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Investing Basics

Investment terms can sometimes feel like a foreign language. This section helps you "translate" some of the commonly used terms so you can confidently build your retirement strategy.


For general investment information as well as information on the WDC's investment options, click here.

Assets – Anything owned that has monetary value or can be exchanged for monetary value (a house or car, for example).


Capital – Money available for investment purposes.


Capital Gain (or Loss) – An increase (or decrease) in value, for example, of a stock or mutual fund, resulting from favorable (or unfavorable) investment performance. This may also be expressed as appreciation (or depreciation).


Diversification – Spreading your money among different types of investments such as stocks, bonds or cash equivalents.


Dividend – A payment to shareholders that represents their share of a fund's or a company's earnings available for distribution.


Earnings – A company's or fund's profit after paying all costs, expenses and taxes.


Expense Ratio – A ratio for comparing an investment option's efficiency by dividing its expenses by its net assets.


Growth Investment Option – A portfolio with growth or capital appreciation as its primary goal or companies that reinvest most of their earnings for expansion, research or development.


Income – Interest or dividends earned from an investment. Income is automatically reinvested in a participant's plan account.


Index – A benchmark against which financial or economic performance may be measured, such as the S&P 500 or the Consumer Price Index.


Interest – Money a borrower pays to a lender as the cost of using money, expressed as a percent per period of time. The period of time is usually one year, in which case it is called "annual rate of interest."


Investment Objective/Goal – A statement of the goals an investment option seeks to achieve through its investments. Generally, investors match their financial objectives with investment options that have similar goals, balanced with the investor's risk tolerance.


Liquidity – A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance. A liquid asset is easily turned into cash.


Market Capitalization (Market Cap) – The current value or price of a stock multiplied by the number of shares outstanding. For example, if a company has 1,000,000 shares available and the price is $10 per share, market cap is $10,000,000.


Price-to-Earnings (P/E) Ratio – The most common measure of how expensive a stock is. Equal to a stock's capitalization divided by its after-tax earnings over a 12-month period.


Price-to-Book (P/B) Ratio – The ratio of stock price to per share stockholder's equity.


Principal – The original amount invested, not including interest or dividends on that amount.


Prospectus – The printed statement describing a particular mutual fund to prospective investors. It explains overall investment goals, investment strategy, fund expenses and the potential risk and reward of investing in the fund.


Total Return – The profit or loss on an investment over a specific period of time. Total return includes income and share price appreciation and depreciation. Total return assumes that all dividends and capital gains paid during the period are reinvested to buy additional shares.


Value Investment Option – A portfolio seeking to buy stocks that are at a discount to their fair value and sell them at or in excess of that value. Often a value stock has a low price-to-book (P/B) ratio.


Volatility – A measure of price or interest rate fluctuations over a given period of time.

Stocks are also referred to as equity securities since they represent ownership or equity in a company.


Bonds are also referred to as debt securities. They represent a loan to a government agency or private corporation who are obligated to repay the principal of the loan plus interest at a specified future date.


International Funds primarily invest in equity securities of companies based outside the United States including companies based in Asia, Europe and emerging markets. International investments may be most appropriate for someone looking for greater potential returns and willing to accept a higher degree of risk.


International investment may provide diversification for a domestic portfolio. Foreign investments involve special risks, including currency fluctuations and political developments. International securities may also be subject to somewhat higher taxation as well as less liquidity compared to domestic investments.


Small Cap Funds primarily invest in equity securities of public companies located in the United States that have market capitalizations less than two billion dollars. Market capitalization is a measure of a company's size and is calculated by multiplying the number of outstanding shares by the current market price.


Small-cap investments may be most appropriate for someone with a longer investment horizon, seeking long-term capital growth, and willing to accept larger market fluctuations. Equity securities of companies with relatively small market capitalizations may be more volatile than securities of larger, more established companies.


Mid Cap Funds primarily invest in equity securities of public companies located in the United States that have market capitalizations less than 10 billion dollars but greater than two billion dollars. Market capitalization is a measure of a company's size and is calculated by multiplying the number of outstanding shares by the current market price.


Mid-cap investments may be most appropriate for someone seeking higher potential returns over time and willing to weather market downturns. Mid-cap stocks may be more volatile than large-cap stocks but with potentially higher return.


