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Mutual Fund Glossary

A glossary of words and phrases related to mutual fund investing.

What is a Mutual Fund?
What is a mutual fund? In one simple explanation, learn the definition, basics, advantages and types of mutual funds.

What is the 4% Rule for Retirement Income?
Is the 4 percent rule still valid? This general rule of thumb for retirement income can be a good place to start your planning but the strategy can be misleading, especially if you do not know how to use it correctly.

Who Pays a Mutual Fund 12b-1 Fee?
A fee that is charged by some mutual funds, which is used to pay marketing, distribution, and service costs, and is paid to the broker. The Financial Industry Regulation Authority (FINRA) allows funds to charge as much as 1.00% annually as a 12b-1 fee.

What is Alpha?
Alpha can be used to measure the value added or subtracted by a portfolio manager. Investors who understand the definition and benefits of alpha can gain an edge in mutual fund selection.

Alternative Investments Definition
The definition of alternative investments can be as elusive as the definition of normal. Take a look at some examples of alternative investment types for greater understanding of what they are and how to use them with mutual funds and ETFs.

What Is Bitcoin?
What is bitcoin currency and how can you invest in bitcoins?

What Are Bullion Coins?
Bullion coins are most commonly used as a store of cash or alternative to currency for savers and investors during times of economic uncertainty.

What is Buy and Hold?
The buy-and-hold investing strategy may be the most used, abused and criticized investment strategy that ever existed. Investors can benefit and critics will disappear if "buy and hold" is properly defined and applied.

Actively Managed Funds
The portfolio manager of an actively-managed fund tries to beat the market by picking and choosing investments.

What Are Asset Classes?
Asset classes, with regard to investing, are the three basic types of assets - stocks, bonds and cash.

What is Asset Allocation?
Asset allocation describes how investment assets are dividend into the 3 basic investment types - stocks, bonds and cash - within an investment portfolio.

What is Asset Location?
You've heard of asset allocation but what about asset location? The placement, in terms of which account, taxable or tax-advantaged, is an important investing decision that has significant impact on an investors returns and taxation.

The Callan Periodic Table of Investment Returns
What is the Callan chart? Learn about the Callan Periodic Table of Investment Returns and see how performance history can help reveal something about diversification and future returns.

What Are Mutual Fund Class A Shares?
Class A shares generally have front-end sales charges (also known as a “load”). The load is paid to the advisor for buying the mutual fund on behalf of investors.

Learn More About Class B Shares
Class B shares do not carry front-end sales charges, but carry a contingent deferred sales charge (CDSC) and a higher 12b-1 fee (a 12b-1 fee of 1% is common).

What Are Mutual Fund Class C Shares?
Should you invest in C Share mutual funds? Before investing, be sure to understand how the different share classes charge fees and expenses.

What Are Balanced Funds?
Balanced Funds are mutual funds that provide a combination (or balance) of underlying investment assets, such as stocks, bonds and cash.

What is a Certificate of Deposit (CD)?
What is a CD? How and when should you use the laddering strategy? Learn how and when to use Certificates of Deposit for short-term or long-term saving.

Contrarian Investing Definition
Contrarian investing strategies involve more than just going against the investor crowd. Knowing examples and strategies of how to spot contrarian indicators in the stock market and economy and what to do about them can create success.

How and When to Build a CD Ladder
CD laddering can be used to get higher yields while maintaining access to your cash. Learn how to build a CD ladder and when is the best time to do it.

What Are Dividends?
What are dividends? Find out the definition and basics of investing in stocks and mutual funds.

What is Dollar-Cost Averaging (DCA)?
Dollar cost averaging is a simple way of periodically and automatically buying shares of investments over time.

Dow Theory Definition
What is Dow Theory and how can investors use it for market timing? Does it work or is it just another theory?

What Are Fund Flows?
Mutual fund flows, which are usually called fund flows, indicate how investors are investing their money in mutual funds. The flows are measures of dollars flowing into or out of mutual funds.

What is Fixed Income?
Fixed income can refer to an investment strategy or style that is intended to produce relatively fixed or stable income or it can also refer to investment types within an investment portfolio.

