General Investment Terminology

Frequently Asked Questions
What is risk tolerance?

Risk tolerance refers to an investor’s comfort with the inherent risk in a given type of investment. You should not invest beyond your risk tolerance.

What is asset allocation?

Asset allocation is the process of dividing your money among different investment types to find the combination that balances your expectations for returns with your concerns about risk. It is a key factor in determining long-term performance results. Asset allocation helps you diversify your holdings, balance risk and reward, and plan for the long term.

What is diversification?

Diversification is a way to reduce investment risk by dividing your contributions among a variety of investments. A diversified portfolio typically has a mix of stocks, bonds, and cash. You can also diversify within each of these types of investments.

What is dollar cost averaging?

Dollar cost averaging means investing the same amount on a regular basis. This enables you to buy more “units” when the price is low and fewer “units” when the price is high. The program is most effective when you are able to continue investing equal dollar amounts at regular intervals through periods of both low and high price levels. While this will not assure a profit or protect against loss, it is a proven technique that may lower the average cost per share over time.

What is portfolio rebalancing?

Portfolio rebalancing provides periodic adjustments to help maintain your chosen asset allocation strategy. With automatic portfolio rebalancing, you determine how often you want your portfolio rebalanced (quarterly, semiannually, or annually) and then our daily valued system will redistribute the assets to reflect the percentage in your model portfolio.

What is a bull market?

An extended period of general price increases in the securities market.

What is a bear market?

An extended period of general price decreases in the securities market.

What is a large growth fund?

Large growth funds invest in companies with market values greater than $10 billion and that are projected to grow faster than the market.

What is a large blend fund?

Large blend funds focus on big companies that are fairly representative of the overall stock market in both size and price. These funds often track closely with the S&P 500 index. A blend fund may contain growth stock and value stocks, or it may contain stocks that exhibit both characteristics.

What is a large value fund?

Large value funds focus on companies with market values greater than $10 billion but with stocks less expensive than the market as a whole. They often come from utilities, energy, or financial sectors. A value fund focuses on companies that are undervalued in price and are expected to eventually see their worth recognized by the market.

What is an international equity fund?

International equity funds invest their assets all over the world. Some funds include significant U.S. holdings, but all invest a significant amount in other economies.

What is a small/mid-growth fund?

Small growth funds focus on companies with market values less than $1.5 billion. Most mid-growth funds focus directly on companies with market values between $1.5 and $10 billion. Others invest in stocks of all sizes, thus averaging a midsize profile. Both target firms projected to grow faster than the overall market.

What is a small/mid-value fund?

Small value funds invest in less popular companies with values less than $1.5 billion. Mid-value funds focus on medium-size companies or buy stocks of all sizes, creating a midsize profile. All look for stocks that are cheap relative to potential.

What is a high quality bond fund?

High quality bond funds invest in investment-grade fixed-income securities, including U.S. Government-issued debt, mortgage-backed securities, and investment-grade corporate bonds.

What is a cash fund?

Cash funds invest in money-market securities, CDs, and short-term U.S. Treasury Bills. These are highly liquid and have little or no risk.