Glossary of Terms

While searching for a financial advisor to meet your needs and goals, you are likely to hear some terms that you do not often encounter in daily conversation. We have listed some of them here in the hopes that a simple definition of each will make your search a little easier.

Advanced/Decline Line
A technical analysis tool considered a good measure of the overall market's direction. Equal to the number of stocks which rose divided by the number of stocks which fell during some specified period. Considered bullish if greater than 1, or bearish if less than 1.
Asset Classes
Categories of assets such as stocks, bonds, and money markets. Categories can be further broken down into growth and value stocks, large company and small company stocks, domestic and foreign. Asset classes can also consist of specific industry groups such as technology, finance, or energy.
Bear Market
Any market in which prices exhibit a declining trend for a prolonged period, usually falling by 20 percent or more.
Bull Market
A market in which prices of a certain group of securities are rising or are expected to rise. In 1999, there was the largest Bull Market ever with the Nasdaq 100 Index going up 82 percent for the year.
Cash Account
A brokerage account in which the customer is required by Regulation T to pay the full amount due by the settlement date for securities purchased; buying on margin and borrowed money are not permitted. also called special cash account. Some types of accounts, such as Individual Retirement Accounts and Custodian for Minor accounts, must be cash accounts.
Correction
Downward movement in the price of an asset class after it has been rising. Corrections are usually defined by a 10-20 percent price decline from the maximum price reached. A more serious decline is a Bear Market.
Correlation
The degree to which the prices of two assets move in the same direction at the same time. Positive correlation describes two assets whose prices move up or down together. Negative correlation describes two assets whose prices do not move together (when one asset goes up in price, the other asset tends to go down in price at the same time).
Currency Risk
The risk that a business' operations or an investment's value will be affected by changes in exchange rates. For example, if money must be converted into a different currency to make a certain investment, changes in the value of the currency relative to the American dollar will affect the total loss or gain on the investment when the money is converted back. This risk usually affects businesses, but it can also affect individual investors who make international investments.
Drawdown
A reduction in account equity from a trade or series of trades.
Dynamic Asset Allocation
An asset allocation strategy in which the asset mix is shifted actively and frequently in response to changing market conditions. An asset allocation strategy decides how an investor's funds should be divided among various asset classes.
Momentum
The amount of acceleration or deceleration in an asset's price over time. Momentum can be both to the upside (prices increase at an accelerating or decelerating rate) or to the downside (prices decline at an accelerating or decelerating rate).
Positive Yield Curve
A situation in which long-term debt instruments have higher yields than short-term debt instruments. This is the usual condition, and happens because investors demand a higher return for taking on the additional risk of the longer-term investment. It is also called a normal yield curve.
Relative Strength
Measurement comparing the movement of an asset class over a specific time period to the movement of another asset class over that same time period. Asset classes that outperform other asset classes in return usually have higher relative strength.
Seasonality
The tendency for asset classes to move in a characteristic way at specific times of the month or year.
Tax Lot
A record of all transactions and their tax implications involving a particular security in a portfolio. Recording the taxable purchase date provides the holder with the option of specifying exactly which shares to sell at a later date in order to reap tax advantages.
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