#
401(k) Plan
A retirement savings plan that allows eligible employees to defer taxation from their paycheck and put it towards retirement savings. Employers may match part or all of an employee’s contributions. The taxes on this deferred income and any earnings the account makes are held off until the funds are withdrawn, generally in retirement. The employees may be responsible for investment selections based on options provided in the plan, and still enjoy the direct tax savings.
401(k) Loan
A type of loan that occurs when an employee needs a loan and takes it from assets within a 401(k) account. There are limits to how much an employee can borrow. Interest is charged on the loan and it is normally paid back through payroll deductions. If the borrower leaves an employer before a 401(k) loan has been paid in full, the remaining balance is generally due. If the borrower fails to repay it, then it is considered a distribution and ordinary income taxes may be due, as well as any applicable tax penalties.
403(b) Plan
A tax-deferred retirement plan that is available to employees of organizations such as public schools, hospitals, churches and certain non-profit businesses. Similar to a 401(k) plan, it allows an employee to set aside part of his or her salary while the employer matches a percentage or all of it, while also not paying taxes on the contributions or any earnings until the money is withdrawn. Generally, individual accounts in a 403(b) plan are the following types: an annuity contract, a custodial account (account invested in mutual funds), and a retirement income account set up for churches, either invested in annuities or mutual funds.
A Back to Top ↑
Account Balance
The amount of money held in a financial repository, such as a checking account. It could also be the amount owed to a lender, such as a credit card company, as a result of purchases made during a specific amount of time.
Adjusted Gross Income (AGI)
A figure that is determined by subtracting allowable adjustments from gross income, and is used in the calculation of income tax liability.
After-Tax Return
This is the financial benefit on an investment including income received and capital gains, calculated by subtracting taxes due.
Aggressive Growth Fund
A type of investment fund whose managers specifically pursue the highest possible returns. For example, a mutual fund investing in growth stocks with a potential for substantial capital gains. There is a higher risk involved because shares when redeemed may be worth less than their original cost due to fluctuations in value and market risk. Conversely, there may also be a higher return payoff if the shares escalate. Individuals are encouraged to consider the charges, risks, expenses, and investment objectives carefully before investing in this type of fund.
American Stock Exchange (AMEX)
Located in New York City, the AMEX is America’s third largest stock exchange and handles around 10% of all securities traded in the U.S. In January 2009, it was taken over by NYSE Euronext, the group that operates the New York Stock Exchange.
Annual Percentage Rate (APR)
The APR is the rate that shows all the costs of a loan during a one-year period, and is expressed as a percentage. The APR includes interest owed and any loan fees or additional costs associated with the agreement.
Annual Report
A comprehensive report published by any company issuing registered stock to provide the shareholders, the government and the general public with the firm’s audited accounts for the previous year. In addition to the audited report, it typically furnishes management’s review of operational practices and future prospects, a balance sheet, an income statement, a cash flow document and other supporting documents.
Annuity
A financial product sold by an insurance company that guarantees current or future payments, either for a fixed interval or for a lifetime, in exchange for a premium or series of premiums. Interest earned on an annuity contract is not taxable until the funds are paid out or withdrawn, at which time they are taxed as ordinary income. If a withdrawal is made prior to age 59½, penalties may apply. Annuities also have fees and charges applied to the contract, and a surrender charge may occur if the contract owner gives up the annuity before certain time-period conditions are met.
Asset
An economic resource owned by an individual, company or country that has a current value with the expectation it will provide a future benefit.
Asset Allocation
A technique for pursuing the highest potential return with the least amount of risk by spreading the money into different investment categories, such as stocks, bonds, real estate and other asset types. The method is meant to diversify the portfolio and help manage investment risk, but it does not guarantee against investment loss.
Asset Class
A specific group of investments that have similar characteristics and tend to behave the same way in the marketplace.
Automatic Reinvestment
A process where an institution automatically deposits dividends or capital gains generated by a person’s investment back into the investment to purchase additional shares rather than being distributed.
B Back to Top ↑
Balanced Mutual Fund
A mutual fund that invests in a balance of stocks and bonds, with the bond investments generally focused on income and stock investments primarily aimed at growth. Mutual funds, sold by investment companies, are subject to fluctuation in value and market risk, so the shares redeemed may be worth more or less than their original cost.
Bear Market
A market that undergoes an extended period of declining prices. It is the opposite of a bull market.
Benchmark
A standard or point of reference against which the performance of a security, mutual fund, business or investment manager can be compared.
Beneficiary
A person (or entity) who will receive benefits from a life insurance policy, qualified retirement plan, trust, annuity, etc. upon the death of an individual.
Blue Chip Stock
The stock of a big company with a solid reputation, which has a history of generating a profit and will usually pay a consistent dividend.
Bond
A fixed income security that is essentially a debt instrument for the purpose of raising capital, where an issuer (generally a government or corporation) borrows the money for a specified period of time at variable or fixed interest rates. The issuer is obligated to pay the interest amount and repay the principal at maturity.
Book Value
The value of a company’s assets according to its balance sheet account balance, minus its liabilities, preferred stock, and redeemable preferred stock.
Bull Market
A market that undergoes an extended period of rising prices. It is the opposite of a bear market.
Buy-and-Hold
A passive investment strategy that recommends an investor hold securities for the long term and ignore short-term price fluctuations in the market.
