General Investment Terminology

Risk tolerance refers to an investor’s comfort with the inherent risk in a given type of investment. You should not invest beyond your risk tolerance.

Asset allocation is the process of dividing your money among different investment types to find the combination that balances your expectations for returns with your concerns about risk. It is a key factor in determining long-term performance results. Asset allocation helps you diversify your holdings, balance risk and reward, and plan for the long term.

Diversification is a way to reduce investment risk by dividing your contributions among a variety of investments. A diversified portfolio typically has a mix of stocks, bonds, and cash. You can also diversify within each of these types of investments.

Dollar cost averaging means investing the same amount on a regular basis. This enables you to buy more “units” when the price is low and fewer “units” when the price is high. The program is most effective when you are able to continue investing equal dollar amounts at regular intervals through periods of both low and high price levels. While this will not assure a profit or protect against loss, it is a proven technique that may lower the average cost per share over time.

Portfolio rebalancing provides periodic adjustments to help maintain your chosen asset allocation strategy. With automatic portfolio rebalancing, you determine how often you want your portfolio rebalanced (quarterly, semiannually, or annually) and then our daily valued system will redistribute the assets to reflect the percentage in your model portfolio.

An extended period of general price increases in the securities market.

An extended period of general price decreases in the securities market.

Large growth funds invest in companies with market values greater than $10 billion and that are projected to grow faster than the market.

Large blend funds focus on big companies that are fairly representative of the overall stock market in both size and price. These funds often track closely with the S&P 500 index. A blend fund may contain growth stock and value stocks, or it may contain stocks that exhibit both characteristics.

Large value funds focus on companies with market values greater than $10 billion but with stocks less expensive than the market as a whole. They often come from utilities, energy, or financial sectors. A value fund focuses on companies that are undervalued in price and are expected to eventually see their worth recognized by the market.

International equity funds invest their assets all over the world. Some funds include significant U.S. holdings, but all invest a significant amount in other economies.

Small growth funds focus on companies with market values less than $1.5 billion. Most mid-growth funds focus directly on companies with market values between $1.5 and $10 billion. Others invest in stocks of all sizes, thus averaging a midsize profile. Both target firms projected to grow faster than the overall market.

Small value funds invest in less popular companies with values less than $1.5 billion. Mid-value funds focus on medium-size companies or buy stocks of all sizes, creating a midsize profile. All look for stocks that are cheap relative to potential.

High quality bond funds invest in investment-grade fixed-income securities, including U.S. Government-issued debt, mortgage-backed securities, and investment-grade corporate bonds.

Cash funds invest in money-market securities, CDs, and short-term U.S. Treasury Bills. These are highly liquid and have little or no risk.