Wealth Management Terms to Know

raoulfraser-wealthmanagement-imageIf you are new to the world of wealth management, or want a better understanding, there is a large list of terms you will need to have a grasp of. The following list will give you an understanding of some of the more prominent terms you may expect to hear. Knowing these terms will also give you the knowledge to ask your wealth advisor questions based on your understanding.

Asset Allocation

Asset allocation is an overall portfolio strategy. This strategy is focused on balancing risk and reward. The delicate balance is achieved by assessing the client’s goals, their tolerance for risky investments, and what they see on the investment horizon.

Capital Appreciation

Capital Appreciation refers to an investment objective. The object signals that a particular client seeks to grow the value of investments over time and are willing to invest in securities that have demonstrated a fair amount of risk. The client has an appreciation for the market and a willingness to take some risk to receive bigger returns.

Consumer Price Index

The consumer price index, or CPI, “is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.” The CPI can be calculated by taking the price changes for each individual item and averaging them. The goods are then weighted on their importance. CPI is used to understand price changes affiliated with the cost of living.


Equity is represented by a stock or security with an ownership interest. A client may have equity in a company if they possess a large amount of shares.


Liquidity is used to describe the measure of how much time it will take to turn an investment into cash. A mutual fund would be considered a liquid investment because shares can be traded in at any time. A house or car would be considered an illiquid investment because it takes time to turn that asset around into cash.

Municipal Bonds

Municipal bonds are a debt security issued by any level of state government to finance large scaled projects or renovations. Municipal bonds are often exempt from federal, state, and local taxes.

Preservation of Capital

Preservation of Capital is another investment objective. Preservation of Capital is on the opposite side of the scale opposed to capital appreciation. Preservation of Capital refers to an initiative to maintain the principal value of a client’s investments. The objective is achieved by investing in low risk venture that almost guarantee security.

Risk Tolerance

Risk tolerance refers to a client’s specific tolerance for risky investments. A high risk tolerance, for example, would be willing or able to withstand declines or even loses in an investment. On the other hand, someone with a low risk tolerance would not be interested in taking risk resulting in losses or declines.

Risk can also change depending on a client’s investment timeline. An individual investing for the long term may be willing to see ups and downs.

Share Buyback

Share buybacks are executed by the company in an attempt to reduce the number of shares in the market. Companies can choose to do this for many reasons. The most common are for reducing supply to increase the value of available stocks or even to keep investors from gaining a controlling stake in the company.