Retirement Lingo Explained

ASSET ALLOCATION

Asset allocation is an investment strategy used to reduce the risk of your portfolio by spreading your money among different investment categories: stocks, bonds and money market/cash. The appropriate mix of assets depends on your age, financial goals and risk tolerance.

DIVERSIFICATION

Diversification is an investment strategy used to reduce the risk of your portfolio by investing in multiple asset classes and securities with different risk characteristics. Diversification can’t assure a profit or protect against loss in a down market.

REBALANCING

Rebalancing is an investment strategy used to maintain a desired asset allocation. Over time, as various investments perform differently, your asset allocation will fluctuate. Rebalancing puts your investments back to the percentages in each fund or asset class to maintain the asset allocation you chose for your portfolio.

STOCKS

Also known as an equity security, a stock is an investment that represents a share of ownership in a corporation. Stocks earn money through an increase in the value of the investment and through dividends the company may pay to shareholders. Stocks tend to be a more risky investment than bonds since companies are affected by any number of factors, including industry trends and the overall economy.

BONDS

Also known as a fixed income security, a bond represents a loan to a corporation, government or other entity. Bonds earn money through interest paid on the loan, and may also experience an increase or decrease in value if sold before maturity (when the loan becomes due). Bonds are usually considered a more conservative investment than stocks; one that can help cushion against the ups and downs of the stock market.