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Investing Glossary

Bollinger bands are the plotted lines 2 standard deviations away from a given moving average. Many believe the closer the price is to the upper band, the more overbought the market. In contrast the closer the price is to the lower band, the more oversold the market.

Bond ETFs invest in the bonds, or debt, of companies, governments, central banks, or a combination of the three. Bond ETFs can add stability and reduce volatility of a portfolio. Additionally, bond ETFs often pay steady and predictable coupon payments. To decide their holdings, bond ETFs can employ a variety of different strategies that focus on different traits of bonds, including maturity, duration, and coupon payments. Bond ETFs trade throughout the day on a centralized exchange, making them more liquid than individual bonds or bond mutual funds. Individual bonds are sold over-the-counter by brokers, while bond mutual funds are only priced at the end of each trading day.

Bond spread ETFs employ strategies based on bond yield spread(s), or the difference between yields of two debt instruments with varying maturities or credit ratings. Bond yield spreads can be used to measure the risk a certain characteristic adds to a bond. For example, the yield spread between a 2-Year Treasury Bond and a 10-Year Treasury Bond measures the risk added by maturity length.

Broad debt ETFs invest in the bonds of companies, sovereign entities, central banks, or a combination of the three. Broad debt ETFs can add stability and reduce volatility of a portfolio. Additionally, broad debt ETFs often pay steady and predictable coupon payments. Broad debt ETFs trade throughout the day on a centralized exchange, making them more liquid than individual bonds or bond mutual funds—individual bonds are sold over-the-counter by brokers while bond mutual funds are only priced at the end of each trading day.

Fixed income ETFs that fall under the broad debt category diversify their investments across various types of fixed income assets. Fixed income assets in which broad debt ETFs could invest include corporate bonds, municipal bonds, sovereign debt, supranational debt, and inflation-protected securities. Because ETFs that fall under the broad debt category are highly diversified, they are typically very stable and safe investments. Broad debt ETFs may also track some sort of fixed income index or benchmark.

Broad equity ETFs can invest in stocks without being limited to a sector, size, geographic region, or other specific theme. Broad equity ETFs often track a specific equity index or benchmark, for example, the S&P 500 Index or the Dow Jones Industrial Average. Broad equity ETFs, especially ones that track an index or benchmark, tend to maintain lower expense ratios and fees relative to other ETFs. Additionally, broad equity ETFs maintain narrow bid-ask spreads and high liquidity.

Broad market bond ETFs are diversified across sub-sectors of fixed income, investing in a range of corporate bonds, sovereign bonds, and municipal bonds. Broad market bond ETFs offer a way for investors to gain exposure to the fixed income asset class. Broad market ETFs typically add stability to an investor’s portfolio.

Broad municipal bond ETFs invest in municipal debt instruments, which are debt obligations issued by municipal or state entities. Interest and income generated from broad municipal bond ETFs are, under specific conditions, tax-free, increasing their after-tax return relative to other bonds with similar yields. There are two types of municipal bonds: general obligation bonds, which seek to raise immediate capital with the prospect of returns coming from the taxing power of the issuer; and revenue bonds, which seek to fund infrastructure projects with the prospect of returns coming from the project’s expected generated income.

Broad sovereign bond ETFs invest in sovereign debt instruments, or debt instruments issued by national governments. Sovereign debt can either be issued in the government’s own domestic currency or a foreign currency—the less stable a currency denomination, the greater the risk to the debt-holder. The US dollar, British pound, Euro, Swiss franc, and Japanese yen currencies account for 97% of all global sovereign debt issuances while only 83% of global debt was issued by these countries. Sovereign bonds can be impacted by macroeconomic factors such as interest rates, inflation, and output.

Build America bond ETFs invest in Build America bonds, which are taxable municipal bonds that offer tax credits and/or subsidiaries for both bondholders and state/local government bond issuers. Build America bonds were first introduced as a part of US President Obama’s American Recovery and Reinvestment Act in 2009 to create jobs and add stimulation to the domestic economy. Build America bonds were introduced to combat Americans who, after the economic recession in 2009, were wary of investments.

Business annual reports, also called statements of information or yearly statements, are documents that report a business’ annual financial performance and activities. Most states require corporations and businesses with shareholders to prepare and file an annual report with the Secretary of State. Others prepare reports to keep investors and the public informed about their financial status. The information required varies by state, jurisdiction and entity type. (Depending on a company’s size, profit and trading status, it may also be required to file separately with the SEC.)