What is Manager Risk?
Managers are susceptible to the same human errors that investors make every day. Therefore Investors need to understand manager risk and how to analyze actively-managed mutual funds.

What Are Hybrid Funds?
Hybrid funds can be a valuable addition to an investment portfolio if used properly and the investor understands the definition and basics.

What is Manager Tenure?
Manager tenure is a key decision factor in buying mutual funds. Don't make the mistake of overlooking manager tenure before investing in a mutual fund.

Contango Anyone?
Contango is when the futures price of a commodity exceeds the spot price. The higher futures price reflects the cost of carry (cost of storing, insuring and financing a commodity) for future delivery of a commodity.

What Are Funds of Funds?
Funds of funds are mutual funds that are made up of other mutual funds.

What is the Healthcare Sector?
The health sector can be a good addition to a mutual fund portfolio. But what are health stocks and what are some of the best areas or sub-sectors of health care? How can politics and laws impact the price of health sector stocks?

What is The Great Rotation?
The Great Rotation refers to an investment trend of transition out of bonds and to stocks. This movement has also been called "a flight to equities."

Contingent Deferred Sales Charges
Mutual fund B shares do not require front-end sales charges, but carry contingent deferred sales charges (CDSC) and have a higher 12b-1 fee (a 1% 12b-1 fee is common) than other mutual fund share classes.

What Are Sector Funds?
Sector Funds focus on a specific industry, social objective or sector such as health care, real estate or technology.

Invest Objective Definition and Examples
When you hear the term, investment objective, what does it mean and how can you go about forming an investment objective for yourself? What are some examples?

What Are No-Load Funds?
What are no-load funds? Learn about the benefits and types of loads and why smart investors choose these low-cost mutual funds.

Lump Sum Distribution - Definition
What is a lump sum distribution? What is the best way to invest the cash from a 401(k) or IRA rollover? Find out what to do when you are given distribution options from your retirement accounts.

What Is Cost Basis?
Cost basis is the purchase price of a mutual fund (or other asset) plus reinvested dividends and reinvested capital gains distributions. The market value less the cost basis is the capital gain or capital loss.

What Are Hedge Funds?
A hedge fund is an investment type that uses a wide range of strategies designed to protect investors from downturns in the market while still participating in positive market environments.

What Are Derivatives?
A derivative is a financial instrument that derives its value from an underlying asset such as a stock, bond or commodity.

Inflation Definition, Examples & Investing Strategies
Inflation is said to be one of an investor's worst enemies. However, it can also be said that a lack of understanding of inflation can be detrimental to an investor's investment portfolio. Learn how to invest and hedge against inflationary economic environments with mutual funds.

What is Stagflation?
Stagflation can be one of an investor's worst enemies. However, it is the common lack of understanding of stagflation that can be most detrimental to an investor's investment portfolio. Learn how to invest and hedge against stagflation with mutual funds.

What is Hyperinflation?
Inflation is harmful for investors but hyper-inflation can be worse! Learn how to invest and hedge against hyper-inflation with mutual funds.

What is Deflation?
What is deflation? Learn how to invest and hedge against deflationary economic environments.

Europe Stock Investing
What is Europe Stock and what is the best way to invest in European countries with mutual funds and ETFs?

What is Fund Overlap?
Smart investors will be aware of overlap in their mutual fund portfolio. Learning how to detect and avoid fund overlap can insure an effective level of portfolio diversification.

What Are Municipal Bonds?
Municipal bonds and municipal bond mutual funds can be used as diversification tools and as a means of tax-free income for an investor. Understanding the definition and basics of municipal bonds can help an investor build a better portfolio.

What Are Corporate Bonds?
Corporate bonds are debt obligations issued by corporations. Understanding the definition and basics of corporate bonds and corporate bond mutual funds can help an investor build a better portfolio.

What Are US Treasury Bonds?
US Treasury bonds are debt obligations of the US Federal Government issued by the US Treasury. Understanding the definition and basics of US Treasury bonds and US Treasury bond mutual funds can help an investor build a better portfolio.

Who is Fidelity Investments?
Who is Fidelity Investments? There is more to know about Fidelity than their mutual funds and retirement services.

