I Also Don’t Speak Financial Adviser or Investing

Unless you have the time to become an expert investor and fully understand ETFs, DFA Funds, long term capital gains, hedge funds, margins, short selling, imputer interest and dozens of additional, highly technical terms and phrases, you need to hire a financial adviser. Once you admit you need to hire a financial adviser, you need to be sure you can speak that strange language financial advisers speak. Communication is always a challenge.

At 71 years old and after 50 years of marriage, I am convinced that my poor skills in learning languages has made communication with my wife difficult at many times and impossible on some occasions. I am bilingual in the sense that I do speak English and lawyerese, but I get even less credit for speaking like a lawyer now that I am retired than while I was still practicing law.

The problem is that I don’t speak Woman. Woman is a variant of what I call normal English and it has strange undercurrents and word usages that make communication between men and women a struggle.

One early illustration cemented my poor language skills in my mind. When we were in our first year of marriage I wanted to go see a particular movie and I asked my wife if it was okay. She quietly said I could do what I wanted. That was obviously an “okay,” right? No, I painfully learned that “You can do what you want” in Woman really meant, “you can do what you want as long as it is the same as what I think you should want.” It also includes the unspoken, “You’ll be sorry if you make a wrong choice.”

That turned out to be only one of many areas where we did not and still do not speak the same language. Money is another area where I do not speak Woman well at all. But since we interact daily on money, I have had to study my many failures in communication just to learn a few basics. Then life got even more difficult because now I have to speak about money both with my wife and with another strange creature, my financial adviser, with a unique language. Sometimes I find myself speaking to both of them at the same time!

There is a language of investment and money, spoken by financial advisers, that has special challenges. Financial advisers have their own language with vague acronyms like ETF, RMD and dozens more. They never speak in certainties, except that they are certain they are not certain about anything at all.

You may think this language is unimportant because you do not have and do not intend to hire a financial adviser – but you are wrong. Even if you do not hire a financial adviser, as long as you are saving and investing any amount at all, you will be purchasing financial products and talking with people selling financial and investment products such as Roth IRAs, traditional IRAs, 401(k)s, 403(b)s, annuities, and more. Insurance, wills, trusts and other retirement and legacy planning steps are also included.

The greatest challenge is aligning my own financial plans and goals, with God’s financial plans and goals for me, while at the same time blending in my wife’s perspectives and the goals my financial adviser has for me. There is one thing that is certain about this to me; ultimately, God’s financial plans and goals for me will win out. I just have to get to the point where I am comfortable communicating in multiple languages about a topic (money and investing) that is not my favorite topic.

If you didn’t know it before reviewing the words and phrases in the following list, you hopefully will realize that you do need a financial adviser. Once you have learned some of the basics, you can communicate reasonably well with that financial adviser. So, all you have to do is set aside some time to meet with financial advisers, make a choice, and get started with your financial future. It is never too early to start.

To check your financial IQ, start with the basic vocabulary below in Speaking Financial Adviser Basic Vocabulary. There are many words and phrases in the realm of financial advisers and investment product sales listed, and many more that you will have to learn to become truly fluent.

Speaking Financial Adviser Basic Vocabulary

We start with this basic vocabulary. Here are some of the terms and phrases that are common in the realm of financial advisers and investment product sales. They include:

This is a before-tax employer-sponsored retirement plan. Your contributions as an employee are taken out of your paycheck before withholding taxes are computed, meaning that you don’t pay taxes now on that money. Many employers offer matching contributions up to certain amounts, which encourages employees to save. If there is a match, always contribute at least enough to get the match. As you get older, the amounts you can contribute go up. But taxes will be paid when you withdraw the money later. Withdrawing money before the age of 54 1/2 typically results in a substantial penalty.

529 Plan
This is a state-sponsored college savings plan. A donor can set up an account for relatives. The donor retains control of the account and can transfer it to another family member. Earnings are not taxed if they are used for college expenses. The earlier you contribute, the greater the benefit of a 529 Plan. Not all states have 529 Plans; Florida does.