Buy-Sell Agreement
Also known as a buyout agreement, it is a legal contract that provides for the future sale of a business or a co-owner’s interest in the business. The contract requires the purchase of all outstanding shares from a business owner who wishes to sell, wants to terminate involvement, is permanently disabled, or has died.
C Back to Top ↑
Capital Gain or Loss
The difference between the purchase value of an asset and the price at which it was sold. When the sale price is higher than the purchase price, then the difference is a capital gain. When the sale price is lower than the purchase price, then it is a capital loss.
Cash Alternatives
A safer type of investment that is considered highly liquid, and can be converted to cash quickly. For example, money market funds can be considered a cash alternative.
Cash Flows
The amount of money that is being transferred in and out of a business. Positive cash flows indicate that a company’s liquid assets are increasing, while the opposite is true of negative cash flows.
Cash Surrender Value
The amount of money a policyholder receives when voluntarily terminating a cash-value life insurance policy before the insured event occurs or when cashing out an annuity contract before its maturity.
Certificate of Deposit (CD)
A certificate issued to a person that deposits money with a bank, thrift institution, or credit union and promises a fixed interest rate on the funds deposited for a specified period of time. This fixed rate of return varies from a money market fund, where the value can fluctuate.
Charitable Lead Trust
A trust established during lifetime (or at death) that distributes a payment a named charity for life or a term of years, with the remaining trust assets passing to designated non-charitable beneficiaries upon termination of the trust.
Charitable Remainder Trust
A tax-exempt trust established during lifetime (or at death) that distributes a payment to one or more designated non-charitable beneficiaries for life or a term of years, with the remaining trust assets passing to charity upon termination of the trust. If appreciated assets are transferred to a charitable remainder trust and sold by the trust, then the trust does not pay capital gains tax. Instead, the non-charitable beneficiaries are taxed on a portion of the capital gains as they receive their annual distributions, deferring the capital gains tax in this way.
Commercial Paper
A short-term unsecured debt security issued by a corporation to finance short-term liabilities. These notes normally are for less than six months, and are backed by the issuing corporation’s promise to pay the face amount on the maturity date specified on the note.
Commodity Market
The physical or virtual marketplace that buys, sells or trades raw or primary products instead of manufactured products. Commodities are split into two types: soft commodities, which include products like wheat, sugar, fruit, soybeans, pork and coffee, and hard commodities, like gold, iron ore, rubber and oil.
Common Stock
A type of security that represents equity ownership in a corporation. Holders of common stock are entitled to participate in stockholder meetings, to vote for the board of directors, and may receive dividends periodically. Also known as an ordinary share.
Compliance
The term to make sure a company’s financial matters are being handled in accordance with federal laws and regulations.
Compound Interest
The interest calculated both on an account’s principal and on any gains reinvested during the previous periods of a deposit or loan. This differs from simple interest, where interest is calculated only on the principal amount.
Convertible Bond
A security issued as a bond with an interest rate, maturity and principal, but the holder has the option of converting the bonds into an equivalent amount of equity (either shares of common stock in the issuing company or cash).
Consumer Price Index (CPI)
A statistical estimate produced monthly by the Department of Labor to measure inflation. The index measures the changes in the price level of a basket of consumer goods and services purchased by households, such as transportation, housing, apparel, food and beverage, medical care, and recreation.
Corporate Bond
A debt security issued by a corporation and sold to investors in order to raise financing. Under the arrangement, the issuer promises to make periodic interest payments and repay the investor’s principal at maturity. Corporate bonds often pay higher rates than government or municipal bonds, as they tend to be riskier because of the chance of the company to go bankrupt and default.
Corporation
A large business or organization created under the laws of a state as a separate legal entity, giving it privileges and liabilities that are distinct from those of its members. Corporations are taxed separately from their members or shareholders. A corporation can also borrow money and make a profit separately from their members or shareholders.
Credit Score
A statistical number that indicates how likely a potential borrower is to pay his or her debts and, therefore, how much credit he or she should have.
D Back to Top ↑
Day Trading
The buying and selling of financial instruments (stocks, bonds, futures, commodities, etc.) on the same day, performed with the intent of capitalizing on the price movements of the securities.
Debt
Something, generally an amount of money, that is owed by one party (the debtor) to a second party (the creditor).
Debt-to-Equity Ratio
A measurement that indicates the ratio of a company’s total debt to its total shareholder equity. The debt-to-equity ratio is generally utilized to discover a company’s ability to repay its creditors.
Deduction
An amount or expenditure that is subtracted from gross income in order to reduce the amount of income subject to taxes.
Deed
A legal document that grants ownership of an asset or confirms the transfer of an interest, right, or ownership in the asset from one person or legal entity to another.
Deferred Annuity
A type of annuity contract where the payments begin at a future date, as opposed to when the contract is initiated. The interest earned on an annuity contract is tax-exempt until the funds are paid out or withdrawn, but annuities still have fees and charges associated with the contract.
Defined Benefit Plan
A retirement plan in which the pension payments to a retiring employee are defined by calculating factors such as the length of service and earning history.
Defined Contribution Plan
A retirement plan in which a certain amount of money is set aside each year by the employer or employee. The benefits also may vary depending on the performance of investments in the plan.
Deflation
A decrease in the price of goods and services. Deflation is the opposite of inflation.
Derivative
A financial instrument that does not possess a direct value in itself, but whose value is derived from the underlying asset, such as a traditional security, an asset, or a market index.
