Investing Jargon, Explained

We define some of the most frequently searched investment terms

- KIM CLARK

ARE YOU AN “ACCREDITED INVESTOR”?

Do you want to buy some “ADRs”? How do you make money on “call options”?

The investment world is rife with technical terms that can have surprisingly negative effects on your ability to build a financial nest egg, says Patrick Heck, a research psychologist for the Consumer Financial Protection Bureau. “Jargon can definitely create barriers to entry,” especially for new investors who are often discouraged by terms they don’t understand, says Heck, who notes he is speaking as a researcher and not for the agency. Jargon can cause problems for more-experienced investors as well, he said. Some investors become overconfident when they think they understand jargon, which can lead to riskier choices, one study shows.

To help newbies—and give veterans a reality check—we crunched search engine data on investing terms. Here is a glossary of some of the mostsearched terms investors ask about.

Accredited investor: Some investments are so risky that they are limited to the wealthy, who can presumably withstand losses, or professionals with financial expertise. Among the qualifiers set by the Securities and Exchange Commission to become “accredited”: net worth of at least $1 million—not including your home—or annual income of at least $200,000 ($300,000 for couples) over the past two years and evidence that you’ll earn at least that much in the current year.

ADR: American depositary receipts are tradable securities issued by U.S. banks that represent shares of foreign companies.