Both spellings are correct. Some people make the distinction that a Registered Investment Adviser is an “Adviser” whereas a Broker is an “Advisor.” Generally, you will be understood which ever term you use.

As with the idea, “Alpha male,” which is a testosterone-charged strong man, alpha means an investment that outperforms market averages. This is a dangerous concept to meddle with because it is usually based on past performance, and that hardly tells you what will happen tomorrow.

Annual Report
Stocks you can buy on the open market are referred to as publicly traded stocks. The sale of those stocks is governed by the Securities and Exchange Commission. Under the laws, rules and regulations, a corporation selling its stock publicly is required to issue an annual report to demonstrate the company’s financial strengths and weaknesses. An annual report is very detailed and gives information on the company’s financial health, assets, liabilities, profits. losses, expenses, revenue and much more. Unfortunately, many annual reports are so detailed and lengthy (not to mention written in accounting and legal jargon) that they are often not very helpful in understanding how the company is doing.

An annuity is an insurance and investment product. Annuities are sold by insurance companies and provide a guaranteed flow of income for life. Typically, they have a life insurance policy as a part of the annuity and annuities tend to have significant fees. They do offer security in the form of a guaranteed income, at least as long as the issuer remains financially strong. Some annuities provide a degree of built-in annual increase to match or at least provide some protection against inflation.

Asset Allocation
This is the amount, typically viewed by percentage, for a particular class of assets (such as small cap, mid cap, large cap stocks, international stocks, bonds, real estate or cash/money market funds) in a portfolio.

Asset Management
The professional management of investments such as stocks, bonds, mutual funds, and real estate for the benefit of the investor.

Asset Protection
The use of strategies of asset diversification and investment styles using laws and investment types to avoid legal exposure and loss.

A bond is a form of investment that is a loan to a corporation of government. Bonds have different classes and can pay very different interest rates.

Those initials stand for Certified Commercial Investment Manager (CCIM®). That is a certification obtained by experts in the area of commercial and investment real estate. There is specific course work required, followed by the submission of a portfolio proving their in-depth knowledge and experience in the commercial investment field and a detailed examination administered by the CCIM® institute. It is a relatively rare and highly coveted and respected designation.

Those initials stand for Certified Financial Planner. That is a certification given by the Certified Financial Planner Board of Standards after training in what they call the four “E”s, Education, Examination, Experience and Ethics. The educational topics include professional conduct and regulation, general principles of financial planning, education planning, risk management and insurance planning, investment planning. tax planning, retirement savings and income planning and estate planning. Then the person must pass the CFP examination by applying financial planning knowledge to client situations.

Certified Financial Planners® are required to adhere to a fiduciary standard, which means making a commitment to always act in the best interests of their clients. This is a very important difference between a CFP® and many other financial professionals, who may be primarily sellers of financial products.

A Chartered Financial Consultant is a person who has completed additional course work, testing and experience above what is required for a CFP®. A ChFC® signs and is bound by an ethics code and is required to take a higher level of continuing credit than CFPs®.

Closely Held Company
A corporation whose stock is not publicly traded but is most often held by a small number of persons. Typically, these are smaller corporations and the majority of the stock is held by the business owner and operator. It may be sold to raise cash but is hard to re-sell and often a risky investment. The owner of less than 50% of the stock of a closely held corporation has little control over the business operations and relatively few legal protections.

A codicil is an amendment to an existing will. Often codicils are done to make changes that do not require a new estate plan or large changes to an existing plan but to modify a detail, for example, to reflect a new spouse, a new grandchild, or a death that requires a few adjustments in what is given in the original will. A codicil must be executed with the same formality and legal requirements as a will.

A commission is one way a financial advisor or broker earns income. Typically, a commission is a percentage of the amount invested in a financial product.

A commodity trader is a person who sells interests in bulk products, such as food, grains, and metals. Commodities are traded on a commodities exchange. Investors do not take possession of the commodities purchased but instead they are traded and sold in the exchange.