Exchange Traded Notes
It is important to note that ETNs are debt instruments, like bonds, that do not invest in any asset. Although linked to the performance of a market benchmark, ETNs are not equities or index funds; they combine the qualities of bonds and Exchange Traded Funds (ETFs).

Vanguard Investments
Vanguard Investments is among the best and favorite of mutual fund companies for the do-it-yourself crowd. Founder Jack C. "Jack" Bogle formed the company around his idea that low-cost index funds can provide superior returns for the long-term investor.

Who is Charles Schwab?
Named after its founder, Charles Schwab is a discount brokerage firm offering mutual funds and financial services to individual investors. Is Schwab right for you?

What is Passive Investing?
What is passive investing? See examples and learn the benefits of passively-managed mutual funds and compare the passive style of investing with active management.

Who is T. Rowe Price?
T. Rowe Price is an investment firm best known for its low cost, no-load mutual funds for individual investors.

Who is PIMCO?
PIMCO is not a household name but many investors know PIMCO as the mutual fund company co-founded by Bill Gross, the legendary bond fund manager. Who is PIMCO and should you consider using their mutual funds?

What is Reflation?
What is reflation? Learn how to invest and hedge against deflationary economic environments.

What Are Junk Bonds?
Junk bonds, also known as high yield bonds, can make a good addition to your mutual fund investment portfolio. Before investing in junk bond funds, be sure to understand the definition, nature and risks of high yield investing.

What Are Emerging Markets?
What is the definition of emerging markets? Which countries are considered to be emerging markets? Investors are wise to understand the advantages and disadvantages of investing in stock funds or bond funds of emerging markets.

What Are Growth Stock Funds?
What are growth stocks? Which mutual funds are best for exposure to growth stocks? What is the best timing for investing? Mutual funds are an ideal means of investing in growth stocks for the average investor. Advanced investors can also use them as tools in their portfolios.

What Are Value Stock Funds?
Mutual funds are an ideal means of gaining broad exposure to value stocks. What are value stocks? Which mutual funds are best for exposure to value stocks? What is the best timing for investing?

Post-Modern Portfolio Theory
What is Post-Modern Portfolio Theory and how is it different than Modern Portfolio Theory (MPT)? Learn the basics and investment strategy to see if PMPT is the best fit for you.

Momentum Investing - Definition, Strategies and Funds
The definition of momentum investing is just as one may guess -- a strategy of capitalizing on current price trends with the expectation that momentum will continue to build in the same direction. But when is the best time to use this investing strategy and which are the best mutual funds?

What is International Stock?
International Stock is a broad heading of investment categories that includes foreign stock, world stock, and emerging markets stock. Learn more about investing in international stock mutual funds.

What is Growth & Income?
What does Dave Ramsey mean when he says "growth and income?" Learn more about the growth and income objective for mutual fund investing.

What is an Index?
You may have heard about index funds. But what is an index? What are examples of best known indexes?

What is the Wilshire 5000 Index?
Often called "the total stock market index," The Wilshire 5000 is the broadest stock market index. But does this mean it's the best overall index for investors?

What is the NASDAQ?
What is the NASDAQ and what are the best mutual funds and ETFs that invest in the NASDAQ index?

What is the Russell 2000 Index?
What is the Russell 2000? This index represents the small-cap stock portion of the equity investment universe. Investors are wise to understand the definition of the Russell 2000 Index and how it applies to investing in mutual funds and ETFs.

What is the MSCI Index?
What is the MSCI Index? There are many different variations of this foreign stock index. These indexes are followed by other acronyms, such as EAFE, ACWI, IL, DM and EM. What do they mean and how can investors use them?

The Barclays Capital Aggregate Bond Index
The Barclays Capital Aggregate Bond Index is the benchmark for most bond funds traded in the US. What is the BarCap Aggregate and how can an investor benefit by using a total bond market fund?

What is the Russell 3000 Index?
The Russell 3000 is a broad stock market index -- a sampling of approximately 3000 stocks -- that measures performance of the largest US companies. Should investors use a Russell 3000 index fund or ETF or should they use a Wilshire 5000 fund or S&P 500 fund?

