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The Personal Capital Financial Terms Glossary for New Investors
The latest in financial planning, retirement, taxes, and everything else about money and investing.

Active Investing

Active investing is an investment strategy in which the investor generally attempts to generate superior returns by picking specific securities or timing the market by shifting in and out of various asset classes.


An annuity is an insurance contract that is typically used to provide a guaranteed income for a period of time or for life and were designed with the idea of preventing a situation in which you outlive your retirement assets. Annuities can be complex, with many different types and options.


A payment made by a company to its shareholders usually out of profits or reserves. Dividends are allocated at a fixed amount per share and are taxed in the year in which the company pays them.


A person or organization with the power to act on behalf of another obliged to perform their duties in the best interest of that person or party. For financial institutions and advisors operating under the fiduciary standard, this means that they have a legal duty to act in your best interest.

Legacy Planning

Legacy planning is a comprehensive term that is usually used in context of planning for future generations – in essence, your legacy. It’s about deciding what to do with your estate (e.g., your assets) and what impact that ends up having on those who receive it.

Mutual Funds

Broadly speaking, mutual funds are a basket of securities that are actively managed by a fund manager and are owned in a pool with other investors. In exchange for that management, investors pay a fee based on the level of management involved.

Passive Investing

Passive investing is an investment approach that usually involves determining a long-term asset allocation and then using a low-cost indexing approach to maintain that allocation.

RMD (Required Minimum Distribution)

RMDs are an annual amount you are required to withdraw from their tax-deferred accounts (most commonly traditional 401ks and IRAs) starting in the year you turn 70 ½. The required amount is a percentage of the account and increases with age.

Smart Weighting™

Smart Weighting™ is Personal Capital’s proprietary investment approach that more evenly weights the factors of size, style and sector when compared to traditional cap-weighted indices, which increases diversification and may help reduce risk from sector bubbles in a market decline.

Tax-loss Harvesting

Tax-loss harvesting is a technique that allows you to offset some or all of your realized gains by proactively harvesting available losses by selling depreciated securities.Typically, tax-loss harvesting works best through portfolios of individual stocks in taxable investment accounts.


Volatility refers to dramatic fluctuations of a market or security over a short period of time. Volatility is primarily measured by standard deviation.

Advisor Fees

A fee paid by an investor for professional financial advisory services. Fees are usually either asset-based, which charge a percentage of the assets under management, or commission-based (usually associated with broker-dealers).


A broker-dealer is an individual or firm who buys and sells securities for its own accounts on behalf of clients.

ETF (Exchange Traded Fund)

An ETF is fund used to buy stocks, bonds, or other investments. The fund is then divided into shares, which are traded on an exchange. Most, but not all, ETFs are index funds which employ a passive-investment structure and have relatively low fees.

Financial Advisor

A financial advisor is a professional who provides financial services to a client based on their specific situation. Services often include investment support, financial planning, including help with insurance decisions, taxes, estate planning, and overall portfolio management. Financial advisors can be either fiduciaries or broker-dealers.


Liquidity is the extent to which an asset can be quickly bought or sold (liquidized) without impacting the price of that asset. For example, an asset that is easy to sell quickly for full-price is considered highly liquid.

Rate of Return

A profit or loss on an investment over a period of time compared to the cost of the original investment, which is usually represented as a percentage.

Risk Tolerance

Risk tolerance is the amount of variability or fluctuation in the market you are able to withstand. Having a realistic understanding of how much risk you can tolerate, as well as your objectives for taking risk, is essential to constructing a successful portfolio.

Restricted Stock Units (RSUs)

RSUs are stock awards that are subject to vesting requirements and transferability restrictions. They are issued in the form of units – not stock – which correspond in number and value to a specified number of shares of employer stock.

Stock Options

A contract between a buyer and a seller that gives the buyer the privilege to buy or sell a specific number of shares of a security at a pre-set price (“exercise” or “strike” price) within a certain amount of time.


A trust is a legal arrangement designed to hold, safeguard, distribute and control assets on behalf of a beneficiary or beneficiaries. A trustor (the person who creates the trust) gives another party, the trustee, rights to manage the trust’s properties for a third party, the beneficiary.

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