Direct Rollover
The direct movement of assets from the trustee or custodian of one qualified retirement plan or account to the trustee or custodian of another retirement plan or account. If done correctly, direct rollovers will not incur taxes, although they must be reported to the IRS.
Diversification
An investment strategy where capital is allocated among several assets or asset classes in order to reduce volatility and risk. It operates under the assumption that different assets and/or asset classes will not all move in the same direction. Thus, gains in one investment can offset losses in another and help manage investment risk.
Dividend
A distribution of taxable payments made by a company to its shareholders out of its profits. Some dividends are paid quarterly and others are paid monthly. Companies can adjust common share dividends at any time, pending approval by the company’s board of directors.
Dollar-Cost Averaging
An investment strategy where an investor puts a fixed dollar amount into securities (usually common stock) at regular intervals, regardless of the share price. Under this technique, more shares are purchased when prices are low and fewer shares when prices are high.
Dow Jones Industrial Average (DJIA)
A price-weighted average calculated by summing the prices of 30 leading large publicly owned company stocks on the New York Stock Exchange (NYSE) and dividing the sum by a “Dow divisor” which has been adjusted to account for cases of stock splits, spinoffs, or similar structural changes in order to maintain continuity. Individuals cannot invest directly in an index.
E Back to Top ↑
Early Withdrawal
The removal of funds from an investment before its maturity date or withdrawal of funds from a tax-deferred account, such as an IRA or 401K, before a prescribed time. Early withdrawals may be subject to penalties.
Earnings
The amount of profit a company earns during a given period, usually a quarter or year.
Earnings Before Interest and Taxes (EBIT)
A measure of a company’s profitability showing the company’s revenues, or earnings, minus its expenses, excluding tax and interest. EBIT is also known as the “operating profit” or “operating income” of a company.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
A measure of a company’s financial performance that is essentially the net income of a company before interest, taxes, depreciation and amortization. It is used to analyze and compare profitability between companies and industries without the effects of financing and accounting decisions.
Earnings Per Share
A measure in investing used to determine the value of a stock by reporting a portion of a company’s profit allocated to each outstanding share of stock.
Economic Value Added (EVA)
A performance measure of surplus value created on an investment, which is calculated by deducting a company’s cost of capital from its net profit.
Employee Stock Ownership Plan (ESOP)
A qualified defined-contribution plan designed for a company’s workers to have an ownership interest in the company, generally as shares of company stock.
Employer-Sponsored Retirement Plan
A retirement plan sponsored by an employer for the benefit of the firm’s employees, generally falling into one of two categories: defined-contribution plans (such as SEP IRAs, 401(k) plans and 403(b) plans) and defined-benefit plans (such as traditional pensions).
Equity
The difference between the value of an asset (real property or a business) and the cost of the liabilities.
Employee Retirement Income Security Act (ERISA)
A federal law that sets the rules under which retirement plans in the private industry are governed and protects them by spelling out the federal regulations for individuals in these plans.
Estate Management
The practice of managing a person’s financial matters during his or her lifetime and economically distributing the assets within that estate through last wills and testaments upon his or her death.
Estate Tax
A tax that may be imposed on the assets (or the net value of the estate) of a deceased person upon his or her death. Such a tax is levied on a deceased person’s estate rather than his or her heirs.
Exchange-Traded Funds (ETFs)
Marketable securities (holding assets such as stocks, commodities and bonds) that can be bought or sold on stock exchanges just like common stocks. ETFs usually track an index, such as a stock index or a bond index.
Executive Bonus Plan
A plan used by a firm or a business owner to provide additional benefits to key executives.
Executor
An individual designated by a will or appointed by the probate court to distribute the deceased’s assets as directed by the will.
F Back to Top ↑
Federal Income Tax Bracket
Income tax groupings within certain ranges that are determined by the Internal Revenue Service (IRS) at which a taxpayer’s income is taxed at a certain rate.
Federal Reserve System (The Fed)
The central bank of the U.S., which regulates the U.S. monetary and financial system. It is controlled by a central board of governors (Federal Reserve Board) with 12 independent regional Federal Reserve Banks in major cities around the U.S. The Fed’s responsibilities include setting monetary policies, stabilizing price levels, and regulating long-term interest rates. It also enforces the regulations banks, savings and loans, and credit unions must follow, and supplies banking services to the federal government.
Fiduciary
A person or entity that is entrusted with assets (cash, property, securities) and acts in good faith with the responsibility of managing those assets for another principal (stockholder, client, etc.). Among the obligations a fiduciary owes the principal are loyalty, full disclosure and accounting for all assets handed over, as well as placing the interests of the principal above his or her own interests.
Financial Statement
A formal report of the financial activities of a business, person, or other entity. Financial statements typically include a balance sheet, an income statement, and a cash flow statement.
Financial Industry Regulatory Authority (FINRA)
Resulting from the merger of the New York Stock Exchange’s regulatory committee and the National Association of Securities Dealers, FINRA is an independent regulator overseeing all securities firms doing business in the U.S. FINRA protects investors by monitoring the securities industry to make sure it operates fairly and honestly.
Fiscal Policy
An instrument of macro-economic policy by which a government adjusts its spending levels and levels of taxation to monitor and influence a nation’s economy.
Fixed Annuity
A type of annuity contract with an insurance company that allows for money to accumulate at a fixed interest rate for current or future payments in exchange for a premium or series of premiums. The interest earned is tax-deferred until the funds are paid out or withdrawn. As with all annuities, there are fees and charges associated with the contract. A surrender charge could also apply if the contract owner elects to give up the annuity before certain time-period conditions are met.