Compound interest rate
If you are earning compound interest, it is good. If you are paying compound interest it is bad. See 8 Financial Moves to Make in Your 20’s for an illustration that shows how powerful compound interest can be. For investment purposes, this means that the income is re-invested, not spent, so that interest in the future is earned not only on the original amount but on the re-invested income.

Consumer Price Index (CPI)
A number measuring price changes issued monthly by the U.S. Bureau of Labor Statistics. The CPI shows the amount of inflation of particular consumer products and services and is a way of demonstrating the increase or decrease of the cost of living.

DFA Funds
Dimensional Funds Advisors (DFA) funds are passively managed funds that are similar to index. They have a very good long-term track record. DFA funds are generally not available to individual investors without an adviser.

This is a fancy tern for investing by the transfer of funds from intermediary financial institutions, such as banks and savings and loan associations. The funds are invested directly to gain a higher return. Generally, disintermediation is the process of removing the middleman or intermediary from future transactions.

This is a foundational investment philosophy that is intended to limit risk by spreading investments over a variety of asset classes. It is the advisor’s way of saying that you should not put all of your investment eggs in one basket. Rather than invest in one company or one asset class, your investments are spread around the range of available asset classes, including stocks, bonds, real estate, exchange-traded funds, commodities, and cash and short-term cash equivalents. Using mutual funds and target-date funds is a common way to diversify, but to fully diversify, a mix of different funds should also be used so that there is never too much money invested in one area that might go down in value.

Diversification includes asset class diversification which is holding at least five and preferably eight or more different classes of assets.

Dividends are the money paid to shareholders/investors by a company. Dividends are shown on the tax form 1099 unlike wages which are shown on a W-2. The amount paid is determined by the Board of Directors of the company and typically varies based upon the financial well-being of the corporation and the different types or classes of stock owned by shareholders.

The Dow
The Dow Jones Industrial Average is a stock index made up of 30 large publicly-traded U.S. companies. The Dow figures may or may not reflect what your investments are doing but overall, a rising Dow is a good thing for investors.

Duration typically refers to the amount of time before a bond reaches maturity. Duration has a direct relationship with the volatility, or the degree to which the price of an investment fluctuates. Morningstar’s Investment Guide says duration should be “straightforward …. A fund with duration of 10 years is expected to be twice as volatile as a fund with a five-year.” Fixed-income investments typically lose value when rates rise and gain when rates drop, regardless of the duration.

Earnings Report
This is the report by a corporation just as commonly called an income statement that reflects the company’s earnings, expenses and net income for the reporting period.

Your estate consists of everything you own, both assets and liabilities. This includes all physical assets such as your house, car, furniture, etc. and your investments, such as your retirement accounts, pensions, bank accounts, etc.

Estate Planning
This is the legal and financial process of determining how assets will be distributed before or after death, typically using tax and transfer laws to minimize tax and increase the distributions.

This stands for Exchange-Traded Funds, which is a collection of securities—such as stocks—that tracks an underlying index. An ETF is traded just like a stock and is often sought for diversification because ETFs can own many different stocks across various industries, although they can be limited to one particular industry or financial sector.

The Fed
The Federal Reserve is the central bank of the United States. This organization conducts the nation’s monetary and fiscal policy with the theoretical goal to promote financial stability outside of the political system of government.

A fee-based financial advisor earns income by a combination of charging fees to the client for financial planning and earning commissions on financial products sold to the client.

Fee-Only Financial Planner
A financial planner who receives no commissions or hidden fees from any source. A fee-only financial planner earns income only from direct fees to the client.

A fiduciary is a person with a legal duty to work for the interests of another person rather than for his or her own benefit. An attorney, a CPA, a trustee and to some degree financial planners have fiduciary duties to act in the best interests of the client. Persons who sell financial products such as insurance or annuities typically have no fiduciary duty towards the buyer.

Financial Adviser
See Adviser/Advisor above.

Financial Advisor
See Adviser/Advisor above.

Financial Coaching
This is working towards financial goals. This can be compared to what is sometimes called financial therapy which is also working towards goals but through an examination and resolution of financial issues from the past.

