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A

account balance The total amount of debt incurred on a credit card.
account beneficiary The person or persons named to inherit funds in the event of the owner’s death. The three types of beneficiaries currently supported are primary, secondary, and tertiary.
account options Discretionary services selected by an account owner, including the ability to deposit or withdraw funds on a regular basis, write checks against the account, and move money electronically.
account owner The person or entity that owns the assets in an account and is named on the account’s registration.
account registration Owner name(s) and address of record for a financial account.
account registration form An application to establish an investment account.
account service fee A fee assessed each year on certain lower-balance mutual fund accounts and paid directly to the funds. The fee helps offset the cost of serving accounts with smaller balances.
accrued dividends A dividend that is considered to be earned, but that is not payable or declared.
accrued interest Interest that has accumulated on a bond since the last interest payment was made.
accumulation period The time during which an individual builds savings.
ACH (See Automated Clearing House)
active investment strategies A portfolio management method that seeks to exceed the returns of the financial markets. Active managers rely on research, market forecasts, and their own judgment and experience in making investment decisions.
active management An investment strategy that seeks to outperform the average returns of the financial markets. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.
address change A change in the primary address of record for a financial account.
address of record The address that appears on a financial account registration.
adjustable rate mortgage (ARM) A mortgage that has an interest rate that adjusts according to market conditions at periodic intervals.
adjusted gross income The amount on which an individual pays income tax. It is calculated by subtracting authorized deductions from gross income.
adoption agreement A document, which is a custodial contract between an individual and a financial institution, needed to establish an individual retirement account (IRA).
ADR (See American Depository Receipt)
adviser Either (1) an organization responsible for managing a mutual fund’s assets or (2) a company or individual—usually called a financial adviser—who manages someone else’s investments.
after-tax contributions Investments in a retirement plan that come from the taxable portion of an employee’s pay—unlike pretax contributions, which are deducted from the employee’s pay before taxes are calculated. Sometimes called voluntary contributions.
agency securities Securities issued by federal agencies or federally sponsored agencies, created to help certain sectors of the economy reduce their borrowing costs.
agent A person authorized to act on behalf of another person in transactions involving a third party. If you buy or sell securities through a broker who arranges a transaction, the brokerage house is acting as an agent.
aggregation The process of displaying financial information from multiple financial institutions in one place.
aggressive growth fund A mutual fund that seeks maximum long-term capital growth by investing mainly in stocks of smaller companies or narrow market segments. Dividend income is incidental; risk can be significant. Also called a capital appreciation fund.
aggressive investment approach An investment approach that accepts above-average risks in return for potentially above-average positive returns.
all or none (AON) All or none (AON) is a condition used on a buy or sell order instructing the broker to fill the order completely or not at all. AON is only available for orders of more than 100 shares. If all shares aren’t available at the same time and at your limit price or better, the order won’t be filled. An AON request will be canceled if it isn’t executed within the duration set for the order. Limit orders with an AON qualifier won’t be reflected in the marketplace (i.e., bid or ask price), preventing a partial execution at your limit price or better.
alternative minimum tax (AMT) A separate tax system designed to ensure that wealthy individuals and organizations pay at least a minimum amount of federal income taxes. Certain securities used to fund private, for-profit activities are subject to the AMT.
American Depository Receipt (ADR) A receipt that represents a specific number of shares of a foreign-based corporation held by a U.S. bank and entitles the holder to all dividends and capital gains. Through ADRs, U.S. investors can buy shares of foreign-based companies in the United States instead of in foreign markets.
amortization The systematic repayment of a debt or loan (such as a bond or a mortgage) over a specific time period.
amortization schedule A table detailing each periodic payment on an amortizing loan, as generated by an amortization calculator.
annual dividend A yearly payment of cash or stock from a company’s earnings as declared by the company’s board of directors.
annual gift exclusion The amount an individual is allowed to gift tax-free each year. This amount is indexed by inflation.
annualize To make a period of less than a year apply to a full year, usually for purposes of comparison. For instance, a portfolio turnover rate of 36% over a six-month period could be converted to an annualized rate of 72%.
annualized yield Current income (interest or dividends) paid by an investment, expressed as a percentage of the investment’s price. All yields quoted are annual yields.
annual percentage rate (APR) The interest that reflects all the costs of a loan during a one year time period.
annual report A financial statement provided to shareholders each year by corporations (including mutual funds), as required by Securities and Exchange Commission regulations. A mutual fund’s annual report lists assets (such as the fund’s securities holdings), liabilities, and earnings, as well as certain historical information.
annuitant A person receiving benefits under an annuity contract.
annuity An income annuity is a contract between an individual and an insurance company that provides for periodic payments to the individual or designated beneficiary in return for an investment. The payments may continue for the lifetime of the annuitant, or for an agreed-upon term of years. A deferred annuity also is issued by an insurance company and offers tax benefits for retirement savers.
AON (See all or none)
appreciation An increase in the value of an asset.
APR (see annual percentage rate)
arbitrage The simultaneous sale and purchase of the same or equal securities in a way that takes advantage of a price difference in separate markets.
ARM (see Adjustable Rate Mortgage)
ask price The price at which someone is willing to sell a particular security. It’s also known as the offer price.
asset Property that has monetary value. Mutual funds invest in assets like stocks, bonds, and cash instruments. The investments in an account are referred to as “account assets.”
asset allocation The way an investment portfolio is divided among various asset classes, such as cash investments, bonds, and stocks. Also known as investment mix.
asset allocation fund A mutual fund with a strategy that involves reapportioning investments among the major asset classes (cash investments, bonds, and stocks) in response to changing expectations for the market.
asset classes General categories of investments. The three major asset classes are cash investments, bonds, and stocks.
assumed investment return (AIR) The net investment return that will cause variable annuity payments to remain level. The assumed investment return is used in calculating the initial and subsequent variable annuity payments.
at the close An order to buy or sell a security at the security’s closing price on the exchange; if not executed, the order is canceled.
at the open An order to buy or sell a security at the security’s opening price on the exchange; if not executed, the order is canceled.
attorney-in-fact account A mutual agreement in which an account holder (the principal) authorizes an agent (the attorney-in-fact or power of attorney) to handle the principal’s financial affairs.
authorization A debit or credit card transaction in which you authorize others to place a hold on your available balance to assure future payment.
Automated Clearing House (ACH) A network that links member U.S. banks and financial institutions for the purpose of electronic money movement. If your bank or financial firm is a member of ACH, you can transfer money to and from your financial accounts electronically.
automatic reinvestment An arrangement by which the dividends or other earnings from an investment are used to buy additional shares in the investment vehicle.
available balance The balance of an account that is available to be redeemed.
average annual total return Provides the average return of the fund over a specific period of time. For example, if a fund’s net asset value (NAV) started at $10 and after 3 years it rose to $15, the fund’s average annual return would be about 14.47%. This number shows how much the fund averaged each year during the 3-year period to get to its $15 NAV.

