NEW YORK (MainStreet) — Wading through the catchy phrases and arcane vernacular used by financial advisors and Wall Street can be vexing.
Learning even a soupçon of the lexicon means you can decipher the terminology better and learn how it relates to building up the funds in your retirement portfolios. Reading your quarterly statements from your 401(k) plan sponsor or IRA can now be less maddening.
Here are ten popular terms that we demystify.
Stock market indexes - S&P 500, Nasdaq, Dow Jones
Industry insiders are always commenting about the S&P 500, Nasdaq and Dow and how they performed that day in the stock market. These three indexes are one way to track the thousands of publicly traded companies. The S&P 500 tracks the 500 largest companies by market capitalization while the Nasdaq tracks mostly tech and biotech stocks. The Dow tracks the 30 most influential companies, said Koosh Saxena, co-founder of TipdOff, a Mountain View, Calif.-based investing social network platform.
“This helps investors understand the overall movement and direction of markets with easy glances,” he said.
Deciding on your asset allocation in your retirement portfolio is not an exact science. Simply put, this refers to an investment strategy aimed at managing risk in the proportion of funds an individuals holds in equities, fixed-income and cash. Stocks are perceived to be riskier investments while bonds are deemed to be safer ones. Many financial advisors recommend that you own more stocks when you are younger and increase the amount of bonds as you get closer to retiring.