Financial Planner
A financial planner is a person who engages in the profession of helping others address various financial and investment issues through careful management of the client’s finances. This title is very loose and does not require certification (such as a Certified Financial Planner, a CFP®). It is a title used by many persons who are more the sellers of financial products than true financial planners.

Financial Planning
This is the process of advice and assistance given to help the investor meet financial needs and reach goals. This includes more than simple investing advice. True financial planning looks at cash flow, planning for children, education, large purchases, and retirement. It typically includes risk management and even business succession planning for business owners.

FINRA stands for Financial Industry Regulatory Authority. It was created in 2007 and is a regulatory body that governs business between brokers, dealers and the public. FINRA is the largest private regulatory body of U.S. securities firms.

Futures Contracts
This is an investment type that causes the investor to buy or sell particular quantities of a commodity or other asset at a particular price and date. The investor is speculating on the market rising or falling so that a profit can be made when the purchase or sale is completed.

Futures Market
A futures market is an auction market in which participants buy and sell contracts for delivery on a specified future date. Investors take on both the risk and reward of the market increases and decreases.

Guaranteed Income Contract
Guaranteed income contracts are also referred to as guaranteed investment contracts (GIC). A GIC is a contract between an insurance company and a contract purchaser where a guaranteed rate of return is paid by the insurer in return for holding a deposit for the specified contract period.
An annuity is one type of GIC.

When investments are struggling, this is a term often used by financial advisers. Financial advisors will also use pilot language for good times and refer to tailwinds, meaning it’s a good investment or time for that investment.

Hedging means reducing risk of loss through a variety of strategies in a diversified portfolio. It involves placing an offsetting position to reduce risk exposure, meaning that the investor purchases one investment that is intended to offset the potential loss in another investment because it is expected to perform differently.

Hidden Fees
The investment provider that devises the selection of holdings into which the investor’s money goes is charging fees. The company’s services are not free. Different fees are disclosed differently, making some more difficult to spot than others. For more information, see 7 Investment Fees You Might Not Realize You’re Paying.

Imputed Interest
Imputed interest is interest that is not paid to the investor but must be accounted for as taxable income. It is also referred to as phantom income. It means you pay taxes on money you never received. A relatively common example is when a person loans money to a family member. Often the interest rate is below market and sometimes at a 0% interest rate. If so, income at a reasonable or market rate is imputed to the lender and the lender is required by law to pay taxes as if interest income had been earned and received. Some bonds also have imputed interest income for holders, such as zero-coupon bonds. These are bonds bought at a discount from their face value but at maturity they generate a profit based on the difference in the purchase and maturity prices.

Index Funds
An index fund is a portfolio of stocks or bonds that is intended to follow the performance of a financial market index, or choice of investments. Roughly 20% of all equity investments in the US are in index funds because they are intended to provide a broad market exposure, low operating expenses, and a low portfolio turnover.

Putting your money and assets to work to increase in value more than inflation to prepare for future expenses such as children, college for children, and retirement.

An IRA is an Individual Retirement Account, which is a retirement account allowing people to set aside before-tax dollars that can earn tax-deferred income until withdrawals begin. Withdrawals can begin without penalty at age 59 ½ and must begin by age 70 ½ (72 ½ for those reaching 70 after December 31, 2019) or there is a huge 50% penalty. These required distributions are known as RMDs, Required Minimum Distributions. The rational for delaying taxes is that during high earnings years money is set aside and not taxed until after retirement when income (and tax rates) are expected to be lower. The reason for RMDs is to keep investors from avoiding taxes too long.

The IRA itself is not an investment, but it holds investments that are tax-free until withdrawn. There is also a Roth IRA which is created from after-tax dollars, but all withdrawals are tax-free.

Capitalization (Large cap, mid-cap, small cap)
The word itself refers to the amount of value in corporate stock sold. Large cap companies are larger and theoretically less risky. Small cap companies tend to be more volatile and somewhat riskier, but theoretically there is more room for large gains. There is no consensus in the market for exactly where the line is between small and mid-cap or between mid and large-cap.

