One of the barriers when working with a financial advisor can be not knowing where to start. Financial terminology—especially when it comes to big topics like retirement or investing—can feel extremely overwhelming and prevent you from feeling confident in your financial decisions. The financial professionals at Emerj360 are here to help guide you, but learning some key terms can help you in your financial journey. To that end, here’s a glossary of 18 key terms—and how they impact you.

1. Financial Plan

A financial plan is a comprehensive overview of your current financial situation, your future financial goals, and a roadmap for how to achieve those goals. It’s typically something you put together with the help of a financial professional, and it includes details of your savings, debt, investments, cash flow, insurance, and any other elements of your financial life

2. Assets

An asset is anything you own that has monetary value, which can be traded to produce income and grow in value. Common investment assets are stocks, bonds, cash, real estate and commodities. Some assets are riskier than others, but increased value is the goal so that you can sell the asset for more than you paid for it. The different categories are called asset classes and spreading them out to achieve a return is known as asset allocation. A diverse portfolio will include asset classes that perform well and others that don’t at a given time, but that performance will change given market conditions.

3. Assets Under Management (AUM)

Because of the variety of fee structures, certifications, services offered, and geographical differences, fees can vary significantly. However, there are some standards that you can expect. Most financial advisors charge based on how much money they manage for you, a fee structure called “assets under management,” or AUM. That fee can range from 0.5 % to 1.5% per year, while advisors who charge flat fees can cost between $2,000 and $7,500 per year.

4. Stocks

When you buy a company’s stock, you’re purchasing a small piece of that company, called a share. Investors purchase stocks in companies they think will go up in value. If that happens, the company’s stock increases in value as well. The stock can then be sold for a profit. When you own stock in a company, you are called a shareholder because you share in the company’s profits. Stocks carry more risk than some other investments, but also have the potential to reap higher rewards.

5. Bonds

In simple terms, a bond is a loan from an investor to a borrower such as a company or government. The borrower uses the money to fund its operations, and the investor receives interest on the investment. The market value of a bond can change over time. Most investment portfolios should include some bonds, which help balance out risk over time and make up for volatility in the market.

6. Investment Portfolio

A financial portfolio is a collection of investments and holdings like stocks, bonds, mutual funds, commodities, crypto, cash, and cash equivalents.

7. Diversification

Diversification is a technique that reduces risk and volatility in your investment portfolio. The idea is to invest across various asset classes, industries, and categories in an effort to reduce losses if a particular investment performs poorly. When one stock’s value decreases, other stocks in the portfolio may hold their value or even increase in value, mitigating the loss.

8. Brokers

A broker buys and sells stocks on behalf of investors. Brokers are typically compensated through a commission on each trade. Investors have historically paid a broker a commission to buy or sell a stock.

9. Overconcentration

A concentrated position in a single stock can happen to investors for many reasons. They may receive company stock as part of their employee compensation package or they may have bought shares of a single company, hoping to choose a big winner. However, it’s unlikely that a single stock will outperform the market as a whole. By only selecting a single stock, you can introduce a lot of risk into your portfolio. To limit the risk of overconcentration, focus on developing a diversified portfolio that includes different asset classes. Go further by diversifying across sectors, sizes, and geographical regions.

10. Risk Tolerance

All investing involves a certain amount of risk. How well you tolerate price fluctuations in your investments will need to be balanced against your required rate of return in determining the amount of risk your investments should carry. An offsetting factor to risk is time. If you plan to hold an investment for a long time, you may tolerate more risk because you have the time to make up any losses you may experience early on. For a shorter-term investment, such as saving to buy a house, you probably want to take on less risk and have more liquidity in your investments. Learn more in our blog, “Get to Know Your Risk Tolerance.”

11. Funds

A fund is cash saved or collected for a specified purpose, often professionally managed with the goal of growing the value. In investing, the most common example is a mutual fund, which pools money from shareholders to invest in a portfolio of assets such as stocks and bonds. Investment funds take the contributions of fund investors and purchase a portfolio that may include stocks, bonds, short-term debt or a combination of assets. As the total value of the stocks or bonds within a fund rises and falls, so does the value of the fund shares.

12. Fiduciary

A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties. Fiduciary duty has always been at the core of what Emerj360 does every day. In most cases, fee-based and fee-only financial advisors are fiduciaries, which means they are legally required to act in their client’s interest, building plans and choosing products that are ideally suited to your needs.

13. 401(k)

A 401(k) is a retirement savings and investing plan that employers offer. A 401(k) plan gives employees a tax break on money they contribute. Contributions are automatically withdrawn from employee paychecks and invested in funds of the employee’s choosing (from a list of available offerings). The accounts have an annual contribution limit and depending on the type of plan you have; the tax break comes either when you contribute money or when you withdraw it in retirement.

14. IRA

An individual retirement account (IRA) is a tax-advantaged investment account that helps you save for retirement. You’re able to contribute up to the maximum limit set by the IRS each year. There are different types of IRAs including the traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA. You take pre-tax or after-tax dollars and deposit them into an IRA account. How your account balance grows over time depends on how you invest, and how much you contribute to the IRA.

15. Compounding

The earlier you increase how much you’re saving for retirement, the more time your money can potentially benefit from the power of compounding. Compounding begins when your retirement savings generate investment earnings. Those earnings are added to your plan balance and reinvested. Then you have the potential to earn a return on your contributions and your earnings. The longer this process has to repeat itself, the larger your account balance may be at retirement.

16. Rollover Options


Rollover: A rollover is when you move funds from one eligible retirement plan to another, such as from a 401(k) to a Rollover IRA. Rollover Distributions are reported to the IRS and may be subject to federal income tax withholding.

Transfer: A transfer is simply transferring a single type of retirement account to a new financial institution. When using a transfer, the account type does not change. This is also sometimes called a trustee-to-trustee transfer.

Roth Conversion: A Roth conversion is simply converting funds in a pre-tax IRA or 401(k) to a Roth after-tax investment, which means money in a Roth IRA will grow tax free and can be withdrawn tax free.

17. Net worth

You can calculate net worth by subtracting what you own, your assets, with what you owe, your liabilities. The remaining number can help you determine the overall state of your financial health.

18. Trust

A trust is a legal arrangement that details how, when and to whom you want your assets to be distributed. Trusts can hold several different types of assets—money, investment accounts, real estate, stocks/bonds, family heirlooms and even a personal business. Unlike wills, trusts can go into effect during your lifetime and you do not have to die in order to have your assets transferred. When you do pass, a trust allows you to avoid probate court, saving your beneficiaries time and money by avoiding the legal system compared to having just a will. Additionally, you could lower estate and inheritance taxes on assets in trust.

To learn more about these important terms and to take steps toward managing your finances, contact one of our Emerj360 professionals today to get started.

Written By  Heather Jordan
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