More Straight Talk on Investing

AppendixInvestment Terms

The financial markets and asset management industry, like baseball, have a language all of its own. In the following section, I'll define some “inside baseball” terms that will help you become better acquainted with the lingo and expand your knowledge about investing.

Active Management

An investment strategy that seeks to outperform the returns of a financial market. Active managers rely on research and analysis; market forecasts and trends; and their own judgment and experience to make decisions about what stocks to buy and sell, sectors to underweight or overweight, and how much cash to hold. You may choose to invest in an actively managed fund in the hopes of outpacing the market, but it's important to know that the odds are stacked against you.

After-tax Returns

Funds are required to report total returns on both a pre-tax and after-tax basis for various time periods. After-tax returns are disclosed in two ways. Return After Taxes on Distributions reflects payment of federal income taxes on the fund's dividend and capital gains distributions, assuming you continue to hold your shares and pay taxes. Return After Taxes on Distributions and Sales of Shares reflects the payment of federal income taxes on dividends and capital gains distributions, as well as on gains (or losses) realized on the sale of shares at the end of the stated period.

Aggressive Growth Fund

A fund that seeks to provide maximum long-term capital growth by investing primarily ...