Average annual returns are always calculated as of the end of each month.
average cost–single category An accounting method used to determine cost basis for mutual funds, in which an average price-per-share is assigned for all shares being sold based on their original purchase price.
average coupon The average interest rate (coupon rate) of all bonds in a portfolio.
average maturity Average Maturity (money market funds only)
Average maturity represents the weighted average maturity of the fund’s holdings using the date of the next interest rate adjustment for certain adjustable-rate securities held by the fund.

Average Stated Maturity (municipal bond funds and Tax-Managed Balanced)
Average Stated Maturity represents the average of the stated maturity dates for all fixed income securities held by the fund.

Average Effective Maturity (taxable bond funds and balanced funds except Tax-Managed Balanced)
Average Effective Maturity is defined as the average length of time until fixed income securities held by a fund reach maturity and are repaid, taking into consideration that an action such as a call or refunding may cause some bonds to be repaid before they mature.

The longer the average maturity, the more a fund’s share price will move up or down in response to changes in interest rates.
average quality An indicator of credit risk; the average of the credit ratings assigned to a portfolio’s holdings by rating agencies. These companies assign the ratings after appraising an issuer’s ability to meet its obligations.
average volume The daily average number of shares of a particular security traded during the previous 52 weeks.

B

back-end load A sales fee charged by some mutual funds when an investor redeems fund shares. It is also called a contingent deferred sales charge (CDSC). These fees typically decline over time, eventually disappearing if an investor holds the shares long enough. Because the fee is subtracted from the sale proceeds, a back-end load directly reduces the amount an investor receives from selling shares. Back-end loads are often associated with Class B shares.
back-end ratio A ratio that indicates what portion of a person’s monthly income goes toward paying debts.
backup withholding Tax withheld from investment income, such as interest and dividends. Banks and certain other businesses must file Form 1099 with the IRS to report income paid to you. If the business doesn’t have adequate reporting information for you (for example, no Social Security number), or if the IRS determines that you have underreported your investment income, the business must withhold 28% of your investment income.
balance sheet A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.
balanced fund A mutual fund that seeks to provide some combination of growth, income, and conservation of capital by investing in a mix of stocks, bonds, and/or money market instruments.
banker’s acceptance A money market instrument guaranteed by a bank. Generally used by nonfinancial firms for international trade.
banking instructions Information that is used for purchases or redemptions, including a bank’s American Banking Association (ABA) number, a client’s account number, and a client’s registration information.
bankruptcy A legal proceeding involving a person or business that is unable to repay outstanding debts.
basis point 1/100th of 1%. Changes in interest rates or yields are commonly expressed in basis points. For example, an increase of 30 basis points equals 0.30%.
bearer bond A bond that does not have the owner’s name registered on the books of the issuing corporation or government and is payable to the bearer.
bear market A market that loses value over an extended period of time.
before-tax contributions The portion of an employee’s salary contributed to a retirement plan before federal income taxes are deducted; this reduces the individual’s gross income for federal tax purposes.
benchmark An unmanaged group of securities whose overall performance is used as a standard to measure investment performance.
beneficiary The person or entity designated to receive the proceeds of a pension, investment account, annuity contract, or insurance policy in the event of the owner’s death. For 529 college savings accounts, the beneficiary is the student whose education expenses will be paid with the money from that account.
bequest Property left to an heir under the terms of a will.
best execution The legal obligation of brokers to place their client’s orders using the best price and method they can find that will take the shortest amount of time to execute.