Fixed-Rate Mortgage
A mortgage with a set interest rate that does not change over the life of the loan.
Foreign Exchange Market (FOREX)
The global market where currencies’ conversion rates are determined and they are bought, sold and exchanged.
Front-End Load
A commission or sales fee paid at the time of an initial investment purchase. This fee is deducted from the investment amount, which in turn lowers the size of the investment.
Fundamental Analysis
A method of evaluating securities in order to measure intrinsic value. The analysis delves into financial and economic factors to determine whether the company’s future value is accurately reflected in its current stock price.
Futures
A financial contract that requires the buyer to purchase an asset or the seller to sell an asset at a future pre-determined price and time. The assets are generally financial instruments or physical commodities.
G Back to Top ↑
Gift
An asset that is voluntarily transferred in which the giver neither receives nor expects anything in return.
Gift Tax
A tax levied by the federal government (and some states) on the transfer of property as a gift, which are paid by the donor.
Gross Domestic Product
The total value of all goods and services produced by a country within a given year.
Gross Monthly Income
An individual’s total monthly income generated from all sources before accounting for taxes and other expenses.
Gross Profit
The amount (or total revenue) earned by a business by calculating the net sales minus the cost of goods sold.
H Back to Top ↑
Hedge Fund
An investment fund with a limited partnership of high-worth individuals or institutions where capital is pooled together in the hope of realizing large gains. Hedge funds typically employ varied and complex strategies to reach their aggressive investing goals while at the same time “hedging” to minimize risk, including taking both long and short positions, buying and selling equities, leveraging, initiating arbitrage, and buying swaps and derivatives.
High Yield Bond
A bond that has a lower credit rating than an investment grade bond due to the higher rate of default, but which also pays a higher return.
Historical Value
The price at which an asset or security has typically traded in the past and is a mechanism to determine if the stock is overvalued or undervalued.
Home Equity
The real value of ownership built up in a home after all liabilities have been paid.
Hybrid Securities
Also referred to as “hybrids”, it is a term used to describe securities that combine the elements of debt securities and equity securities.
I Back to Top ↑
Income
Money or other compensation that an individual or business receives from any source. This includes wages, commissions, interest, dividends, bonuses, unemployment compensation, disability, Social Security and other retirement benefits.
Income Tax
A tax levied by the government on a business or a person for the income they receive.
Index
A statistical indicator that is the average of the prices of a hypothetical basket of securities representing a particular market or a segment of a market. Some of the most well known are the Dow Jones Industrials Index, or the Dow; the Standard & Poor’s 500 Index, or the S&P 500; the NASDAQ Composite Index, or the NASDAQ; and the Russell 2000 Index.
Index Fund
An investment fund with a portfolio that is constructed to replicate or track the components of a market index or some other investment type.
Individual Retirement Account (IRA)
A qualified retirement account for individuals created to earn and earmark funds for retirement savings with tax-free growth or on a tax-deferred basis. A Traditional IRA allows for contributions that can potentially be deducted on tax returns and which are tax deferred. When taking distributions, they are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. A Roth IRA allows contributions with money you’ve already paid taxes on and the money may grow tax-free. The withdrawals from a Roth IRA in retirement may be tax-free if certain conditions are met.
Inflation
An increase in the general price level for goods and services in an economy, which diminishes the purchasing value of money. The Bureau of Labor Statistics reports each month on the average level of prices when it releases the Consumer Price Index (CPI).
Initial Public Offering (IPO)
The first time a private company’s stock is offered for sale to the public on the open market. When going public, IPOs are introduced to the market by investment banks that buy a company’s shares and then offer them to the public at an offering price. IPOs are often used to help a company raise capital, finance growth opportunities or rebalance the balance sheet.
Interest Rate
The cost of borrowing money that is expressed as a percentage of the loan amount over one year.
Intrinsic Value
The actual value of an asset or a company. Intrinsic value is based on the underlying perception of its true value, including all tangible and intangible factors of the business.
Investment Objective
The stated financial goal of an investment, related to what the client wants to achieve with his or her portfolio.
Investment Loan
An amount of money lent to buy an asset that will generate revenue.
Investment Management
A person or organization that professionally handles investments and manages assets in order to meet the specific investment objectives of an investor.
Irrevocable Trust
A trust that cannot be modified, stopped, or terminated after its creation without the permission of the beneficiary or trustee. The grantor is no longer the beneficiary or trustee, having transferred assets into the trust, and has thus given up rights of ownership.
K Back to Top ↑
Keogh Plan
A tax-deferred retirement plan available to self-employed individuals or un-incorporated businesses. Keogh plans can be either defined-benefit plans or defined-contribution plans. They are similar to IRAs, but with significantly higher contribution limits. Retirement withdrawals from Keogh plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Key Interest Rates
The main interest rates (the federal funds rate and the discount rate) which are the basis of monetary policy in the U.S.
L Back to Top ↑
Large Cap
A classification relating to stocks for a company with a market capitalization value over $5 billion.
Leverage
The technique of using financial instruments or borrowed capital to increase the potential return of an investment.
Liquidity
The ease and speed with which an asset or security can be converted into cash.
Loan
The act of a lender giving another individual or institution an amount of money or property at an interest rate, with the obligation evidenced by a promissory note to repay the principal and the interest amount by a specified date.