Long stock and sell 1 out-of-the money call. This strategy is used by investors when they achieve gains in the stock and are willing to sell at a certain strike price. The strategy is also used to gain income from the premium from the sale of the call. The strategy should be implemented when investors forecast the upside gain in the stock is limited and volatility is high. Risk Level: Medium

Buy-write ETFs invest by employing a buy-write strategy, which is an options strategy that involves buying a stock or a basket of stocks while simultaneously selling call options on those same stock(s). By using this strategy, buy-write ETFs attempt to generate additional income by collecting premiums from the call option. If the stock or the basket of stocks in question stay flat or decline, the buy-write ETF keeps both the collected premium and the asset(s). If the stock or the basket of stocks in question appreciate, however, buy-write ETFs receive only the premium while selling the stock(s) at the pre-determined price to cover the call.

Buy 1 Call/Puts of a longer-term expiration and sell 1 Call/Put of a near-term expiration. There's limited profit potential but also limited risk.

Buy 1 call at a lower strike and sell 1 call at a higher strike, and sell 1 put at a lower strike with the same expiration. The risk profile is the same as being long a stock when it trades below the put strike. The spread is profitable when the stock trades above the long call strike plus or minus the premium paid or collected. Investors should implement this strategy if they are bullish. Risk Level: High

Yes, you can. Some broker dealers offer clients the option of buying fractional shares of a set of stocks. This is normally offered for stocks that have large prices per share.

Capital gains refer to any profits earned when you sell a capital asset for more than you paid. (Most assets qualify as capital assets, including stocks, bonds, real estate and vehicles.) Capital gains are only realized and taxed when you actually sell an item. The IRS taxes short-term capital gains – assets you’ve owned less than a year – at your regular income bracket. Long-term capital gains, or assets you’ve owned for more than a year, generally have more favorable tax rates. 

Commissions are service charges assessed by brokers or investment advisors as compensation for handling securities trades and providing investment advice. Commission-based advisors earn commissions when they sell products or conduct transactions. (By comparison, fee-based advisors generally charge a flat rate.) Today, many online brokers forgo commission on trades, while full-service brokers rely on commission to generate profits.  

Commodity ETFs invest in commodities, which are economic goods that are seen as equivalents regardless of who produces them, such as agricultural products, natural resources, or precious metals. Commodity ETFs typically invest in a single commodity that is held in physical storage or a single commodity through futures contracts -- there commodity ETFs, however, that invest in a basket of commodities. Commodity ETFs add simplicity to investing in commodities because they do not require investors to purchase futures contracts or other derivative products.

Communication services ETFs invest in stocks classified under the communications services sector, including telecommunication services companies, media companies, and select consumer-focused companies. The communication services sector is the newest sector in the S&P 500 Index, introduced on September 28th, 2018. The holdings of communication services ETFs are a mix of non-cyclical and cyclical stocks that are impacted by changing interest rates, economic cycles, and geopolitical events in different ways. While some communication services ETF holdings have high growth prospects and trade at expensive multiples, others are the opposite with low growth prospects and cheap trading multiples.

Stocks classified under the communications services sector include telecommunication services companies, media companies, and select consumer-focused companies. The communication services sector is the youngest sector in the S&P 500 Index, introduced on September 28th, 2018. Companies classified under the communication services sector are a mix of non-cyclical and cyclical stocks that are impacted by changing interest rates, economic cycles and geopolitical events in different ways. Additionally, while some stocks in the communication services sector have high growth prospects and trade at expensive multiples, others are the opposite with low growth prospects and cheap trading multiples.

Consumer discretionary ETFs invest in companies with business operations related to automobiles, household durables, textiles, leisure equipment, hotels, restaurants, media production, or consumer retailing. Consumer discretionary ETFs are traditionally cyclical, relying heavily on strong macro-economic conditions to encourage consumer spending. In poor economic conditions, consumer discretionary ETFs may underperform other sectors.

Consumer discretionary stocks include companies with business operations related to automobiles, household durables, textiles, leisure equipment, hotels, restaurants, media production, or consumer retailing. Consumer discretionary stocks are traditionally cyclical, relying heavily on strong macro-economic conditions to encourage consumer spending. In poor economic conditions, consumer discretionary stocks will most likely underperform other sectors.

Stocks classified under the consumer staples sector provide services or offer products that are considered essential, like food, beverages, tobacco, and household items. Consumer staples stocks are historically non-cyclical because their products or services experience lower volatility in demand as economic conditions fluctuate. Additionally, consumer staples typically are low volatility investments that offer strong dividend yields to compensate for generally low growth prospects.

Consumer staples ETFs invest in companies that provide services or offer products that are considered essential, like food, beverages, tobacco, and household items. Consumer staples ETFs are historically non-cyclical because their investments’ products or services experience lower volatility in demand as economic conditions fluctuate. Additionally, consumer staples ETFs are typically low volatility investments that offer strong dividend yields to compensate for generally low growth prospects.

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