Large Cap Funds primarily invest in equity securities of public companies located in the United States that have market capitalizations greater than 10 billion dollars. Market capitalization is a measure of a company's size and is calculated by multiplying the number of outstanding shares by the current market price.


Large-cap investments may be most appropriate for someone willing to accept market fluctuations in return for long-term capital growth. Stock investments tend to be more volatile than bond or money market investments.


Balanced Funds use both stocks and bonds to moderate market fluctuations in the equity markets.


Balanced investments may be most appropriate for someone seeking a balance between income from bond investments and capital growth from equity investments in one option. The investor is willing to accept higher risk for greater potential returns, rather than investing in bonds alone.


Bond Funds
primarily invest in debt securities of government agencies and private companies. They provide income based on the interest or yield of the underlying bonds. Changes in interest rates and the stability of the issuer can affect the value of the underlying bonds. Unlike money market and fixed funds, bond funds can result in a loss of principal.


Bond investments may be most appropriate for someone seeking higher potential income than with a money market fund or stable value investment. The investor may desire to balance some of their more aggressive investments, with one providing potentially steady income.


Profile Funds also known as asset allocation funds, invest in a mix of underlying funds across a variety of asset classes providing immediate diversification. Aggressive through conservative allocations are constructed by investing in international and domestic equity funds as well as intermediate and short term bond funds. The Profiles may include some investment options not directly available to your plan. For more information about the Profiles, including the eligible underlying portfolios, review the Fund Data Sheets or contact your registered representative.


Lifecycle Funds are target date portfolios, which are designed to adjust your exposure to risk over time as your risk tolerance changes. This investment option will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date (which is the assumed retirement date for an investor). The underlying investments are made up of stocks (or stock funds), bonds (or bond funds), and cash equivalents. The date in the fund's name represents an approximate date when an investor would expect to retire, assuming retirement at age 65. The principal value of the funds is not guaranteed at any time, including the target date.


An Aggressive Profile may be most appropriate for someone willing to weather market fluctuations in exchange for potentially higher long-term returns. This investor has a long investment horizon with at least ten years until retirement. Investors choosing this option want to invest in a mixture of diverse investments suiting their needs but do not have the time, desire, or knowledge to select and manage their own portfolios.


A Moderately Aggressive Profile may be most appropriate for someone with a high priority for capital growth and who is willing to accept a greater degree of risk. This investor is comfortable with the ups and downs of the market and has a medium to long term investment horizon. Investors choosing this option want to invest in a mixture of diverse investments suiting their needs but do not have the time, desire, or knowledge to select and manage their own portfolios.


A Moderate Profile may be most appropriate for someone willing to balance the risk of principal fluctuation with the potential for greater capital growth over time. This investor may have a short, medium, or long time horizon. Investors choosing this option want to invest in a mixture of diverse investments suiting their needs but do not have the time, desire, or knowledge to select and manage their own portfolios.


A Moderately Conservative Profile may be most appropriate for someone willing to take some risk to achieve higher potential returns but with a preference for some principal security. This investor may be approaching retirement, with a short to medium time horizon, or may prefer to take less risk than other investors. Investors choosing this option want to invest in a mixture of diverse investments suiting their needs but do not have the time, desire, or knowledge to select and manage their own portfolios.


A Conservative Profile may be most appropriate for someone whose highest priority is principal security and is willing to accept lower potential return. This investor may be approaching retirement, with a short time horizon, or may prefer to take less risk than other investors. Investors choosing this option want to invest in a mixture of diverse investments suiting their needs but do not have the time, desire, or knowledge to select and manage their own portfolios.


Fixed Funds primarily invest in short term to medium term, high quality debt securities. Each quarter a new rate is determined, effective for the remainder of the crediting period. They are also referred to as stable value funds since they strive to provide safety of principal and stable income.


Stable Value Investments may be most appropriate for someone wanting to safeguard principal value or to balance out a more aggressive portfolio. This investor may be nearing retirement and requires more stability and asset liquidity. These investments have interest rate, inflation and credit risks associated with the underlying assets owned by the portfolio or fund.


Money Market Funds invest in short term debt securities that earn interest and strive to maintain principal. Money market investments may be most appropriate for someone wanting to safeguard principal value or to balance out a more aggressive portfolio. This investor may be nearing retirement and requires more stability and asset liquidity. An investment in a money market investment is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC), or any other government agency. Yields may vary.

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