Lump-Sum Distribution
A one-time payment of the entire amount held in an employer-sponsored retirement account, pension plan, annuity, etc. instead of breaking the payments into smaller installments.
M Back to Top ↑
Macroeconomics
The branch of economics that analyzes general economic factors, such as unemployment, gross national product, inflation and the growth rate.
Management Fee
The periodic amount of money paid to a financial advisor or investment manager to have assets professionally managed. Usually the fee is a percentage of the assets under management.
Managed Fund
A broad-based investment fund with several types of securities managed on behalf of an investor, often by an agent with an insurance company.
Manager of Managers
An investment strategy involving the creation of a portfolio with independent investment managers from different sectors, where they have the mandate for investment decisions.
Market Risk
The possibility that the value of an investment may go down due to market factors, impacting the overall financial performance of the markets.
Market Timing
An investment strategy where investors buy and sell securities by using predictive methods in an attempt to profit from short-term price fluctuations.
Market Value
The current or most-recently quoted price for a traded security or the highest price a buyer would accept and a seller would pay for an asset in an open and competitive market.
Maturity
The date on which a loan or debt comes due for payment, and on which an investor’s principal (and any interest) is due to be repaid.
Mean Reversion
The theory that a stock’s price will eventually move back towards its mean or average price over time.
Modern Portfolio Theory
An investment theory derived under a mathematical framework to construct a portfolio for risk-averse investors that maximizes returns for a certain level of risk, using tools such as asset allocation and rebalancing to meet the needs of the investor.
Momentum Investing
An investment technique that is focused on seizing the “momentum” of current trends. Namely, buying stocks that have had high returns in the previous 3 to 12 months, and selling stocks with low returns in the previous 3 to 12 months.
Monetary Policy
An instrument of macro-economic policy where a central bank influences a nation’s money supply or interest rates, thereby managing demand and by extension, inflation in an economy.
Money Market Fund
A type of fixed income mutual fund that invests in assets that are easily converted into cash and show a low risk of price fluctuation. The types include include money market holdings, Treasury bills, and commercial paper.
Municipal Bond
A debt security issued by a state, county, city, municipality or other political entity (such as a school district) to raise public funds for special projects like roads, schools and airports. The income from municipal bonds is normally exempt from federal income taxes, and may also be exempt from state income taxes in the state in which the municipal bond is issued.
Municipal Bond Fund
A mutual fund that invests in debt securities issued by a municipality, state, county or one of their agencies (such as a school district) in order to finance capital expenditures.
Mutual Fund
An investment account offered by an investment company that is comprised of a pool of monies of many investors, who subsequently invest the money in stocks, bonds, money market instruments and assets according to the fund’s stated objectives. The investment company manages the resulting portfolio, and each investor owns shares, which represent a portion of the holdings of the fund.
N Back to Top ↑
National Association of Securities Dealers Automated Quotations (NASDAQ)
An American stock exchange originally founded by the National Association of Securities Dealers that began trading on February 8, 1971 in order to facilitate trading as the world’s first electronic stock market. It is a capitalization weighted index of around 3,000 companies and trades more volume than any other U.S. stock exchange.
National Debt
The total amount of money a government has borrowed to fund its expenditures and owes to national and foreign creditors.
Negative Equity
The situation that arises when the market value of a mortgaged asset is less than the amount of a loan taken against it.
Net Asset Value (NAV)
The net market value of a mutual fund, which is the fund asset minus the value of its liabilities per unit. Net Asset Value (NAV) is calculated by (Value of Assets-Value of Liabilities)/number of units outstanding.
Net Income
The total revenues for a company minus its costs, expenses, and taxes during a given accounting period. Net income is the bottom line of a company’s income statement (also called the profit and loss statement).
Net Worth
The total value of a company’s or individual’s assets minus the total outside liabilities. It is often used to describe a company’s value or an individual’s net economic position.
New York Stock Exchange (NYSE)
The oldest stock exchange in the U.S. that is regarded as the largest in the world by market capitalization of its listed companies. It is located on Wall Street in New York City, NY.
Nominal Value
The price of a share, bond, or security on the date it was issued, not its current market value.
Nominal Interest Rate
An interest rate before it has been adjusted for inflation.
Non-contributory Retirement Plan
A retirement plan that is funded entirely by employer and/or government contributions, but has no employee contributions.
Non-qualified Plan
A retirement or employee benefit plan that does not meet the exact requirements of the Employee Retirement Income Security Act of 1974, and is therefore not eligible for favorable tax treatment.
O Back to Top ↑
Operating Income
Also known as operating profit, these are the earnings before interest and taxes that are calculated by subtracting operating expenses from gross profit.
Opportunity Cost
A measurement of the difference in value between a chosen investment and one that is foregone.
Option
A contract that gives the buyer the right, but not the obligation, to buy or sell an asset or financial instrument at a set price on a specified date.
P Back to Top ↑
Partnership
An arrangement where two or more individuals manage and operate a business venture by pooling resources and sharing profit and loss according to the terms of the agreement.
Personal Loan
An unsecured loan based on the borrower’s integrity and ability to pay used to finance personal matters such as a wedding, house mortgage, medical emergency, vacation, etc.
Ponzi Scheme
A fraudulent investment scheme where an individual or organization pays quick returns to its first investors from new capital paid
Portfolio
The collection of assets/investments owned by an individual or organization, which is held directly by the individual/organization and/or managed by investment professionals.
