Reference

A–Z glossary

Every term used across the guide library, defined in one or two sentences. Type in the box to filter, or jump to a letter.

Plain EnglishCross-referenced to guidesLast reviewed: June 2026

Search the glossary

Filtering happens in your browser. Nothing you type is sent anywhere.

A

Alternative investments: Assets outside the conventional stock, bond and cash categories — private equity, private credit, hedge strategies, commodities. Typically less liquid, more complex and more expensive to access.
Annuity: An insurance contract that converts capital into a stream of payments, either immediately or at a future date. Terms, charges and guarantees vary enormously between products.
Asset allocation: The division of a portfolio between asset classes. The primary driver of how a portfolio behaves. See asset allocation.
Asset class: A group of investments sharing economic characteristics and tending to behave similarly — equities, fixed income, cash, real assets.
Asset location: Deciding which type of account holds which asset, so that tax treatment works in the investor's favour. Distinct from asset allocation. See tax-aware investing.
Assets under management (AUM): The total market value of assets a firm manages. Also a common fee basis, charged as an annual percentage.

B

Basis (cost basis): The amount treated as the purchase cost of an investment for tax purposes. Gain or loss on sale is measured against it.
Bear market: A sustained decline in market prices, conventionally described as a fall of 20% or more from a recent peak.
Beneficiary: The person or entity named to receive an account or policy on the owner's death. Generally overrides instructions in a will. See estate planning.
Bond: A loan to a government or company that pays interest and repays principal at maturity. Sensitive to interest rates and to the borrower's creditworthiness.
Broker-dealer: A firm that executes securities transactions, either for clients or for its own account. Regulated differently from an investment adviser.
Bull market: A sustained period of rising market prices.

C

Capital gain: The profit realised when an asset is sold for more than its cost basis. Tax treatment commonly depends on how long the asset was held.
Cash equivalents: Highly liquid, short-term instruments such as treasury bills and money market funds, held for stability and access rather than growth.
CFA®: Chartered Financial Analyst — an investment analysis and portfolio management credential requiring three sequential examinations plus qualifying experience.
CFP®: Certified Financial Planner — a financial planning credential with education, examination, experience and ethics requirements.
Compounding: Growth calculated on prior growth as well as on the original capital. Works in reverse for costs and losses. See investment fundamentals.
Concentration risk: Exposure arising because too much depends on a single company, sector, region or asset — frequently an employer's stock.
Correlation: A measure of how two assets move relative to each other, from +1 (identical) through 0 (unrelated) to −1 (opposite). Diversification depends on correlations below +1.
Custodian: The institution that holds client assets. Keeping assets with an independent custodian is an important structural safeguard.

D

Decumulation: The phase in which savings are drawn down to fund spending, typically in retirement. Governed by different risks from accumulation.
Deductible: The amount an insured party pays before cover responds. A higher deductible means more risk retained and usually a lower premium.
Diversification: Spreading exposure across assets that do not move together, reducing risk without a proportionate reduction in expected return. Does not eliminate the risk of loss.
Dividend: A distribution of company profits to shareholders. Not guaranteed and can be reduced or suspended.
Drawdown: The peak-to-trough decline in value over a period. Often a more meaningful description of risk than volatility.
Durable power of attorney: A document authorising someone to act on your financial and legal affairs, remaining effective if you become incapacitated.
Duration: A measure of a bond's price sensitivity to interest rate changes. Longer duration means larger price movements for a given rate change.

E

Elimination period: The waiting time between a disabling event and the start of insurance benefits. Cash reserves normally bridge it.
Equity: Ownership in a company, held as shares. Historically the highest long-run expected return of the mainstream asset classes, with the largest declines.
Estate: Everything a person owns at death, together with their liabilities.
ETF (exchange-traded fund): A pooled fund whose shares trade on an exchange throughout the day. Its structure is often, though not always, more tax-efficient than a comparable mutual fund.
Expense ratio: The annual cost of running a fund, expressed as a percentage of assets and deducted continuously. It never appears as a line item on a statement.

F

Fee-based: Compensation from a mix of client fees and third-party payments such as commissions. Not the same as fee-only.
Fee-only: Compensation exclusively from the client, with no third-party commissions or revenue sharing.
Fiduciary: A duty to act in the client's best interest, placing their interests ahead of one's own and disclosing conflicts. See choosing an advisor.
Fixed income: Investments paying a defined return, principally bonds.
Form ADV: The disclosure document US registered investment advisers file and provide to clients, describing services, fees, conflicts and disciplinary history.
Form CRS: A short client relationship summary setting out services, standard of conduct, fees and conflicts.

G

Grantor: The person who creates a trust and transfers assets into it. Also called the settlor or trustor.
Guardianship: A court-appointed authority to manage the affairs of someone judged unable to manage their own. Often avoidable with advance documents.

