Finance is not as complicated as it sometimes seems. Oftentimes, unfamiliar terminology affects people’s confidence in their ability to understand investing. This series of posts aims to demystify some terminology, to empower you to make investing decisions that are right for you, either on your own or in collaboration with a wealth manager.

For this first post, we look at different kinds of liquid public assets.  Let’s start with defining the category:

Liquid: Investments that can be sold quickly, so that the investor can obtain money to use for something else.
Public: Traded on a publicly accessible market, such as the New York Stock Exchange.
Assets: Things you can own.

Here are some definitions for the most common liquid public investments:

• Equities: Also known as “stock,” equities are shares of ownership in a company purchased through a public market (the “stock market”). The value of equities (stock) can vary greatly from day-to-day depending on a variety of factors including how the overall market performs as well as the activities of the company that you hold the stock in.
• Cash: Money in the physical form as currency. Also refers to money held in such a way that it can be accessed very quickly, as in a checking account or a money market account at a bank.

Fixed Income: Investments that return income that is set at a particular annual rate and does not vary.

• Bond: A loan from an investor to an institution such as a corporation or a municipality, to finance projects or operations. Bonds are typically issued in $1,000 increments and can be traded, providing good liquidity. Each bond pays a set interest rate (called the coupon) and has a maturity date when the principal will be returned to the bond holder.
• CD: Certificate of Deposit – a savings vehicle entitling the bearer to receive interest for the duration of the certificate. A CD bears a maturity date as well as a specified fixed interest rate and can be issued in any denomination. CDs are issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years, after which time the money invested is returned to the investor.

Funds: A collection of investments pooled together. When you invest in a fund, the value of your share is affected by the combined performance of all of the assets in the fund. This helps create diversification in your overall portfolio.

• Mutual Fund: A fund that is invested in a mix of assets such as stocks, bonds, and other instruments. Mutual Funds are offered and actively managed by money management firms that invest the fund’s capital to maximize the value of the fund. Actively managed investments have higher fees to the investor than funds that are managed passively. 
• ETF: Exchange Traded Fund – A fund that pools assets designed to cause the value of the fund to match a Market Index.  (Market Index – measures aggregated performance of a certain set of companies traded on the financial markets.) Shares of ETFs are bought and sold on the stock market like shares of companies.
• REIT: Real Estate Investment Trust – a company that owns, operates, and/or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors and make their investments from that pool. Most REITs are publicly traded like stocks. These funds receive special tax considerations and typically offer investors a steady income stream, as well as a highly liquid method of investing in real estate.

Hopefully these definitions have clarified a few things for you, and we would not be surprised if you still have questions! Feel free to drop us a message if you would like to learn more from our wealth management team.