Do you ever wonder what all that financial jargon actually means? Will your eyes cross after googling just a few financial terms like Closet Indexing, EBITDA, Intrinsic Value, or even Invest? I may have a book for you.
Wall Street Journal personal finance columnist Jason Zweig put his finesse on The Devil’s Financial Dictionary. This book takes a humorous look at many confusing financial terms. Zweig will explain them with an example that the most sarcastic among us would love to use day in and day out. In this post, I will share a few of my favorites with a little explanation from Jason Zweig, followed by a little more financial humor from yours truly.
Authors Note: The Jason Zweig responses he claims are 100% made up, and not indicative of any person and action, good or bad, in the financial industry. I follow up with my thoughts. Check out the full book for more fun, and tongue in cheek financial fun. You will likely be entertained, and you might even learn a thing or 72.1 about various financial terms.
Here are a few of my favorite financial definitions from the Devil’s Dictionary. Hope you find them entertaining and perhaps will even learn something.
Amortize: To liquidate or eliminate a debt through periodic payments.
JZ: “Yes, 5.75% might seem like a lot to pay upfront for a mutual fund,” said Hannah Dover, a financial advisor at the Chicago Based brokerage firm Stoneham, Black & Blue. “ But when you amortize that over the next 25 years, it’s only 0.23 percent per year, which is a bargain price for access to my advice for the next quarter of a century.
DR: If people held mutual funds for 25 years, this argument might make sense. Sadly, the average person only holds a mutual fund for about 3.30 years, according to Dalbar. That puts the commission closer to 1.74% percent per year. This also totally ignores the ongoing hidden fees going to the broker and the ongoing mutual fees, which can easily add another 2% per year to the cost of owning an expensive mutual fund. If you are getting fiduciary investment advice, you won’t be paying any upfront commissions.
Annuity: From the Latin word annuus, or yearly; an investment that often provides a regular annual income for its buyers but always does for its sellers.
DR: I just put this one in so I could use the word annuus in a serious financial conversation. Old school annuities often came with high fees and huge commission to the salesperson. This salesperson may use a nice title financial adviser, investment advisor, or even money coach, they are likely more closely aligned with a used car salesman than someone offering advice in your best interest. In many cases, they may be barred from actually providing comprehensive financial advice.
There is a new generation of annuities that are more transparent in the fiduciary fee-only space investment advice space, but they are still few and far between. You should be able to see what the product cost to help make a more informed decision if it worth purchasing.
Broker: The comparative form of broke.
Also, used as a noun, a person who buys and sells stocks, bonds, mutual funds, and other assets for people who are under the delusions that the broker is doing something other than guesswork.
JZ… see also Stockbroker
DR: The terms stockbroker and broker have gone out of style and have been replaced by more deceptive terms like financial adviser etc. Old school brokers can sell you stuff, but they are barred from actually giving advice. So, you may want to steer clear of non-fiduciary brokers if you are looking for helpful financial guidance in the form of financial advice.
Credit Card: A thin slab of plastic that enables a person to feel pleasure today by incurring pain tomorrow.
DR: Credit Cards are amazing if you pay them off in full each month. I just used point to book flights on my next big vacation. When used improperly that shopping trip will turn into a debt that lasts far longer than anything you purchased that day.
Day Trader: See Idiot
DR: Still laughing about this one. I think this one speaks for itself.
Discount Brokerage: a firm that enables many investors to wreck their own portfolios instead of paying someone else to do it for them……
DR: Sometimes, you get what you pay for. I’m a frugal shopper, but I don’t think you should pick a Plastic Surgeon or a Financial Planner based on their Groupon discount.
Fiduciary Duty: The requirement that financial advice should be at least as good for the person receiving it as for the person providing it – an idea so radical that Wall Street is attacking it with every weapon in its arsenal.
DR: I personally think putting the client first is good business. Not everyone in the financial services industry agrees. Especially those who work for companies that like to sell their own products. Conflict of interest anyone? I just help a woman get out of an annuity with fees of 7% per year. There is no way this was a good investment choice.
Idiot: see Day Trader
DR: I haven’t seen many people day trade their way to wealth. Temporary gains, yes. Big losses – often. Chasing hot investments are one of the eleven reasons most people will never become a millionaire.
Index Funds: …..run by a machine that makes the humans who run ACTIVE funds looks like monkeys.
JZ: “Index funds aren’t good enough for our clients,” said Robin M Daley, CEO of Putman, Woods, Green, Bunker & Parr. …“Where do you put your own money, Robin?” he asked. …puffing on his Cohiba cigar, “all my money’s in index funds.”
DR: I don’t think one index fund can cure all that drags down investors returns. However, there are quite a few reasons the Brokers listed above don’t really like to sell these — No COMMISSIONS at least in general.
Market Timing: The attempt to avoid losing money in BEAR MARKETs; the most common result, however, is to avoid making money in BULL MARKETs.
DR: My attempt to add humor to this in the air of Jason Zweig. Just saw an ad from the venerable investing firm “Dewey, Skrewum & Howe” promising to get all of the upsides of the market with no downside. With this offer, it is amazing more people aren’t investing with them.
Rich: Having as much as you want of all the things that money can’t buy.
DR: Hard to argue with this.
Stock Market: A chaotic hive of millions of people who overpay for hope and underpay for value.
DR: It’s amazing how few people want to buy a stock that is on a Black Friday type sale. Whereas millions seem to line up to buy Stocks when they are marked up 200-300%. The more they go up, the more they want. It makes literally no sense. Buy Low- Sell High (or never). A temporary dip in the stock market helps to accomplish this seemingly difficult task. Remember stock market risk, and stock market volatility are not the same thing.
If you find any of the financial definitions above humorous check out the full book “The Devil’s Financial Dictionary” with hundreds of pages of fun from Jason Zweig. Who knows you might even learn a thing or two that will improve your investing prowess. Or at least make you less stressed when faced with financial jargon.
What is your favorite financial term?