What Are ETFs?
ETF is short for "Exchange-Traded Fund." An ETF holds a basket of securities and trades on a stock exchange.

What Are Transaction Fees?
Many investments incur transaction fees when buying shares. For this reason, investors should be aware of these trading costs, especially when making frequent purchases.

What is Stewardship Grade?
What is Morningstar's Stewardship Grade and how can an investor benefit by analyzing it?

What is Market Risk?
There are several different types of risk associated with investing. All of these types of risk generally refer to the risk a particular investment or a group of investments will decline in value and are included under one overall risk, which is market risk.

What is Market Timing?
Understanding the definition of market timing helps an investor determine if this strategy of buying and selling stocks or mutual funds is best for them.

What Are Money Market Funds?
What are money market funds and how can you find the best interest rates and yields?

Open-Ended Questions
What are open-ended questions? How do financial planners and sales people use them and how can any person benefit by using open-ended questions?

Large Cap
Large cap refers to a categorization of stocks based on market capitalization (number of shares outstanding multiplied by stock price).

Modern Portfolio Theory
Modern Portfolio Theory (MPT) is an investing method where the investor attempts to take minimal level of market risk to capture maximum-level returns for a given portfolio of investments. However, there are recent criticisms and variations of style to consider before applying MPT to your own investment portfolio.

Efficient Markets Hypothesis (EMH)
The Efficient Market Hypothesis (EMH) essentially says that all known information about investment securities, such as stocks, is already factored into the prices of those securities. Therefore no amount of analysis can give an investor an edge over other investors. But is this hypothesis true in application? Are there certain areas of the...

What Is a Mutual Fund Breakpoint?
A discount based on the amount of money invested in a mutual fund that charges a load, or sales charge. The more money an investor commits to a particular mutual fund, or funds within the same fund family, the larger the discount on the sales charge.

Who is Morningstar?
Morningstar is best known as a mutual funds research company. But what exactly do they do?

Rule of 72
What is the definition of the "rule of 72?" How is it calculated? Can it be used to help choose investments?

Why the Mutual Fund Expense Ratio?
The percentage of fees paid to the mutual fund company to manage and operate the fund, including all administrative expenses and 12b-1 fees. The expense ratio excludes sales charges.

What is Sharpe Ratio?
Sharpe Ratio is a useful analytical tool for analyzing mutual funds. Investors who understand the definition and benefits of Sharpe Ratio in their fund research are enabled to build a better portfolio of mutual funds.

What Is Bond Immunization?
An investor is interested in bond immunization if they would like to limit their interest rate risk.

Market Correction
A correction is a market trend that all active investors should know how to recognize. It is important to understand the distinction between a correction and a bear market.

What is a Mutual Fund's Total Net Assets Under Management?
What is a mutual fund's total net assets under management and why is helpful to analyze this for best investment practices?

What is a Bull Market?
A bull market is an extended period of time where investment security prices are generally rising.

What Are Mutual Fund Holdings?
What are mutual fund holdings? Do holdings matter with mutual funds? How many holdings is ideal? The total number of holdings can give an investor a clue to future performance.

What Are Stable Value Funds?
Stable Value Funds are offered in many 401(k) plans and other employer-sponsored defined contribution plans throughout the United States. Learn how to use and benefit from Stable Value Funds in your investment portfolio.

What is a Bear Market?
A bear market is an extended period of time where investment security prices are generally declining.

What is a Security?
What is a security? Learn the definition and know examples of the different types.

Federal Funds Rate - What is the Fed Funds Rate?
The Federal Funds Rate has a far reaching impact on financial markets and the US economy. Understanding the Federal Funds Rate is important for investing and personal finance.

Retirement Income Funds
Retirement income mutual funds can be a simple investment choice for those investors already in or entering retirement. See some of the best retirement income funds and find out if they are a good fit for your needs.

What Is Interest Rate Risk?
Interest rate risk is the risk of falling bond prices due to the rise in interest rates.

What Is a Mutual Fund NAV?
NAV is an acronym for Net Asset Value. The NAV of a fund is the total value of the securities in the fund minus liabilities, divided by shares outstanding.

Is a Mutual Fund Load a Sales Charge?
A mutual fund load is a fee charged when an investor makes a transaction in fund shares. There are also funds that do not charge loads, which are known as “no-load” funds.

