Language of Lucre

Doctors write prescriptions. Auto mechanics perform tune-ups. Lawyers prepare briefs. Financial advisors help you manage your money. Ultimately, it’s that simple. But like any other profession, we sometimes have a funny way of saying it. 

Just as it’s good to know that Enter your PIN doesn’t mean you should jab a sharp object into your phone, understanding some of the “shoptalk” we use can help you manage your money more effectively, and hold more meaningful conversations with your advisor. Following are a few of the most common terms related to money management.

Assets

Your assets are like the organs that sustain your financial being and feed your financial worth. Cash is the consummate asset, because you can do just about anything you want with it. That said, cash is not expected to generate future income unless you invest it in other assets, such as stocks, bonds, commodities, real estate, and similar holdings. 

Mutual and Exchange-Traded Funds 

You might own some assets directly, such as shares of stock, a rental property, or a gold bar. For efficient investing, it’s common to own shares of mutual funds, exchange-traded funds (ETFs) or similar structures, which in turn hold batches of these underlying assets on your behalf. 

Fund Managers

Fund managers such as Vanguard, Fidelity, or DFA provide and manage the mutual funds and ETFs in which you invest. Each manager typically offers a varied “family” of funds representing different batches of assets – such as funds for investing in domestic, international or emerging markets stocks; funds for investing in short-term bonds; funds for investing in Real Estate Investment Trusts; and so on. 

Investment Accounts 

Investment accounts are “containers” for holding your mutual funds, ETFs and various types of individual assets. Accounts are typically “regular/taxable,” or “tax-advantaged,” with different tax treatments depending on the type of account. Taxable accounts are basically any accounts that are not subject to special tax treatment. Tax-advantaged accounts include structures such as IRAs, Roth IRAs, HSAs, 401(k)s, and 529 plans. 

Your Custodian and Broker/Dealer

Custodians hold your investment accounts on your behalf. If they are also a broker/dealer, they execute transactions upon your direction, such as adding or removing money into or out of your account, or buying or selling holdings within it. Your custodian also periodically reports account activities to you, typically monthly. At our firm, Vestory, Charles Schwab serves these essential roles, including submitting their independent reports directly to clients for review. 

Note: We strongly recommend ensuring your financial advisor is never also your custodian. If your advisor is responsible for managing your investments AND they are the only source for reporting the results to you, it makes it too easy for the criminally minded to hide their malfeasance by sending you fake reports. Think Bernie Madoff. 

Investable Assets

Investable assets are assets that are already part of, or readily available to add to your investment portfolio. Money currently “tied up” in your home, business or similar ventures is certainly of worth to you, but it’s not considered an investable asset when it’s already being used to fulfill other important roles. Future income from your career, the future sale of a business, or similar sources of expected income are not yet investable assets either – not until you’ve received the money, and set some of it aside for investing. 

Your Investment Portfolio 

Combine all your accounts containing all your investable assets (no matter what kind they are or where they’re held), and that’s your investment portfolio. 

Assets Under Management

For some of your accounts, our services are twofold: We advise you on how to invest the assets within your total portfolio, plus we serve as a liaison with your custodian to facilitate account management – such as set-up, closure, transfers and trades. For these accounts, we include their assets in your Assets Under Management (AUM), upon which our advisor fees are typically based. For other accounts, such as your company 401(k) or a direct-sold 529 plan, another provider may already be managing account transactions for you. We still include these assets in our ongoing advice, portfolio management, performance reports, and financial planning services. But they are typically excluded from your AUM totals.