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What is Collateralized Mortgage Obligation (CMO)? A CMO is a mortgage bond that consists of a large number of different individual mortgages bundle...

When a bond is secured, it means it's protected, i.e. there are assets that would be forfeited if repayment is not made. When it's unsecured... it'...

What is Counterparty Risk? Counterparty risk is the risk to either party within a transaction that the other will not or be unable to abide by the...

What is liquidity? Think: water. It's liquid. It can be squeezed into little, tiny spaces and infused into large spaces. A defining trait of liquid...

A liquid market is a market featuring high trading volumes, i.e. investors actually want to put their cash to work.

What's a yankee bond, and does it stick a feather in its cap and call it macaroni?

What is a Country Basket (Index Fund)? Investing internationally can be a challenge, as foreign exchange, different accounting rules, time zones an...

What are credit ratings and how are they interpreted? Credit ratings describe a borrower’s likelihood to pay back their debts; it’s a look at h...

What are CEOs, CFOs, and COOs? The “C” level executives in a corporation are the corporate officers responsible for the management decisions an...

What is ordinary income versus long-term gain income? Hit play to find out.

What is the Black Scholes Model? The Black Scholes Model is used to determine the price of call options. It looks at the change in stock price over...

What is tax loss selling? Hit play to find out.

Trading volume is the number of shares trading back and forth at a given time.

What is the difference between taxable and untaxed returns? Not all returns and investments are taxed. Some of these can be considered nontaxable i...

What's the difference between senior and junior debt? No matter the differences, we know the similarity: you don't want to be in either of them.

What is real return? Real return is the actual return made from an investment after inflation is factored in. Return is expressed as a percentage c...

What are Bond Anticipation Notes (BANS), Revenue Anticipation Notes (RANS), and Tax Anticipation Notes (TANS)? BANS, RANS and TANS are all short-te...

What is AMBAC? AMBAC stands for American Municipal Bond Assurance Corporation. It provides insurance for municipalities that sell muni bonds, such...

How do you judge the performance of an index fund? For index funds, they're really just a reflection of the stocks and bonds they, uh... reflect. S...

What does “Called Away” mean? Calling away means that an option has been called and exercised and the writer is now responsible for giving the...

When you realize a gain or loss, it means that you turn an investment into cash. Thrilling, we know.

What are the Major Classes of Bonds? Insofar as US dollar denominated bonds go, the primary classes of bonds are: 1) US Treasury Bonds; 2) US Treasury Notes and other US government debt; 3) Investment Grade Corporate Bonds (BBB- or higher); 4) High Yield (aka Junk) bonds (CCC+ or lower); 5) Mortgage Bonds, 6) Sovereign Bonds of other countries; 7) Municipal Bonds (issued by states, cities, and other municipalities). Non-US dollar bonds may incorporate combinations of the above as well as intangibles and assets not recognized under US GAAP accounting rules.

What is a registration statement? A registration statement is the set of documents that accompany a filing of securities with the SEC for sale in the public markets. There are various types of registration statements that bear different designations. For example, the S-1 statement pertains to shares being registered in an IPO. A Form 10 registration statement requires the filing company to regularly file 10-Q quarterly and 10-K annual financial reports as per the regulations for fully reporting companies.

What are Above Par and At Par? Above par is when bonds trade at higher prices than face value. At par is when bonds are trading at face value. It seems to make sense that bonds would trade at their face value, but above par trading happens when interest rates are dropping, creating a lesser yield and higher price as they have an inverse relationship.

What is asset allocation? Asset allocation is the process of executing an investment strategy that is tailored to a particular investor’s risk tolerance and return on investment goals. While investors would like to get as large a return as they can, those with weak stomachs will blanche at the volatility of option and high flying tech stocks and may endure less sleepless nights invested in large cap equities or bonds, eschewing the higher potential returns for greater peace of mind. Asset allocation also needs to be regularly reviewed and adjusted should market conditions change in order to minimize losses or erosion of gains.

What is a muni bond? Muni bonds are bonds issued by the government. They are used to raise the money required to pay for government responsibilities like schools and roadways. Because of their nature and purpose, they are not taxed, so they make for pretty good investment opportunities for people in high tax brackets.

What is Bond Amortization? Bond amortization is simply the spreading out of the cost of the bond over time. Bonds have amortization schedules and these lay out how the bond is paid including principal and what is owed in interest.

What is the Relative Strength Index? The Relative Strength Index is a technical analysis indicator that measures trading direction trends over the course of 14 trading sessions (on average) and calculates the degree of up and down percentages to determine whether or not the asset in question may be indicating an overbought or oversold signal.

If you go to an arcade and want to play coin-operated games, you will often exchange $1 bills for (4) quarters at a time. This is the equivalent of a 1 for 4 stock split. The net value is the same, but you have more small units instead of a single larger one. The advantage for a stock is that its lower price represents an easier entry level for new investors to get involved, since buying shares of a stock at 25 is easier for an initial portfolio allocation than at 100. A forward split is usually an indication that a company is growing and attracting more investors. Conversely, a reverse split would be like getting a dollar for your 4 quarters. Reasons for a reverse split could be too much stock outstanding to move the stock price, flushing out naked short sellers, or a post reverse merger stock overhang cleanup.

NAV isn't a cool new navigation app...it's how mutual fund shares are valued or priced at the end of each trading day.

What is amortization? Amortization tracks the decline in value of a contract or service, usually paid for in advance. You received $10,000 in advance to water Ms. Maple's lawn for 10 months. She amortizes your watering to the tune of a decline in value of that contract of $1,000 as each month goes by.

What are Weighted Averages and Expected Values? Weighted averages are averages calculated to account for the number of changes that a variable, such as price, may have, especially when the same asset may have been added to the portfolio in varying quantities and price costs over time for a cumulative total. Expected Values is an anticipated prediction of an asset’s value over a specified time that is calculated as the total of possible results times their statistical probability.

What is a Holding Company? A holding company is a company that controls enough voting stake in another company to have control over operations. Usually holding companies are just parent companies and the term holding refers to the relationship they have with their subsidiaries.

Strategic asset allocation means allocating your assets...strategically. Yup, no crazy plot twists here.

What is the difference between short-term and long-term liabilities? Short-term liabilities show up on the balance sheet. They need to be paid in the short-term using the inflow from cash and accounts receivable, as shown on the balance sheet. These are things like accounts payable and employee salaries. Long-term liabilities are things like loans and such that the company won’t need to pay back for over a year.

What is a basis point? Basis points are how changes in financial securities are described. “The stock dropped 100 points” actually means that the stock price decreased by 1%. One basis point corresponds with 1/100th of 1%; as the point system has to describe changes, it makes sense that this figure would be so small, because changes are typically not that drastic, but need to be described. For example, saying a stock price changed .01% is a little confusing to grasp, but 100 points is not, assuming the lingo is understood.

What are the types of income tax? Federal income tax. State income tax. Real estate tax. Value Added Tax (VAT). Some tax is progressive, some tax is regressive. The commonality: they're all bad.

Return on sales is an investment metric that reflects the profitability of a company.

What is opportunity cost? In short, it's the eventual monetary cost of choosing to do one thing over another (often choosing travel or experiences over their monetary equivalent). That contract guaranteeing you $100k a year might sound terrific when you're staring $200k of student loans in the face, but if it locks you out of a much higher paying job five years down the road, you can kiss wealth and financial success good-bye.

What is a strike price? Strike prices are used in conjunction with options. Calls and puts give investors the right to buy or sell stocks at predetermined prices called strike prices. If the investor owns a call option, they can buy the stock at the strike price; with a put option, they can sell the stock at the strike price.