid cap and small cap may be further sub-divided into "growth" and "value" categories. Growth companies are those with an orientation towards growth, often characterized by commonly used metrics such as higher price-to-book and price-to-earnings ratios. Analogously, value companies are those with an orientation towards value, often characterized by commonly used metrics such as lower price-to-book and price-to-earnings ratios.

International stocks are equity securities from foreign corporations. International stocks are often sub-divided into those from "developed" countries and those from "emerging markets." The emerging markets are in less developed countries with emerging economies that may be characterized by lower income per capita, less developed infrastructure and nascent capital markets. These "emerging markets" usually are less economically and politically stable than the "developed markets." Investing in international stocks involves special risks, among which include foreign exchange volatility and risks of investing under different tax, regulatory and accounting standards.

Target Portfolio

Your Target Portfolio is the portfolio selected based upon your risk tolerance and personal situation.

Taxable Accounts 

Accounts funded with after-tax money (i.e. checking accounts, savings accounts, brokerage accounts, etc.)  Activity in taxable accounts can generate a tax liability for the current year.  For example, interest received on a savings account is taxed in the year it is received.  Inside of a taxable account, if you sell a holding that has increased in value, you will owe tax on the portion of the proceeds that are gains.

Tax-Deferred Accounts

Tax-deferred accounts do not generate tax liability in current years – the tax due is deferred to some future point, when the money is taken out.  This will include traditional IRAs, beneficiary IRAs, 401(k) plans etc.  Tax-deferred accounts generally have rules and/or tax penalties in place to prevent early withdrawals.  

Total Return

Total Return is the assumed growth rate of your portfolio for a specified time period. The Total Return is determined by weighting the return assumption for each Asset Class according to the Asset Mix.

Worst One-Year Loss

The Worst One-Year Loss is the lowest annual return that a portfolio with the specified asset mix and asset class indices would have received during the historical period specified.


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