beta A measurement comparing portfolio risk to overall market risk. Market beta is 1.00. A portfolio with a beta of 1.20 would have its share price rise or fall by 12% when the market rises or falls by 10%.
bid-ask spread The difference between the highest buyer’s price (best bid) and the lowest seller’s price (best ask).
bid price The price which someone is willing to pay for a particular security.
block trade An order to purchase or sell a large quantity of stock shares. Generally, orders for more than 10,000 shares are considered block trades.
blue chip stocks Common stock of well-known companies with a history of growth and dividend payments.
blue sky laws State regulations designed to protect investors against securities fraud within that state. These laws require sellers of new issues to register their offerings and provide financial details.
board of directors Individuals—elected by company or mutual fund shareholders—who meet several times a year to provide numerous management directives.
bond A debt security (IOU) issued by a corporation, government, or government agency in exchange for the money the bondholder lends it. In most instances, the issuer agrees to pay back the loan by a specific date and make regular interest payments until that date.
bond anticipation note A tax-exempt note that is issued as temporary or bridge financing until a bond issue is floated. The proceeds from the bond issue are then used to pay off the bond anticipation note.
bond fund A mutual fund that invests in corporate, municipal, or U.S. government debt obligations. Most bond funds have a focus on income, rather than appreciation, and can be appropriate for diversifying the risks of stocks in a portfolio. Bond funds are subject to other risks, including interest rate, income, and credit risk.
bond insurance Insurance guaranteeing timely interest payments. The fee for the insurance is usually paid by the issuer to lower the cost of borrowing.
bond ladder A tool in the management of a bond portfolio that can be used to increase rewards or reduce risks by purchasing a number of bonds and structuring their maturities over time so they mature at different dates. For example, buying 5-, 10-, 15-, and 20-year maturity bonds of equal value would be a bond ladder.
bond rating A measure of the expected performance, quality, and safety of a bond issue. Moody’s and Standard & Poor’s are the 2 largest rating agencies; Fitch is used for municipal bonds. See also Moody’s credit rating.
book entry bond A bond that has no certificate, but records of the owner are kept by a depository and its members (banks and brokerage firms).
book value A company’s assets, minus any liabilities and intangible assets.
breakpoint A mutual fund may offer discounts, called breakpoints, on its front-end load if an investor:Wants to make a large purchase.
Already holds other mutual funds offered by the same fund family, whether individually or combined with a spouse or other qualifying person.
Commits to regularly purchasing the mutual fund’s shares.
broker/broker-dealer An individual or firm that buys or sells mutual funds or other securities for the public.
brokerage account An account held with a registered broker-dealer that allows the investor to deposit securities with the firm and place investment orders through the broker, which then carries out the transactions on the investor’s behalf. Investors can trade stocks and bonds, options, and exchange-traded funds; place special types of orders (stop and limit orders, for example); and trade on margin.
brokerage balance The total equity in an investment account, plus the value of any option holdings and the value of the linked money market. The brokerage balance doesn’t include accrued interest or any income and securities not yet paid.
budget An estimate of income and expenses for a set period of time, made with the intention to stay within estimated limits for specific expenses based on estimated income and financial goals.
building credit The process of obtaining a higher credit score through credit card usage that financial institutions find desirable.
bull market A market that gains value over an extended period of time.
business credit card A credit card built and issued specifically for businesses.
business plan A formal statement of a set of business goals, the reasons they are believed attainable, and the plan for reaching those goals.
buy The purchase of a security.
buy-and-hold A strategy in which the investor ignores short-term market fluctuations and holds on to his/her investments for long periods of time.
buying power The amount of money an investor has available to buy securities, taking into account all cash as well as the amount that can be borrowed against securities held in a margin account.