Power of Attorney
A legal document that allows one person the authority to act for another individual in all specified legal or financial matters in the event that said individual becomes incapacitated.
Preferred Stock
A class of stock that represents ownership in a corporation and has a higher claim on a company’s assets and earnings than common stock. Dividends on preferred stock are typically paid out before dividends to common stockholders.
Prenuptial Agreement
A written contract entered into by two people about to marry that sets forth how their individual property will be divided should they ultimately divorce.
Price/Earnings Ratio (P/E Ratio)
A market prospect ratio calculated by dividing a stock’s current share price by its earnings per share. Investors use this ratio to discover how much they are paying for a company’s earnings. For this reason, P/E Ratio is often called a price multiple or earnings multiple.
Prime Interest Rate
The interest rate commercial banks charge their most credit-worthy and “prime” customers, and that is influenced by the federal funds rate.
Principal
A term denoting the following: 1) the original amount invested in a security, excluding earnings; 2) the face value of a bond; or 3) the remaining amount owed on a loan, separate from interest.
Probate
The legal process in which a will is proved valid in a court and the estate can therefore be administered according to the deceased person’s will. The term can also be used for the general administering of deceased person’s will or for the estate of a deceased person without a will.
Property
A thing or things (either tangible or intangible) by which a person or business has legal title, such as real estate. Property may be held in common or privately owned.
Profit
The surplus financial amount gained after total costs are deducted from total revenue.
Profit-Sharing Plan
A defined-contribution plan in which employees share in company profits, but the employer has discretion to determine when and how much is paid. The funds within the plan accumulate tax deferred, but early withdrawals, as with other retirement plans, are subject to penalties.
Prospectus
A formal legal document required and filed with the Securities and Exchange Commission (SEC) to provide the information an investor needs to make an informed decision about an investment offered for sale to the public.
Purchasing Managers Index (PMI)
An index of economic indicators that monitors industries and businesses, giving insight into the private sector of the economy that is used by economic analysts, business decision makers and policy makers. Common PMI surveys include the manufacturing and service sectors, and are based on five indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
Q Back to Top ↑
Qualified Retirement Plan
A retirement plan for employees by their employers that is operated within the rules laid down in Section 401(a) of the Internal Revenue Code. It thus receives favorable tax treatment, and includes plans like 401K plans, defined benefit plans, and money purchase pension plans.
Quantitative Easing
A monetary policy where a central bank purchases securities from its member banks to inject liquidity to capital markets. The purpose is to lower interest rates and to increase the money supply in order to spur economic growth.
Quantitative Investing
An investment technique that uses computer built complex mathematical models in order to analyze financial data and identify predictable patterns.
R Back to Top ↑
Rate of Return
A measure of an investment’s performance over a specified period of time, usually expressed as a percentage, where the gain or loss of the investment is divided by the investment’s initial cost.
Real Estate Investment Trust (REIT)
An investment company that pools money to invest primarily in real estate, with the type of assets owned including buildings, land and real estate securities. REITs trade like common stock on the major exchanges.
Real Interest Rate
The interest rate an investor, lender or saver receives that is adjusted for inflation. It is calculated by deducting the expected amount of inflation from the nominal interest rate.
Rebalancing
An investment strategy of realigning holdings in a portfolio in order to maintain the originally desired level of asset allocation. Rebalancing involves selling assets that have become high priced and buying assets that are low priced to minimize risk.
Redemption
The repayment of an investor’s principal in a debt security—such as a preferred stock or bond—upon maturity or cancellation by the original issuer of the security. Redemption can also refer to the sale of units in a mutual fund, where the fund buys them back at their net asset value.
Required Minimum Distribution (RMD)
The minimum amount that must be withdrawn annually from a qualified retirement plan (IRA, SEP IRA, SIMPLE IRA, etc.) when the account holder reaches age 70½. Roth IRAs do not require withdrawals until the death of the retirement account owner.
Revenue
The amount of money a company earns from its business activities during a specified period, before expenses and taxes have been deducted. It is different from profit, which is revenue less expenses.
Revocable Trust
A trust that can be altered, modified or terminated by the grantor, as opposed to an irrevocable trust. During the life of a revocable trust, any income earned is distributed to the grantor. Upon the death of the grantor, the contents of the trust are transferred to its beneficiaries according to the terms of the trust.
Risk
The chance with an investment that it will be a complete financial loss or will provide less-than-expected returns.
Risk Management
The process of identifying and analyzing potential risks when making an investment decision, and implementing precautionary steps to reduce/curb the risk.
Risk Tolerance
A financial industry measurement for an investor’s willingness or ability to handle investment losses. It is an important factor in assessing the amount of risk an investor is comfortable taking.
Rollover IRA
A tax-free transfer of assets from one qualified retirement program to another. Employees generally do this when they change jobs or retire, as Rollover IRAs must be done in accordance with specific requirements to avoid becoming a taxable event.
Roth IRA
A qualified retirement plan or account in which earnings grow tax-deferred and distributions are tax-free. Contributions to a Roth IRA are generally not deductible for tax purposes, because an investor contributes after-tax dollars and can thus make tax-free withdrawals upon retirement. Roth IRAs are for taxpayers that fall under a certain income thresholds and have income and contribution limits. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. The original Roth IRA owner is also not required to take minimum annual withdrawals.
Roth IRA Conversion
The process of moving assets from a traditional, SEP, or SIMPLE IRA to a Roth IRA. Roth IRA conversions have specific requirements and may be taxable.