Legacy Planning
Legacy planning is a comprehensive financial strategy that helps a family secure assets, provide financial security, protect the assets from depletion or outside loss such as lawsuits or claims, reduce or even eliminate taxes, and develop a giving strategy.

Life Insurance
A contract with an insurance company designed to build value and pay a benefit upon the death of the insured. There are a variety of life insurance products with different features making many types of life insurance as much a financial investment as simple insurance against the financial losses of the death of the insured. The many types of life insurance include:

Whole Life Insurance
This is an insurance product that is also called “straight life” or “ordinary life.” It is a life insurance policy which is guaranteed to remain in force for the insured’s entire lifetime or to a specified maturity date, so long as premiums are paid.

Universal Life Insurance
This is a life insurance product that has an investment component. It typically has lower premiums than whole life insurance. Premiums can range from a single payment premium, to fixed regular payments, or even flexible premiums. Universal life insurance is often sold as a more flexible product than whole life because of the ability to adjust the death benefit and the premiums. Part of the premium is for the insurance part of the policy while part of the premium is for the investment or savings component.

Variable Universal Life Insurance
The “variable” part of the name refers to the investment component of the policy. Part of the premium is invested in separate accounts whose values vary because they are invested in stocks and/or bonds. The “universal” part of the name refers to the flexibility the owner has in setting the premium payments which can vary from nothing at times to the maximum amounts defined by the Internal Revenue Code. The savings/investment income is tax-deferred.

Limited Liability Company (LLC)
An LLC is a business entity created under state law that is very much like a corporation. Like a corporation, it is designed to shield the assets of the owners, called members, from liability for the business of the LLC.

An investor uses a broker’s credit to buy “on margin.” The margin is the amount the investor pays. The amount of debt an investor can have with a broker is closely regulated. The Federal Reserve sets margin requirements.

This is a worthless term because momentum in the stock market is entirely psychological and not at all scientific. In science, mass times velocity = momentum and can be measured objectively and accurately. That is not at all true of momentum in a stock market rise or fall. Ignore the term when it is used in relation to the market because the market can change directions almost instantly without any noticeable or measurable input.

Mutual Fund
A mutual fund is essentially a large amount of money managed by an investment company

A U.S. stock market trading in over 3,000 companies. “The NASDAQ” is an average figure for the gains and losses in all stocks traded through NASDAQ on that particular day.

Net Worth
Add up all of your assets and subtract all of your liabilities and you have your net worth. Not really, because in the eyes of Jesus you are a priceless treasure, 1 Peter 2:7, but financial advisers have not yet managed to determine how that fits into your portfolio.

Penny Stock
No, don’t go there. These are stocks that are very inexpensive (that’s where the “penny” comes from) and are quite risky. Never invest any money in penny stocks that you are not willing to lose.

All of your investment assets, stocks, bonds, mutual funds, IRAs, 401(k)s, 403(b)s, etc.

Price to Earnings Ration or P/E
The price-to-earnings (P/E) ratio is a measurement of a company’s market price compared to its earnings. It arguably shows what the market is willing to pay for a stock today based on the company’s past or future earnings.

Before publicly-traded stock or other securities are sold, the SEC requires the issuer to file a prospectus which contains significant financial details about the offering, allowing the investor to make an informed decision. In reality, the typical prospectus is so filled with legal jargon and minute details that a significant degree of expertise is required to gain meaningful knowledge about the offering.

Real Estate Investment Trust (REIT)
This is an investment consisting of shares in various real estate owned by an investment company.

Retirement Planning
This is the process of deciding what you are going to do with all of the time you used to commit to your job or profession and how you can afford to do it. For many that involves a second career of at least a fill-in job because the savings and income are not there to support the lifestyle and activities desired. For more detail, see Are You Ready for Retirement?. How to Ruin Your Retirement Plans, Must-Dos Before Retirement, and How to Prepare for Retirement, Part 1 and Part 2.
Return on investment (or Total Return or ROI)
The amount of an investment’s yield, plus its appreciation or minus its depreciation. The real return is the return adjusted for inflation.

