25 Investment Terms to Know

Finance is full of jargon. That’s one of the reasons why many are intimidated by investing— because they don’t understand the terms being used. When you lay them out individually, though, the terms aren’t quite as complex as they may sound. To show you what we mean, we’ve shared 25 common investment terms and their definitions. 

1. Annual Percentage Yield (APY)

The annual percentage yield is the total amount of interest you will earn on an investment in one year, which also includes the effects of compound interest.

2. Appreciation

As your investment increases over time, that increase is referred to as appreciation. 

3. Asset Allocation

Asset allocation refers to the way that you spread your money across different types of investments, such as stocks, bonds, mutual funds, etc. 

4. Bear Market

You may hear the stock market referred to as a bear or bull market. A bear market means that stock values are generally in decline. 

5. Blue Chip

A blue-chip investment is one that is often a large, well-established, and financially sound company.

6. Bottom-Up Investing

Bottom-up investment is an investing strategy in which you base your choices on the performance of individual companies rather than market trends. 

7. Bull Market

Instead of a bear market (mentioned in number four), a bull market refers to an overall increase in value.  

8. Capital Gain

When you have a capital gain, you receive the profit from selling an asset that has appreciated in value. 

9. Capital Loss

Unlike a capital gain, a capital loss means that you have sold an asset for less than what you initially paid for it. 

10. Cost Basis

A cost basis refers to the amount paid for a security, including any accompanying fees.

11. Defined Contribution Plan

A defined contribution plan refers to a tax-advantaged retirement account that an employee can contribute money to (e.g., 401(k)). 

12. Diversification 

Diversification is the act of diversifying your investment portfolio. This means that you spread your assets across different types of investments based on your risk tolerance.

13. Dividends

A dividend refers to companies’ payments to their shareholders that are usually taken out of their earnings. 

14. Dollar-Cost Averaging

Dollar-cost averaging is a type of investment strategy in which you consistently invest a certain dollar amount at a regular time interval, regardless of the market’s fluctuations. 

15. Expense Ratio

The expense ratio refers to the annual fees charged to the funds’ shareholders (e.g., mutual funds).

16. Exposure

Exposure refers to the inherent risk associated with an investment. 

17. Index

The index refers to an indicator of market performance in a certain industry, usually measured by using a hypothetical portfolio of securities. 

18. Index Fund

An index fund is a type of mutual fund that is designed to mimic a market index, such as the S&P 500.

19. Initial Public Offering (IPO)

An initial public offering is when a private company offers shares to the public for the first time.

20. Rebalancing

Rebalancing refers to the act of reviewing your investment portfolio and buying or selling assets to make sure that it still reflects your current risk tolerance.

21. Risk Tolerance

A person’s risk tolerance refers to how willing they are to see their investments fluctuate. The tolerance varies greatly depending on the person. 

22. Target Date Fund

A target-date fund is a type of mutual fund that automatically takes you from more risk-tolerant investments to less risk-tolerant investments as you get closer to your chosen retirement date

23. Top-Down Investing

Top-down investing, unlike bottom-up investing, refers to an investment strategy that focuses on overall market trends rather than individual companies. 

24. Volatility

Volatility in the market refers to rapid and significant changes in a particular asset’s value or the overall market. 

25. Yield

The yield of an investment refers to the earnings that the asset’s owner receives, which can be interest and dividends.

Ready to Build an Investment Portfolio? 

You don’t have to invest alone. With an advisor on your side, you can rest easy knowing that we can help you make wise investment decisions that contribute to your overall financial strategy. Ready to get started? Contact Southwestern Investment Group today to schedule a consultation!

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Jeffrey T. Dobyns


President, SageSpring | Financial Advisor, RJFS 

Jeffrey T. Dobyns

President, SageSpring | Financial Advisor, RJFS

Beyond crunching numbers and investment strategies, at SageSpring, we’re about building relationships. When you encounter Founder & President of SageSpring, Jeff Dobyns, it’s easy to understand why this is at the very heart of who we are as a firm. You won’t find stuffy formalities with Jeff; instead, you can expect to find him sharing a warm smile, communicating a compelling vision, or patiently untangling life’s complex challenges with clients. He believes in truly getting to know clients, understanding their aspirations and priorities, and navigating their financial plans with a tailored, comprehensive approach. Our team members have often been caught taking notes on Jeff’s effortless relationship skills from a distance, and we admire them for striving to learn from one of the best. 

Jeff’s financial expertise and wisdom are the perfect match to his innate people skills. Jeff holds the prestigious CERTIFIED FINANCIAL PLANNERTM certification, Chartered Life Underwriter (CLU®), and Chartered Financial Consultant (ChLU®) designations, and has held executive positions with financial planning firms for more than two decades. 

His dedication extends beyond the office to the boardroom and the local community, where Jeff is passionate about giving back. He serves as Chairman of the Board of Men of Valor, a prison ministry and mentoring program. Jeff also serves on the board of Send Musicians to Prison, which shares hope, healing and restoration with the imprisoned through musicians & artists. Jeff actively supports other initiatives in the community by sitting on the board of The Signatry of Middle Tennessee and the Halftime Institute of Nashville. 

Witnessing his four children, Gracyn, Hunter, Tanner, and Logan, excel on the field is almost just as rewarding, if not more, than celebrating the victories of seeing his clients overcome obstacles and build wealth. Spending weekends boating on the lake, hiking mountain trails, and fishing with his family are the moments Jeff cherishes most. It’s this grounded perspective that reveals the true meaning of wealth for Jeff: not just numbers on a page, but the freedom to create experiences that enrich your life and the lives of those you love. When you choose the Dobyns McMillin Wealth Team, you choose more than financial expertise. You choose a partner who champions your dreams, celebrates your victories, and walks besides you on the path to achieving your unique goals.

**Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER TM, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.