Making Sense of Financial Terms

By Matt Collins September 21, 2017

Woman and man meeting with financial advisor

Every industry has its fair share of jargon – but when it comes to your money, you want to be sure you and your financial advisor are speaking the same language. We sat down with Matt Collins of Equity Research to talk about some common abbreviations in the financial world.

Q. I often hear investment firms advertising themselves as “member SIPC.” What does this mean?

A. SIPC stands for Securities Investor Protection Corporation. SIPC protects the client assets of  its member firms. It provides up to $500,000 of coverage for securities, including $250,000 for claims of cash awaiting reinvestment, in the event that member firm fails. This coverage doesn’t include market losses, however. Edward Jones is a member firm.

Q. Is “member FDIC” the same thing?

A. FDIC is short for Federal Deposit Insurance Corporation. This organization operates similar to the SIPC but insures accounts such as checking and savings held at member banks.

Q. What is GDP, and why is it important?

A. Gross domestic product, or GDP, is a way to measure a country’s output of goods and services. The potential growth rate of the economy over time is a good measure of economic health.

Investors pay attention to GDP because it’s a key driver of earnings growth, which directly impacts equity returns over time. According to the Congressional Budget Office, GDP growth was lower over the past decade than during the previous 50 years. You can help prepare for possibly lower average returns in the future with a strategy to invest more and/or spend less.

Q. What’s the difference between NYSE and Nasdaq? And where does the S&P 500 fit in?

A. Let’s address them one by one:

  • New York Stock Exchange (NYSE)  – Founded in 1792, this is the largest stock exchange in the world based on the market capitalization of listed companies.
  • National Association of Securities Dealers Automated Quotation System (Nasdaq)  – The Nasdaq started as an electronic-only trading platform in 1971 and is now the second-largest exchange in the world.
  • S&P 500  – This index helps gauge the performance of large-cap U.S. equity investments. The index includes about 500 of the largest companies by market capitalization listed on the above two exchanges. Membership changes over time.

When you’re choosing investments, however, the exchange they’re listed on isn’t as important as the investments themselves. Will they align with your financial objectives and investment strategy? Do you own the right mix of equities and fixed-income investments? For stocks, pay attention to the company’s management as well as its record of growth and performance. Mutual funds should include a combination of investment-grade bonds and quality stocks with experienced management teams. Your financial advisor can look at your entire financial picture and help you choose the investments that are right for you.

Q. Where can I go if I have more questions?

A. Visit our Market News site for the latest insights from our investment strategists and analysts. You also can find up-to-date market information and can create your own watch lists or get a stock quote. And our Resources and Financial Education site contains a wealth of information. In addition, your Edward Jones financial advisor is always ready to answer any questions you might have about your portfolio or investing in general.

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