RIA stands for Registered Investment Advisor. The Investment Advisers Act of 1940 defines an RIA as a “person or firm that, for compensation, is engaged in the act of providing advice, making recommendations, issuing reports or furnishing analyses on securities, either directly or through publications.” A Registered Investment Advisor must be registered with state investment authorities or the SEC or both.

Risk is reality. There is always a risk of loss in any investment, even government insured accounts since not even the U.S. government is invincible. But not investing means you have a certainty of loss thanks to inflation. An investor’s goal is to have a portfolio with an acceptable risk of loss. Typically, as the investor ages, the risk of loss should decrease by adjusting the investment because there is less time to make up for losses. See Your Financial Future By The Decade.

Return on Investment (ROI)
The ROI is the ratio between the net profit and the cost of investment resulting from investment. A high ROI means the investment was good and gained favorably for its cost.

Securities and Exchange Commission (SEC)
No, the SEC is not the Southeastern Conference for universities like the University of Florida. This is the securities and Exchange Commission, the government agency created by Congress in 1934 to regulate the stock market (after the collapse of the market in 1029) and to help protect investors. The SEC administers certain federal laws including the Securities Act of 1933, the Securities Exchange Act of 1934, the Securities Act Amendments of 1975, the Trust Indenture Act, the Investment Company Act, and more. The stated goal of the SEC is to protect investors from bad practices and to promote full disclosure of accurate information to help investors make sound decisions.

Short Selling
This is the selling of securities that have been borrowed from a third party as a part of a strategy that includes an expectation that the securities will decrease in value. It is considered to be a risky speculative means of investing and should only be done by experienced traders and by investors willing to accept substantial risk.

By the dictionary definition of speculation, virtually all investing is speculation because there are no certain gains in investing. More commonly speculation is a term applied to higher risk financial transactions in an effort to rapidly gain from short term fluctuations in the market value of a financial instrument, as opposed to longer-term term strategies.

An investment that is an ownership share of a company, most commonly a publicly traded company.

Growth Stock
This is stock in a company expected to grow rather than generate dividend income. The gain in value of the stock is what makes a growth stock a good investment.

Income Stock
This is stock in a company expected to generate dividend income as opposed to growth in share value, a growth stock.

Value Stock
A stock that is believed to be a good investment because it has a lower price than expected based upon its dividends, earnings, cash, assets, debts, sales and other fundamental business values.

Also knows as Treasuries, T-Bills are short-term debt instruments issued by the US Treasury. They mature in a year or less after having been sold in auctions conducted by the Federal Reserve of New York.

This stands for Treasury Inflation Protected Securities. These are inflation-indexed bonds issued by the U.S. Treasury where the principal is adjusted to the Consumer Price Index. They are sold in auctions conducted by the Federal Reserve of New York.

A Trust is a legal document through which the Trustor gives a separate person or company known as the Trustee rights to property and assets to manage according to the Trustor’s wishes. Trusts are often used in estate planning to effectuate the will of the Trustor over time, often after the death of the Trustor.

The degree to which the price or value of an investment fluctuates. This is a word investors typically do not want to hear because a volatile market is one that can rise or fall quickly, often surprisingly.

A document, signed with the formalities required by law, that sets out the distribution of a person’s assets upon their death. See More About Estate Planning and the articles linked here.

The income in the form of interest or dividends paid to the investor. This is not the same as the ROI, the return on an investment.

If there is any additional information you believe you need, give us a call at The Idlewild Foundation, (813) 264-8713.

About the Author

John Campbell has retired from a 40-year legal practice as a trial attorney in Tampa. He has served in multiple volunteer roles at Idlewild Baptist Church in Lutz, Florida, where he met Jesus. He began serving as the Executive Director of the Idlewild Foundation in 2016. He has been married to the love of his life, Mona Puckett Campbell, since 1972.