There is no doubt that the impactful and important realm of investing is pullulating with abbreviations and acronyms. A recent poll indicated that 69% of adults found investing, and the accompanying jargon, complex and confusing. I call this investing Alphabet Soup. Retirement planning, investment products, investment analysis, and even investment professional certifications and designations are laden with it. When speaking of retirement planning for example, you hear: IRA, ROTH, SEP, 401k, and RMD. My hope is here is to help you make sense of “Wall Street Speak” and all the abbreviations.
Investors are confused because investing is confusing.
In another investor survey I read recently, which polled 1,000 employees regarding their retirement investing, a highlight stated, “More Likely to Get Help Changing Their Oil Than Managing Their Investments.” According to the survey, on average, participants spend roughly the same amount of time reviewing and choosing investments for their 401(k) as they do researching cell phones. The survey further showed they spend more than twice as much time shopping for cars before buying than they do evaluating their 401(k) options.
An investment in knowledge pays the best interest. – Benjamin Franklin
I agree with Mr. Franklin. When it comes to investing, absent great luck, perhaps nothing will pay off more than educating yourself. It’s critical to do the work necessary before making investment decisions. The research and analysis are worth the effort. Even more important than the cell phone and the car. So, let’s start with some of the most often used, spoken and in print, acronyms and the rest of the soup.
First, my favorites. If you have heard them already, I’m not surprised. Wall Street’s lingo gets around fast. For years I have referenced (and heard reference to) FUD, FOMO, FANG, and TINA. These represent: “Fear, Uncertainty & Doubt,” “Fear Of Missing Out,” “Facebook, Amazon, Netflix and Google,” and TINA stands for “There Is No Alternative.” You surely do not need to know those to demystify the language of investing, they’re just some of my favorites. My least favorite is EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization. Analysts say it all the time, just like it sounds, “E – Bit – Da.” Now, on to the universe of investment alphabet soup you should know. There are far too many to list and define in this space, so I think these most common are noteworthy. Many are used so frequently; they may be familiar. For context, I will list these categorically. Here are the acronyms that generally relate to investment instruments:
ETF: Exchange Traded Fund. An exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. ETF’s hold assets such as stocks, commodities, or bonds and therefore are generally similar to mutual funds.
IPO: Initial Public Offering. IPO’s often grab headlines. This is the process of a private corporation offering its shares to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. Most recently, think Uber.
REIT: is an organization with that acquires, manages and sells real estate. An investment in a REIT gives you a share of the company that is overseeing the real estate assets, rather than actual real property ownership. Think of a REIT as a stock investment in real estate.
A,B,C Shares:
“A” shares typically carry front-end sales charges, or loads, which come right off the top of your investment when you buy. Some can exceed 5%. So, if you invested $100,000 into an ‘A’ share fund, only $95,000 would be invested in the fund. Over, the longer term, though, A shares are usually the most cost-effective.
“B” shares typically carry deferred sales charges, often called back-end loads. You won’t pay anything upfront, but you might pay a charge when you sell your shares, depending on how long you hold them. B shares aren’t usually the most economical option due to high ongoing annual fees.
“C” shares, commonly known as “level-load” shares, are the “don’t pay to buy, or sell, just pay to own” option. The maximum sales charge is usually 1.0% if sold in the first year. But C shares typically have the highest annual expenses.
TAI: Tax Advantaged Investment. These are investments or accounts that provide unique tax benefits such as tax-free interest or tax-deferred returns. Typically, these are retirement savings accounts, municipal bonds and annuities.
UITs, CEFs, LPs & Vas: These are investment products commonly referred to by their acronyms. They are “Unit Investment Trusts,” “Closed-End Funds,” “Limited Partnerships,” and, “Variable Annuitys.”
Here’s more that fall under the category of investment evaluation:
GARP: “Growth at a Reasonable Price” is a stock investment strategy that seeks to combine growth investing and value investing to select individual stocks.
CAGR: “Compounding Annual Growth Rate.” This is one of the most accurate ways to calculate and determine returns for investments that rise or fall in value over time.
EPS: “Earnings Per Share” is a key fundamental expression of company’s earnings on a per share basis simply derived by dividing earnings for a given period by outstanding shares.
PE: “Price: Earnings.” This is a simple ratio of a company’s stock price per share divided by its earnings per share.
PEG: “Price to Earnings Growth.” This ratio is a widely used stock valuation metric of a stock’s possible true value. It evaluates a stock’s price, EPS, and the company’s expected earnings growth.
Then there’s the long list of often confusing certifications and designations earned by investment professionals. Common ones are:
CFP: “Certified Financial Planner”
CFA: “Chartered Financial Analyst”
CPM: “Certified Portfolio Manager”
RIA: “Registered Investment Advisor”
The skill sets and expertise of these professionals differ significantly.
I hope this made some sense of investment alphabet soup. Investing may be confusing, but you do not have to be confused.
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