Understanding Important Investment Terms and Regulations

Whether you’re new to investing or have an established portfolio, there’s always room to know more. Learn about the fundamentals and get help if you suspect illegal practices.


An asset is anything that has economic value and can be owned by an individual or company. Examples of assets include stocks, bonds, real estate, and cash.

Types of assets include cash and cash equivalents (money market funds, U.S. Treasury bills, and Certificate of Deposits), equities (company stock), fixed income (securities, bonds, etc.), and alternative investments (real estate, precious metals, etc.).

Asset Allocation

This refers to the process of dividing your investment portfolio into different asset classes, such as stocks, bonds, and cash. Asset allocation is an important way to manage risk and achieve your investment goals.


A bond is a loan that an investor makes to a company or government. When you buy a bond, you are essentially lending money to the issuer of the bond. In return, the issuer agrees to pay you interest over time and repay the original amount you invested (the principal) at the maturity date.

Buying and Selling

Typically to receive the best return, the strategy is to buy an investment at a low cost and to sell it when its value increases. However, many factors can influence an investor’s buying and selling, including price and market volatility. As with any investment, risks are involved. Do your own research and consider consulting an investment advisor before you buy or sell any investment.

Capital gains or losses

A capital gain is the profit you make when you sell an investment for more than you paid for it. A capital loss is the loss you incur when you sell an investment for less than you paid for it.


Diversification is the process of spreading your investments out among different asset classes and investments. This helps to reduce risk because if one asset class goes down in value, the losses may be offset by gains in other asset classes.

Exchange-traded fund (ETF)

An ETF is a type of security that tracks an underlying basket of assets, such as stocks, bonds, or commodities. ETFs trade on stock exchanges like stocks, and they offer a variety of benefits, such as diversification, low fees, and transparency.

Financial Industry Regulatory Authority (FINRA)

FINRA is a self-regulatory organization that oversees securities firms and stock exchanges in the United States. FINRA is responsible for licensing and regulating securities firms, as well as for writing and enforcing rules for the conduct of securities business.

Index fund

An index fund is a type of mutual fund that tracks a particular market index, such as the S&P 500. Index funds are typically passively managed, which means that the fund manager does not try to beat the market. Instead, the fund simply tries to replicate the performance of the underlying index.

Initial public offering (IPO)

An IPO is the first time that a company sells its stock to the public. IPOs can be a risky investment, but they can also offer the potential for high returns.

Investment Adviser Registration Depository (IARD)

The IARD is a central database that contains information about all investment advisers who are registered with the SEC or with a state securities regulator. Investors can use the IARD to check the background of an investment adviser before they invest with them.

Investor protection laws

There are a number of investor protection laws in place in the United States. These laws are designed to protect investors from fraud and abuse. Some important investor protection laws include the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940.


The Corporate Securities Law of 1968 (CSL) provides a comprehensive system of securities regulation in the State of California. The primary purpose of the CSL is to protect investors from fraud. It does this by requiring the qualification of certain securities, providing the DFPI with enforcement powers, and providing for the licensing and/or regulation of broker-dealers, investment advisers, and sales representatives of securities.

The DFPI’s Enforcements Division investigates any financial entity that may be in violation of this law or other state and federal regulations. Learn more about our Enforcements Division and their work for California’s investors.

Do you suspect a financial institution or service provider of investment fraud or abusive practices? You can submit a complaint with the DFPI.

You can also submit complaints to the various federal financial regulatory agencies like:

Market Volatility

This refers to the fluctuation (the rise and fall) of market prices and investments. The more volatile a market is, the more risk is involved with investing. Some investments are more susceptible to market volatility than others, so be sure to monitor exchanges like the NYSE, Nasdaq, Dow Jones, crypto exchanges, and more to see how an investment is being affected.

Mutual fund

A mutual fund is a type of investment company that pools money from many investors and invests it in a variety of assets. Mutual funds are professionally managed, and they offer investors a way to diversify their portfolios without having to pick individual stocks and bonds.

Risk tolerance

Your risk tolerance is your ability to withstand the ups and downs of the market. Investors with a high risk tolerance are comfortable with more volatility in their portfolio, while investors with a low risk tolerance prefer to invest in more conservative assets.

Securities and Exchange Commission (SEC)

The SEC is a government agency that regulates the securities industry in the United States. The SEC is responsible for protecting investors, maintaining fair markets, and ensuring that companies disclose all material information to investors.


A stock is a share of ownership in a company. When you buy a stock, you are buying a piece of the company. Stocks can offer the potential for high returns, but they also come with a higher degree of risk.


This is not an exhaustive list of investment terms and regulations, but it is a good starting point for anyone who is new to investing. If you are considering investing, it is important to do your own research and understand the risks involved. You may also want to consult with a financial advisor to get personalized advice.

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Funded by a grant from the Investor Protection Trust.