S Back to Top ↑
Savings Incentive Match Plan for Employees (SIMPLE)
A qualified retirement plan for companies with 100 employees or fewer that do not currently offer another retirement plan. SIMPLE plans permit employees and employers to contribute to traditional IRAs set up for employees, with tax-deferred savings.
Securities
A financial instrument such as stocks, bonds, notes, etc. that have a monetary value and can be traded.
Securities and Exchange Commission (SEC)
An agency of the U.S. federal government that protects investors, prevents fraud, maintains fair, orderly, and efficient markets, and facilitates capital formation. The SEC acts as one of the primary regulatory agencies overseeing the investment industry.
Self-Directed IRA
An individual retirement account where the individual investor has control of the investment of funds, subject to certain conditions and limits. The self-directed IRA has greater possibilities for asset diversification outside of stocks, bonds and mutual funds, as there can be investment in assets such as real estate and limited partnerships.
Simplified Employment Pension IRA (SEP IRA)
A type of traditional IRA for self-employed individuals or small businesses. As with a traditional IRA, contributions are tax-deferred until withdrawals and penalty fees may be imposed if distributions are taken before age 59½.
Share
A unit of ownership in a corporation or financial asset.
Shareholder Payout
The amount of equity issued and dividends paid to shareholders of common stock.
Shares Outstanding
The number of shares of common stock that a corporation has issued to shareholders, which includes shares to institutional investors and those held by a company’s officers.
Sharpe Ratio
A way to measure the performance of an investment first devised by economist William Sharpe. It is a risk/return financial measure calculated by dividing the excess return by the amount of risk taken to produce the excess return.
Short Selling
Also known as shorting a stock, it is a trading strategy where a seller sells a security that has been borrowed or is not owned by the seller. The theory behind short selling is that the security’s price will fall, resulting in it being bought back at a lower price to make a profit.
Small Cap
A classification relating to stocks for a company with a market capitalization value usually between $300 million and $2 billion.
Social Security
A federal government program in the United States that provides benefits to retired people and those who are unemployed and disabled. The official name of the Social Security program is Old-Age, Survivors, and Disability Insurance (OASDI). In addition to retirement benefits, the program offers disability income, veterans’ pensions, public housing, and food stamps.
Spousal IRA
A type of retirement arrangement where an IRA is established for a beneficiary, in this case a non-working spouse, and funded with contributions from the working spouse. Spousal IRAs may be either a traditional IRA or Roth IRA, and just like those IRAs, they are subject to combined annual contribution limits and must meet certain requirements.
Standard & Poor’s 500 Index (S&P 500)
An American stock market index whose average is calculated by summing the prices of 500 leading companies in leading industries of the U.S. economy and dividing the sum by a divisor which is regularly adjusted to account for stock splits, spinoffs, or similar structural changes. Since it is weighted according to market capitalization and covers a basket of equities, the S&P 500 is widely regarded to be representative of the stock market as a whole.
Standard Deviation
A measure applied to investments to see how a series of numbers (such as a fund’s returns) move away from the average value over time in order to gauge the volatility.
Stock
A share of equity ownership in a company. Owning stock entitles stockholders to any dividends and financial participation in the company’s growth, as well as the right to vote on the company’s board of directors.
Stock Buyback
Also known as a share repurchase program, it is when a company buys back shares of its own stock. A stock buyback is conducted either by buying shares in the open market over time or by offering to buy shares from shareholders at a set price.
Stock Certificate
A physical legal document that gives a person or company ownership of a specific number of shares of stock in a corporation. In many transactions, the stockholder is registered electronically, so no certificate is issued.
Stock Dilution
A term that results from the issuing of additional common stock shares by a company. This increase in outstanding shares of a company can include methods such as an initial public offering, a conversion of convertible bonds or preferred shares into stock, or employees exercising stock options. These additional shares dilute the fundamental positions of the stock, such as earnings per share, ownership percentage and voting control. Stock dilution can also refer to any event that reduces an investor’s stock price below the initial purchase price.
Stock Exchange
A marketplace where stocks, securities and other financial instruments are bought and sold.
Stock Option Trading
A strategy that enables an investor to buy an option contract that gives the holder (buyer) the right, not the obligation, to purchase a specified quantity of stock at a certain price within a fixed amount of time (its expiration date).
Stock Purchase Plan
A program where a company offers its employees the opportunity to buy shares of its stock at a favorable price.
Stock Split
A decision a company makes to increase the number of outstanding shares of stock without changing the shareholders’ equity. It does this by issuing more shares to its current shareholders. An example of this would be a 2-for-1 split, where each shareholder receives as many new shares as he or she owns, thus doubling the number of shares owned. The price per share adjusts to account for the split.
Subprime Loan
Type of loan offered to individuals having below average credit histories and that are a greater risk to default on loans than prime borrowers.
Supply and Demand
An economic model that is the relation between the amount of the commodity or service available and the desire of buyers for that commodity or service, determining its price.
Swap
A type of derivative in which two parties agree to exchange cash flows of one party’s financial instrument for another party’s financial instrument.
T Back to Top ↑
Tax
A fee or levy applied by state or central governments on a product, income or activity.
Tax Credit
The amount of money that is subtracted from income taxes after preliminary tax liability has been calculated.
Tax Deduction
An amount or percentage that can be subtracted from a taxpayer’s adjusted gross income before taxes are calculated. Tax deductions typically include allowances for mortgage interest, charitable contributions, home repair and unreimbursed business expenses.