H

Health savings account (HSA): A US account used with a qualifying high-deductible health plan to pay medical costs, with distinctive tax characteristics.
Hedge: A position taken to offset the risk of another position. Reduces potential loss and usually potential gain, and has a cost.

I

Index fund: A fund that tracks a published index rather than trying to beat it. Typically lower turnover and lower cost than active management.
Inflation risk: The risk that purchasing power falls even though the nominal balance holds steady. Principally affects cash and fixed-rate bonds.
Intestacy: Dying without a valid will, in which case state law determines who inherits.
Investment policy statement: A written document recording objectives, constraints, target allocation and rules for rebalancing. Its value is that it is written before it is tested.
IRA: Individual Retirement Arrangement — a US retirement account held individually rather than through an employer, in traditional and Roth forms.

L

Liquidity: How readily an asset can be converted to cash at a fair price. Illiquid assets may take time to sell or require a discount.
Longevity risk: The risk of outliving your resources. For a couple, the relevant horizon is the second death, not the first.

M

Marginal tax rate: The rate applying to the next dollar of income, as distinct from the average rate paid across all income.
Money market fund: A fund holding very short-term instruments, used as a cash equivalent. Not a bank deposit and not insured as one.
Mutual fund: A pooled investment priced once daily at net asset value.

N

Net worth: Total assets minus total liabilities. The simplest single measure of financial position.
Nominal return: Return before adjusting for inflation. Compare with real return.

P

Portfolio: The complete collection of investments held, ideally analysed together rather than account by account.
Premium: The amount paid for insurance cover. Also, in bond markets, the amount by which a price exceeds face value.
Probate: The court process validating a will, settling debts and authorising distribution of the estate. See estate planning.

R

Real return: Return after adjusting for inflation — what actually changes purchasing power.
Rebalancing: Restoring a portfolio to its target weights by trimming what has grown and adding to what has lagged. A risk-control discipline.
Required minimum distribution (RMD): A mandatory withdrawal from certain US tax-deferred accounts once specified conditions are met. The rules have changed several times; verify current requirements.
Revocable trust: A trust that can be amended or cancelled by the grantor. Commonly used to avoid probate; generally offers no creditor protection.
Risk capacity: How much loss your circumstances can objectively absorb without damaging your objectives.
Risk tolerance: How much volatility you can experience without abandoning the strategy. A separate question from capacity.
Roth: A US account type funded with after-tax money, where qualified withdrawals are generally tax-free.

S

Sequence-of-returns risk: The risk that poor returns early in the withdrawal phase do lasting damage, even if long-run average returns are acceptable. See retirement planning.
Standard deviation: A statistical measure of dispersion, used as the conventional proxy for volatility.
Suitability: A standard requiring a recommendation to be appropriate for the client — historically a lower bar than fiduciary duty.
Systematic risk: Risk affecting the market as a whole, which diversification cannot remove and which is therefore compensated with expected return.

T

Tax-deferred: An account where growth is not taxed annually, with tax generally arising on withdrawal.
Tax-loss harvesting: Realising a loss deliberately to offset gains, while maintaining market exposure. Constrained by wash sale rules. See tax-aware investing.
Term insurance: Life cover for a fixed period with no investment component.
Time horizon: How long until money is needed. The single most important input into how much risk is appropriate.
Transfer on death (TOD): An instruction directing an account to a named person at death, bypassing probate.
Trust: A legal arrangement where a trustee holds property for beneficiaries under terms set by the grantor.
Trustee: The person or institution responsible for administering a trust according to its terms and in the beneficiaries' interests.

U

Umbrella policy: Liability insurance sitting above the limits of home and auto policies. Usually inexpensive relative to the protection added.
Underwriting: The insurer's process of assessing risk and setting terms and price, or declining cover.

V

Vesting: The point at which employer contributions or granted equity actually become yours to keep.
Volatility: The degree to which returns fluctuate around their average. The default proxy for risk, though an incomplete one.

W

Wash sale: Repurchasing the same or a substantially identical security within a defined window around a loss sale, which generally disallows the loss for tax purposes.
Will: A document directing distribution of probate assets and naming an executor and guardians for minor children.
Withdrawal rate: The percentage of a portfolio taken as income in a year. Sustainability depends on horizon, allocation, returns and flexibility.

Y

Yield: Income produced by an investment as a percentage of its price. Higher yield generally reflects higher risk rather than a better deal.

Definitions, not advice

These definitions are simplified for clarity and describe general concepts, mostly in a United States context. They are not legal, tax or investment advice, and terminology can carry a more precise meaning in a specific legal or contractual setting. See our disclaimer. Something missing or unclear? Tell us.