Investment Terms Your Wealth Manager Want You to Know

Your wealth manager is there to help you plan and make the most of your financial future. But having certain terms in your vocabulary can boost your own confidence and savvy, and make your meetings more productive.

Here are some common terms that might come up when talking with your wealth advisor. Of course, we’re not here to impress you with our financial vocabulary; we’re here to guide your comprehensive financial plan so that you can meet your goals.

This is by no means a comprehensive list of terms, but it’s a good start. Knowing these terms and what they mean can help you make more informed decisions about your investments.

Asset class

This is a grouping of similar types of investments with different levels of risk and return, such as stocks, fixed income (like bonds), cash, or real estate.

Asset allocation

This refers to how investment funds are divided across different asset classes in order to balance risk and reward. There are two types of asset allocation: tactical and strategic. Tactical asset allocation is a short- to medium-term approach that positions you financially to jump on opportunities as they arise. Strategic asset allocation is a long-term approach that fundamentally relies on a diversified portfolio. Both can be important to your overall goals.

Bear market

When you hear this term, it refers to a stock market that is generally declining. To truly be a bear market, stock prices must have fallen 20% or more from recent highs and be continuously dropping. It may also indicate a slowing economy as a result of dropping stock prices.

Bull market

By contrast, this describes a stock market that has experienced a sustained increase in prices and is seeing the value of shares rise. Those increases can lead to or be indicative of a strong economy.

Capital gains

This is an increase in an asset’s value that is realized when that asset (such as stock) is sold. There are long-term capital gains (which can occur if you’ve held an asset for more than one year) and short-term capital gains (on assets held and sold in under one year).

Capital loss

This is the opposite of a capital gain: If there’s a decrease in the value of your asset compared to the purchase price, that is known as a capital loss.

Certified Financial Planner

A financial professional who has met certain educational, experience, and ethical standards earns this designation. Before earning their certificate, they must successfully complete a multi-year, multi-step process to learn skills, have extensive real-world experience, and pass a rigorous exam.

Chartered financial analyst

This is another highly respected designation in finance and is considered to be the gold standard when it comes to investment analysis. To become a CFA charter holder, candidates must have a bachelor’s degree, at least four years of relevant experience, and pass three challenging exams.

Fiduciary duty

This standard prohibits your financial professional from placing their own interests ahead of yours. A fiduciary has made a commitment to manage your assets in good faith, loyalty, and your own best interests.

Index fund

If your strategy is that of passive investing (vs. actively picking stocks by trying to predict marking timing), this is one vehicle you can invest in. It’s considered by many to offer the ultimate in diversification for retirement accounts (such as 401(k)s or individual retirement accounts – see below). That’s because it is designed to mimic the composition and performance of a financial market index (such as the S&P 500).

Individual retirement accounts (IRA) 

A tax-advantaged investment account that helps you save for retirement. The four types include traditional, Roth, SEP and SIMPLE, and each come with their own set of benefits and potential drawbacks.

Investment Policy Statement

A governing document between a portfolio manager and a client. It clearly communicates what the client’s investment goals are and the strategies that will guide the investment plan.

Monte Carlo simulation

This is a technique that uses forecasting models to try to predict whether or not an investor will have the income they need in retirement. It’s commonly used in financial planning and portfolio management and uses a number of different variables, including portfolio size, asset allocation, time horizon, withdrawal rate, planned annual deposits, and inflation rates.


An activity that involves realigning how your assets are allocated in your portfolio, making sure it’s in line with your strategic asset allocation. Sometimes we do this on a calendar basis, and sometimes we do it in response to the market in case there are strong deviations from your strategic asset allocation.

Registered Investment Advisor (RIA)

This is a firm that advises clients on investments, manages portfolios, and serves the clients in a fiduciary capacity, so their best interests are met. RIAs must be registered with the U.S. Securities and Exchange Commission (SEC) or state securities authorities.

Risk tolerance

Your ability to lose some or all of an investment in exchange for the potential of greater returns. Risk tolerance is dictated by two factors: First, your financial plan. Second, your willingness (or personal preference).

Withdrawal rate

This is the rate at which you take money out of your account during your retirement years, and it’s most often expressed as a percentage of your initial balance (such as 4% or 5%). The goal is to take only what is needed so that you don’t spend down your accounts too quickly.

Would you like to make sure you’re on track to reach your financial goals? Ironwood Wealth Management is a relationship-driven, client-experience focused firm that is here to help you ensure the strongest possible financial future. Contact us to learn more about our approach today.