The Gym Rat’s Guide to Investment Terms

February 12, 2015

Investing and the financial world in general can be pretty confusing. There are a lot of terms you may not know and concepts you may not be familiar with. It can even start sounding like another language!

I realized this problem while I was talking to someone on our Financial Helpline. Since he worked as a personal trainer, I decided to analogize the investment world to the fitness world since they actually have a lot in common. If you’re more familiar with the inside of a gym than the inside of a portfolio, here are some analogies that might help:

Brokerage firms: Brokerage firms are the gyms of the investment world. They vary by cost, customer service, and the range of equipment available. Some have on-staff personal trainers that can help you with your workouts while others require you to bring your own trainer or workout by yourself.

Investments: The investments are the equipment you see once you walk into the gym. Using just the bench press isn’t enough. Different pieces of equipment are useful for different body parts so you need multiple pieces of equipment for a full body workout, including both resistance and cardio.

Stocks/Stock Funds: These are the weights of the investment world. They help you become financially stronger but you can hurt yourself if you don’t know what you’re doing. You also need different weights to work out the different parts of your body.

Index Funds: Index funds are the free weights of investing. They don’t have all the frills and bells and whistles you find with the more expensive and fancy machines. Instead, they provide you exactly what your body needs to build strength: resistance in a full range of motion. Anything more can be counter-productive. That’s why most fitness experts would recommend sticking to them for a better workout.

Bonds/Bond Funds: These are the cardio machines of investing. They’re not always as sexy but they provide slow and steady returns. Unlike with weights, you may need only one type of cardio machine but you can mix it up as well if you prefer variety.

Cash: This is the stretching of investing. It’s the smallest portion of your workout and is the least exciting but skip it and you can find yourself getting hurt.

Financial Advisors: These are the personal trainers of the investment world. Some only work for one gym while others are independent and can work in more than one. Expect to pay a fee but be wary if they try to sell you expensive supplements. Instead, they should help you devise a workout to achieve your particular goals (whether they be more strength or cardio focused) and select which equipment you need. Most importantly, they can motivate you to keep working out, especially when the going gets tough (and it will).

Like working out, investing isn’t a one-time event. The most important results will take time. You may not enjoy getting there, but you’ll like it when you do.