Tax Deferred
A term that refers to investment earnings in a plan or account, which along with any accrued interest, dividends, or other capital gains, are not subject to taxes until the funds are withdrawn.
Tax-Exempt Bonds
Debt securities issued by a state, county, city, or other political entity, which produce income that is exempt from federal income taxes. Income from these types of bonds may also be exempt from state income taxes in the state in which they are issued. However, some tax-exempt bonds may be subject to the federal alternative minimum tax.
Taxable Income
The gross adjusted income (minus any adjustments, the standard deduction or itemized deductions, and personal exemptions) in a tax year. Taxable income is used to compute tax liability.
Technical Analysis
A method of evaluating securities which studies past price movements and trends in order to identify patterns and forecast future activity. Generally, technical analysis is the opposite of fundamental analysis.
Time Horizon
The length of time an investor plans to hold an investment or portfolio of investments. The horizon depends on when and the amount of money needed in order to devise the optimal investment strategy.
Title
A legal document that provides evidence of ownership of an asset or security.
Total Return
The total of all earnings from an investment realized, including both capital appreciation and any income received.
Trade
Regarding financial markets, the buying and selling of securities.
Traditional IRA
A qualified retirement savings plan for individuals that allows for contributions to be deducted on tax returns and which are tax deferred. When taking distributions from a traditional IRA, the withdrawal amounts are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Traditional IRA plans differ from Roth IRA plans in that contributions avert taxes during the contributing period, but income is taxed when making retirement withdrawals, while
Treasuries
Tradable debt securities issued by the United States government. Regarding debt obligations, treasury bills normally have maturities of less than a year, Treasury notes have maturities between one and 10 years, and Treasury bonds have maturities between 10 and 30 years. U.S. Treasury securities are guaranteed by the federal government for a timely payment of principal and interest. However, if a Treasury security is sold prior to maturity, it could be worth more or less than its original price.
Trust
A legal arrangement that creates a separate entity, which can own property and is managed for the benefit of a beneficiary. A living trust is created while its grantor is still alive, while a testamentary trust is created upon the grantor’s death. Using a trust generally involves a complex set of tax rules and regulations.
Trust Fund
A fund comprised of a variety of assets that is managed by a person or organization in order to provide benefits to another person or organization.
Trustee
An individual, corporation, or other entity that has the authorization to administer a property held in a trust.
Trustee-to-Trustee Transfer
A transaction that transfers assets from one qualified retirement program to another without triggering a taxable event.
Turnover
The total value of sales over a particular period. Also, in relation to the stock market, the volume of shares traded on a stock exchange during a day, month and year.
U Back to Top ↑
Underlying Asset
The specific security or financial instrument (stock, bonds, commodities, currencies, market indexes, etc.) upon which a derivative is based.
Unemployment
The state of not having a job when actively looking for work. Unemployment is also a measure used to indicate the overall health of the economy.
Unlimited Marital Deduction
A provision offered by the IRS that allows a person to transfer an unlimited amount of assets to his or her spouse at any time (even at the time of the person’s death), and the move is free from tax liability.
Unquoted Shares
Shares of a company (often smaller ones that do not qualify for reasons such as minimum market capitalization) that are not listed on a formal stock exchange, and are sold as unlisted securities. Because they are not regulated by a formal exchange, they are riskier.
V Back to Top ↑
Valuation
The process of assessing the value or worth of a company or an asset.
Value Oriented Approach
An investment strategy that seeks stocks that are undervalued in relation to their intrinsic value (actual worth). Value-oriented investors will consider buying stocks at a discount from their intrinsic value after sufficient fundamental analysis.
Variable Interest Rate
An interest rate on a loan or security that goes up and down with a specific measure or index.
Volatility
A statistical measure of risk based on the range of potential fluctuations in a security’s value. A higher volatility means a security’s price moves up and down quickly over short periods, while a lower volatility means the price almost never changes.
Volume
A measure of the amount of shares traded in an asset or an entire market during a specified period of time.
W Back to Top ↑
Wall Street
A street in New York City that is the center of the financial district, housing exchanges like the NYSE, NASDAQ and American Stock Exchange. “Wall Street” is also a general term for the financial industry in the U.S.
Weighted Average
A financial measure by which a mean is calculated by having some values count more than others. This is done so indices are not affected inordinately by smaller values, as averages are often affected by extreme values.
Will
A legal document by which an individual or a couple directs the distribution of their assets after death.
Withholding
The portion of an employee’s paycheck that an employer holds back in order to pay his or her share of income, Social Security, and Medicare taxes to the IRS in the employee’s name.
Wrap Fee
An amount charged by a financial advisor or brokerage for a bundle of several services wrapped together, generally covering the money manager’s fee, all commissions and transactions costs, and performance research and monitoring.
Y Back to Top ↑
Yield
A measure of the performance of an investment, expressed as a percentage of the asset’s market price. Yield is calculated by dividing the income received from an investment by the investment’s initial cost.
Z Back to Top ↑
Zero-Coupon Bond
A debt security that is purchased at a discount from its face value, but does not pay interest during its life. When a zero-coupon bond matures, the investor receives the face value of the bond.
Zombie Fund
This is a colloquial term for a “near dead fund”, since it is a closed with-profits fund that ties up investors’ money and continues charging fees despite assets that have faded with little hope of profitability.
