Less jargon. More understanding.

A practical glossary to keep beside your charts and research. Definitions explain concepts; they do not recommend investments.

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22 definitions

Asset allocation: How a portfolio is divided among types of assets, such as stocks, bonds and cash.
Bid–ask spread: The difference between a buyer’s quoted bid and a seller’s quoted ask. It is one element of trading cost.
Bond yield: A measure of a bond’s return relative to its price. Current yield and yield to maturity measure different things.
Capital gain: An increase in value compared with the purchase cost. Selling may realize the gain; tax treatment depends on jurisdiction.
Compound growth: Growth that builds on earlier growth as well as the original amount. Actual investment returns can also be negative.
Correlation: A statistical measure of how two return series move together. Historical relationships can change.
Currency risk: The possibility that exchange-rate changes alter the return when an investment is measured in another currency.
Diversification: Spreading exposure across investments with different risks. It can reduce some risks, but does not eliminate losses.
Dividend: A distribution a company makes to shareholders. The amount can change or stop; dividends are not guaranteed.
Drawdown: A fall from a previous peak in investment or portfolio value.
Duration: A bond measure commonly used to approximate sensitivity to changes in yields. It is different from maturity.
Earnings per share: Profit attributed to each share under the relevant accounting measure. Basic and diluted figures can differ.
ETF: An exchange-traded fund: a pooled investment whose shares trade on an exchange. Its strategy and risks depend on what it owns.
Expense ratio: A fund’s recurring operating expenses expressed as a percentage of assets. It does not capture every investor cost.
Free cash flow: A cash-generation measure often calculated as operating cash flow minus capital spending. Company definitions may vary.
Inflation: A rise in the general level of prices, reducing what a unit of currency buys over time.
Liquidity: How readily an asset can be bought or sold without significantly affecting its price.
Market capitalization: The market price of a share multiplied by shares outstanding. It measures equity market value, not enterprise value.
P/E ratio: Share price divided by earnings per share. Trailing and forward versions use different earnings inputs.
Rebalancing: Adjusting holdings to bring a portfolio closer to a chosen allocation. Costs and taxes may apply.
Total return: Price change plus distributions over a period, often assuming reinvestment. Check whether fees and taxes are included.
Volatility: Variation in returns over a period. It is one way to describe risk, not a complete measure of potential loss.

For additional investor education, see Investor.gov’s investing basics.