Developing your wealth management knowledge requires not only the guidance of an experienced professional, but also an understanding of industry terms and vocabulary. Whatever your goals, it’s essential to master business vocabulary and investment terms, whether to invest with confidence or to make better financial decisions.
The following list contains essential terms, which are often used in wealth management:
Liquidity :
Liquidity measures the convenience and speed with which an asset can be converted into cash without affecting its market price. The more liquid an asset, the quicker it can be sold at a price close to its real value. For example, publicly traded equities and treasury bills are considered highly liquid, since they can be bought and sold easily on organized markets. On the other hand, assets such as real estate and private equity are much less liquid.
Risk tolerance :
Risk tolerance is a person’s ability to tolerate volatile returns on investment. This tolerance is used to define investment strategy and asset allocation. By defining the risk profile, the composition of the investment portfolio can be better adapted. For example, an aggressive risk profile prefers the inclusion of products that can experience significant volatility.
Alternative investments :
These investments include non-traditional assets, such as private equity, real estate, crypto-currencies, commodities, and more.
Alternative investments enable investment portfolios to be diversified effectively, with potentially attractive returns. However, these investments are more complex, and therefore riskier, than so-called “traditional” investments.
Compound interest :
Compound interest corresponds to the total of interest earned on both initial capital and accumulated interests. In a long-term strategy, these investments make a significant contribution to the growth of wealth. Thanks to the “snowballeffect”, this interest can significantly boost capital if reinvested over a long period. The longer the term, the more attractive the return on investment.
By familiarizing yourself with these initial key terms, you’ll gain more autonomy and confidence when it comes to making financial decisions.
This is just the first step. In the next article in this guide, we’ll continue to explore other concepts that are essential for confidently navigating the world of wealth management.
