Know Your Investment Lingo! 5 More Terms Every Soon-to-be Retiree Should Know

Know Your Investment Lingo! 5 More Terms Every Soon-to-be Retiree Should Know


It’s easy to get confused when someone is talking over your head. And when it comes to the world of investing, it is easy for the jargon to fly a mile high. In fact, even after years of investing experience, I still find myself baffled by some of it! That is why I am determined to translate some of the most commonly misunderstood (but often most important) concepts into terms soon-to-be retirees like you can understand.


Here are 5 important terms to get you started:


1. Fee-only vs. Fee-based Managers

Fee-only money managers are paid by you only. You give them a flat fee or a percentage of your portfolio every year, and that is it.


On the other hand, fee-based managers may charge fees as well, but they also receive commissions on the products they sell. In other words, the companies they represent also pay them via higher fees—not just you.


Here’s why this term is important to understand: although there are conflict of interests with any transaction, a fee-only manager is more likely to act in your best interest.


2.  Average Annual Return

Market fluctuations cause returns to vary. You’ll have some good years, and others in which your investments fail to stay in the black. But the Average Annual Return examines how an investment performs over a block of time—usually over three, five, or ten years—rather than the fluctuations from year to year, giving you a well-rounded evaluation of the investment’s performance.


This number is calculated by taking the beginning value and determining how much it had to increase consistently (or, God forbid, decrease) each year to reach the ending value. Pretty simple, right?


3.  Fiduciary

Fiduciary has to do with trust, coming from the Latin word “Fidere,” which actually means, “trust.” More specifically, in the investing world, a fiduciary is a person who has the ethical and legal obligation to act in your best interest when managing your assets.


Of course, not every fiduciary lives up to this definition. But, when you choose a fiduciary, there’s a better chance he’s making decisions that are the best for you, not for his bank account.


4.  Mutual Funds and ETFs (Exchange-Traded Funds)

Mutual funds and ETFs are very similar in a lot of ways. They are both investment options in which others choose the stocks or bonds for you. However, they differ in a couple ways that are important to note:

  1. When investing in a Mutual fund, the transaction occurs between you and the Mutual Fund Company. With an ETF, you trade directly with other investors.
  2. Mutual funds are sometimes actively managed, while ETFs always track an index (such as the S&P 500).

These differences cause many ETFs to be more cost-effective and easy to use. However, they are the new kids on the block so many people still stick with the old, trusty Mutual Fund.


5.  Required Minimum Distribution (RMD)

Because the government wants you to save, they allow you to invest tax-free in any one of many qualified retirement accounts: IRAs, 401(k)s, 403(b)s just to name a few.


However, because the government still wants to collect tax, they also require you to take out a certain amount each year after you turn 70 and ½. The amount you must take out is also known as your required minimum distribution.


Well, there you have it. Making retirement investment decisions is often overwhelming and scary, but taking this step to understanding your options will help you immensely. If you have come across a term that was not on this list, check out our other blog (See our blog on Five Investment Terms You Should Know) that complements this list or leave a comment. We love to hear from you!


Want a Certified Financial Planner to analyze your portfolio at no cost to you? Looking for someone to walk you through your retirement transition? Call Seniormark at 937-492-8800 for a free consultation.



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