What is Risk Tolerance?
A key ingredient to successful investing is knowing yourself. Gauging your risk tolerance is a good way to help you determine how much risk you can tolerate in your portfolio of investments.

What is Turnover Ratio?
It is no coincidence that the mutual funds with the lowest turnover ratios generally produce higher average returns to the investor over time. Learn more about turnover ratio and become a better mutual fund investor.

Time Horizon Definition and Meaning
What is an investing time horizon and how does an investor choose the best holding period for their investment objective?

Short-Term Bond Funds
What are short-term bonds? How can I invest in short-term bonds with mutual funds?

Return On Investment
What is Return on Investment (ROI)? How is ROI calculated? How is ROI used? ROI is used for investment analysis and for making business decisions but it also applies to life decisions.

What Is the S&P 500?

The S&P 500 Index is a benchmark for the large cap segment of the US equities market. The index includes 500 US-based companies and covers approximately 75% of the US equity market.

See Also: The Best S&P 500 Index Funds

What is the S&P Midcap 400 Index?
What is the Standard & Poor's Midcap 400? You've probably heard of the S&P 500 Index but you may not be familiar its mid-cap cousin, the S&P Midcap 400. Learn more about this often overlooked segment of the market and improve your portfolio's diversity and possibly its returns.

Systematic Investment Plan
Automating your savings with a systematic investment plan is one of the smartest things you can do as an investor. Find out why automation is more about psychology and financial.

Standard Deviation
Standard deviation of historical mutual fund performance is used by investors in an attempt to predict a range of returns for various mutual funds.

Style Drift -- Get the Drift?
Style drift occurs when a mutual fund's holdings "drift" from one asset class (or investment style) to another

What Are Small-Cap Stocks?
Small-cap stocks can be an important piece of a diversified investment portfolio. Learn the basics on small capitalization stock funds.

The Summary Prospectus
The summary prospectus rules require that funds provide investors with a brief summary (generally three to four pages) – in plain English – of the key information that will allow investors to make informed investment decisions.

Total Bond Market Index
What is the total bond market index and what is the best way to invest in it?

Tax Cost Ratio
The mutual fund tax cost ratio measures the amount of a fund's return that is lost due to taxes paid on mutual fund capital gains distributions.

What Are Unit Investment Trusts?
Unit investment trusts (UITs) may be the least understood, and certainly least utilized, of all of the US registered investment companies. What are these unit investment trusts?

What is Beta?
A mutual fund investor can use beta in planning their fund selection to determine volatility of the fund and to compare its sensitivity in movement to the overall market.

What Are World Stock Mutual Funds?
What are world stock mutual funds? The definition of this fund type is probably not what you think.

What is R-squared?
R-squared (R2) is a statistical measure that investors can use to determine a particular investment's correlation with a given benchmark.

What is ZIRP
ZIRP is an acronym for Zero Interest Rate Policy. What is ZIRP and how does it affect the economy and financial markets?

The Dow Jones Industrial Average Index
What is the Dow Jones Industrial Average and why should investors care about it? Although this index only represents 30 large industrial companies, the Dow Jones index still has significant relevance.

What is Volatility
What is stock market volatility, what does it have to do with risk and why is it important to understand?

What Are Adv Funds?
What are Adv mutual funds? Are they available and appropriate for any investor? Which share class is best?

What is Volatility?
What is the volatility of an investment and what should investors know about it?

What Are Load-Waived Funds?
What are load-waived funds? What does LW at the end of a mutual fund mean? This mutual fund share class type is not the same as no-load funds. Learn the definition and understand the difference.

What is the VIX?
What is the VIX and how can it be used to predict stock market movements?

What Are Class Inst Funds?
What are inst funds? Are they the same as class I mutual funds? Can individual investors invest in institutional funds?

What Are Mutual Fund Class R Shares?
Should you invest in R Share mutual funds? Before investing, be sure to understand how the different share classes charge fees and expenses.

What Are Mutual Fund Class D Shares?
Should you invest in D Share mutual funds? Before investing, be sure to understand how the different share classes charge fees and expenses.

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