Asset: Anything with commercial or exchange value owned by a business, institution or individual. Examples include cash, real estate and investments.

Asset class: A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (e.g., stocks), fixed income (e.g., bonds), and cash alternatives or equivalents (e.g., money market funds).

Bond: A debt security which represents the borrowing of money by a corporation, government, or other entity. The borrowing institution repays the amount of the loan plus a percentage as interest. Income funds generally invest in bonds.

Cash equivalent: An investment that is short term, highly liquid, and has high credit quality.

Collective Investment Trust (CIT): Investments created by a bank or trust company for employee benefit plans, such as 401(k) plans, that pool the assets of retirement plans for investment purposes. These funds are also referred to as collective or commingled trusts.

Compounding: The cumulative effect that reinvesting an investment’s earnings can have by generating additional earnings of their own.

Contribution: Money that is placed in an account either by you or someone else.

Diversification: The practice of investing in multiple asset classes and securities with different risk characteristics to reduce the risk of owning any single investment.

Equities: Another word for stocks.

Interest: The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond’s issuer.

IRA: An individual retirement account that has set annual contribution limits.

Mutual fund: An investment company registered with the SEC that buys a portfolio of securities selected by a professional investment adviser to meet a specified financial goal (investment objective). Mutual funds can have actively managed portfolios, where a professional investment adviser creates a unique mix of investments to meet a particular investment objective, or passively managed portfolios, in which the adviser seeks to track the performance of a selected benchmark or index.

Portfolio: A collection of investments such as stocks and bonds that are owned by an individual, organization, or investment fund.

Pre-tax: Before taxes.

Principal: The original dollar amount of an investment. Principal may also be used to refer to the face value or original amount of a bond.

Roth: A retirement account in which the contributor makes post-tax contributions.

Risk: The potential for investors to lose some or all the amounts invested or to fail to achieve their investment objectives.

Security: A general term for stocks, bonds, mutual funds, and other investments.

Stock: A security that represents an ownership interest in a corporation.