The world of finances can be overwhelming. Therefore, Wealth Strategies has put together the following glossary of some common financial terms and phrases. As always, please feel free to ask us about any terms that should appear on your statement or during a conversation that you are not familiar with.

• Asset Class - Investments are classified together based on their common characteristics such as large cap stocks, international, small cap, etc.
• Bond - A certificate of debt issued by a corporation or a government entity guaranteeing payment of the original investment plus interest to the purchaser by a specified date.
• Capital Gains (Capital Losses) - The difference in the purchase price of a security versus the sale price of the security. If a security is sold at a higher price than the purchase price, the investor realizes capital gain. Conversely, a capital loss is realized if the security is sold at a lower price than the purchase price.
• Common Stock - A security representing ownership rights in a public corporation and gives stockholders a share in the company’s profits.
• Compounding - When you reinvest the income and dividends generated by your investments, you may get the added benefit of compounding. That means you not only earn money on your original investment, but you may also earn money on your earnings.
• Dividend Reinvestment - Reinvestment of your dividends in your brokerage account rather than disbursing them to you by check through the mail.
• Diversification - A risk management technique that mixes a wide variety of investments within a portfolio. Because the fluctuations of a single security have less impact on a diverse portfolio, diversification minimizes the risk from any one investment.
• Index - An unmanaged group of securities’ performance is monitored to measure performance of a managed group of securities typically within the same asset class. Often referred to as a “benchmark.”
• Liquidity - The ease in which an asset can be converted to cash. For example, normally a large company’s stock is more liquid than a piece of real estate.
• Margin - Helps to expand your buying power by allowing you to borrow against your existing holdings at competitive rates. 
• Rating - A classification of a bond made by an independent rating agency to denote the ability to pay of the bond issue. AAA is the highest rating available.
• REIT (Real Estate Investment Trust) - A corporation that invests in real estate and is required to distribute 90% of their income to investors for tax purposes.
• Risk Tolerance - Investor risk tolerance refers to the comfort level an investor has with regards to the degree of uncertainty and/or negative changes that may occur in his/her portfolio. Many factors including age, marital status and employment history can affect risk tolerance. Generally speaking, most investors fall into one of the following four categories:
  1. Conservative
  2. Moderate
  3. Growth
  4. Aggressive
• Roth IRA - A tax deferred individual retirement plan where contributions are not tax deductible, but qualified distributions are tax free. There is no Required Minimum Distribution.
• Simplified Employee Pension (SEP) - A tax deferred retirement plan that an employer or self-employed individual can establish. The employer is allowed a tax deduction for contributions made to the SEP plan and makes contributions to each eligible employee’s SEP IRA on a discretionary basis.
• SIMPLE IRA - A tax deferred retirement plan that may be established by employers, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SIMPLE. The employer makes either matching or non-elective contributions to each eligible employee’s SIMPLE IRA and employees may make salary deferral contributions.
• Traditional IRA - A tax deferred individual retirement plan where contributions may be tax deductible depending on the taxpayer’s income, tax filing status and coverage by an employer-sponsored retire plan. Qualified distributions are taxed as ordinary income. There is a Required Minimum Distribution at age 70 ½.
• Trust - A trust is a legal device that allows you to transfer property to a trustee who will manage it for the benefit of you and your heirs and beneficiaries. The trustee can be the individual creating the trust or a neutral third party.
• Volatility - Refers to the fluctuation in the price of an asset. Generally the riskier the asset is, the more its price will fluctuate.
• Yield to Maturity - The return earned on a fixed income security based on the current market price and cash flows to the maturity date.