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10 Financial Terms Every Investor Should Know

Investing money can be intimidating. While there's stress that comes with taking risks, understanding the investment jargon alone can cause angst. Financial buzzwords may seem like a language barrier, but like anything, once you become familiar with it, you realize there is no reason to be intimidated.

This is an introduction to some of the more common investing terms that you may encounter and a brief definition of each:

Asset allocation: This simply means your investment strategy. Asset allocation is a strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon. The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time.

Bonds: When you invest in a bond, you are essentially loaning money to a company, government or other entity. Typically, the bond issuer promises to repay the entire principal loan amount on a future day, known as the maturity date, and pay interest income in the meantime based upon a coupon rate.

Stocks / Equities: A stock represents ownership in a company. Companies divide their ownership stakes into shares, and the amount of shares you purchase indicates your level of ownership in the company. Generally, the better the company performs, the more your share of stock is worth. If the company doesn't do so well, your stock may be worth less or lose value completely.

Mutual fund: A mutual fund is a pooled portfolio that combines the money from a large group of investors to buy assets like stocks, bonds, and other investments. A mutual fund may hold hundreds of stocks, with the purpose of spreading the risk. In most cases, money managers make buy and sell decisions for mutual funds.

Expense ratio: It costs money to run mutual funds, so investors can expect to pay an annual fee, expressed as the expense ratio. Generally, a fund’s expense ratio is the percentage of money that goes to the managers of the mutual fund you're investing in. The expense ratio also covers other fund expenses, such as administrative fees, marketing expenses, and record-keeping fees.

Index funds: This is a popular type of mutual fund that allows an individual to "invest" in an index, such as the S&P 500. If you really want to understand index funds, you first need to understand indexes, which are essentially collections of stocks that represent a slice of the economy. By tracking the performance of a group of stocks, indexes give investors a sense of how the stock or bond market, or a portion of it, is doing. And by investing in an index fund, you are essentially betting on the success of the basket of companies it contains. As a result, they usually have low expense ratios, making them cost-effective investments.

Target-date funds: Often found in qualified retirement plans, target-date funds are designed to serve as all-in-one portfolios that are tailored to your expected retirement date. So if you have about 30 years until retirement, you might invest in a 2050 target-date fund. In the beginning, your investments will be riskier and more heavily weighted toward stocks, then as you get closer to 2050, the investments will become increasingly more conservative and will shift to include more bonds.

Inflation: Inflation is a measure of the rate of rising prices of goods and services in an economy, over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money.

Bull / Bear Market: Bull Market refers to a period of several months or more when most stock prices are rising. Bear Market refers to a period of several months or more when most stock prices are falling.

Volatility: Volatility refers to the amount and frequency to which an investment fluctuates in price / value. Market volatility is a term used to describe the daily fluctuations, large and small, of the stock market.

For more information, Contact MCF today!

Hunter Nighbert

Financial Advisor

hnighbert@mcfadvisors.com

859-967-0990

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IMPORTANT DISCLOSURE

MCF Advisors, LLC (“MCF”) is an SEC-registered investment adviser. Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this presentation will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from MCF.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed herein to his/her/its individual situation, he/she/it is encouraged to consult with the professional advisor of his/her/its choosing.  MCF is neither a law firm nor a certified public accounting firm and no portion of the presentation content should be construed as legal or accounting advice.  A copy of MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are an MCF client, please remember to contact MCF in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing / evaluating / revising our previous recommendations and/or services. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement.