Financial Language Dictionary - Words starting with A




					FinancialLanguage.com Improving Communication Between Consumers and Financial Advisors

Financial Dictionary

A

Accrual Basis

Accounting method that recognizes income and expense as it’s earned or incurred, even though the transaction or activity did not result in an actual cash payment. The alternative to accrual accounting is cash basis accounting.

Accumulation Years

Years during which a working person contributes assets to accounts for his or her future use, for example, retirement.

Acknowledged Fiduciary

A financial advisor who acknowledges he or she is a fiduciary when providing financial advice. This type of advisor has more accountability for the suitability of his or her advice. Some advisors are fiduciaries but refuse to acknowledge it to reduce their personal liability for their advice.

Active Account

A brokerage account that has occasional to frequent buys and sells. This is in contrast to a passive account that has not trading.

Active Management

Portfolio managers make investment decisions that result in the purchase and sale of securities. The goal of active management is to beat the returns of passive alternatives, usually index funds. Commonly referred to as beating the market. Active management is the opposite of passive management where portfolio managers match the performance of indexes, but don't try to beat their results.

Actuary

Mathematician employed by a pension administration firm or insurance company who calculates pension liabilities, premiums, reserves, dividends, and annuity rates, using risk factors obtained from experience and mortality tables.

Advance-Decline

The measurement of the number of stocks that have advanced and declined over a particular period. The measurement shows the direction and strength of the market. A bull market occurs when more stocks are going up (advance) than down (decline) over an extended time period.

After-Tax Return

A method for comparing the performance of two portfolios to each other after all taxes have been deducted.

Aggressive Growth

Investments in the stocks of rapidly growing companies. The companies may be large or small, but they all have above average revenue and profit growth. The goal of aggressive growth investments is capital appreciation and not income.

Alpha

A coefficient that measures the portion of an investment’s return that is due to non-market risk. For example, Alpha is a mathematical estimate of the amount of return expected from an investment's inherent values, such as the rate of growth in earnings per share. An alpha of 1.25 indicates that a stock should rise 25% more in relation to the general stock market that has an alpha of 1.00.

Alternative Investments

Investments that are alternatives to stocks and bonds, for example, real estate, hedge funds, and private equity.

American Depository Receipt (ADR)

A certificate for the shares of a foreign-based corporation that is held in a U.S. bank and entitles shareholder to all dividends and capital gains. Instead of buying shares of foreign companies in overseas markets, Americans can buy shares on U.S. exchanges in the form of an ADR.

American Institute of Certified Pubic Accountants (AICPA)

The largest CPA association in the U.S. with more than 300,000 members.

Annualize

To convert a return to an annual basis. For example, if an investment earns 1% in a month, the approximate annualized return would be 12%. A ten year return of 100% would produce an approximate annualized return of 10% per year.

Annual Return

The investment return for one year including realized gains/losses, dividends, and interest.

Annuitize

To convert a pool of capital into an income stream that could last for life. Income payments may be for a fixed amount of money or time for the lifetimes of one or two people.

Annuity

Investments inside an insurance contract that provide fixed or variable payments. All earnings inside the annuity accrue tax-deferred until they are distributed. Most annuities are sold by representatives for commissions and have high expense ratios.

Approved List

Senior investment professionals at money management firms create lists of "approved" securities. Investments by professionals at the firm are limited to securities on the approved lists. Lists may include mutual funds, Separate Account Managers, hedge funds, and other investments.

Arbitrage

An investment process that takes advantage of temporary pricing differences when a security is listed on two or more exchanges.

Arbitration

Dispute resolution process that's designed to help damaged parties recover losses. In arbitration, an impartial person or panel hears all sides of the issues as presented by the parties, evaluates the evidence, and decides how the matter should be resolved. Arbitration is final and binding, and has limited review by courts.

Asset

Anything that has commercial value that can be owned by a business, institution, or individual. For example, stocks, bonds, real estate, collectibles, and precious metals.

Asset Allocation

The process by which assets are invested in multiple categories such as stocks, bonds, and cash equivalents. Allocation is the same as diversification and its primary purpose is to minimize the risk of large losses. There are also sub-categories of assets such as domestic stocks and international stocks.

Asset-Based Fee

A fee that is charged by financial advisors that is a percentage of their client's assets. For example, a 1% fee for $500,000 of assets is $5,000.

Asset Class

A category of investment such as domestic, large capitalization stocks. Asset classes are an integral part of the asset allocation process.

Asset Management Account

A custodial account that is usually managed by a third party - advisor, money manager, etc. Asset Management Accounts can also include additional services such as check writing, credit and debit cards, purchasing/selling securities, and margin accounts.