C

call date The first date on which a “callable” security may be redeemed by its issuer, prior to its maturity date.
capital appreciation fund A type of mutual fund that seeks growth by investing primarily in stocks with share prices that are expected to rise.
capital gain/loss The difference between the sale price of an asset—such as a mutual fund, stock, or bond—and the original cost of the asset.
capital gains distributions Payments to mutual fund shareholders of gains realized during the year on securities that the fund has sold at a profit, minus any realized losses.
capital preservation An investment goal or objective to keep the original investment amount (the principal) from decreasing in value.
capital spending Money used to purchase or upgrade buildings, equipment, or other physical assets. Also called capital expenditure.
cash Assets represented by currency, bank balances, checks, or money orders.
cash account A brokerage account that settles transactions on a cash—rather than credit—basis.
cash advance A debit card transaction during which you receive money back from a merchant or financial institution. Cash advances do not include ATM withdrawals.
cash available The amount of funds available for withdrawal.
cash flow The difference between income and expenditures during a given period of time. A positive cash flow indicates that income exceeds expenses; negative cash flow indicates the opposite.
cashing out Taking a retirement plan distribution in cash, rather than rolling it over to another retirement vehicle. This can have significant tax implications.
cash investments Short-term debt instruments—such as commercial paper, banker’s acceptances, and Treasury bills—that mature in less than one year. Also known as money market instruments or cash reserves.
cash per share/price Total cash plus short-term investments divided by the number of shares outstanding at the end of the fiscal period, then divided by the price per share. Measures a company’s liquidity (its ability to quickly convert assets to cash to meet short-term obligations).
cash position The percentage of a mutual fund’s assets invested in short-term reserves, such as U.S. Treasury bills or other money market instruments.
catch-up contribution An additional amount that taxpayers age 50 or older can invest for retirement on a tax-deferred basis.
category A classification of investments, narrower than asset type, based on underlying securities. Domestic stock funds are generally categorized in terms of investment style (value, growth, or blend) and market-capitalization size (large, medium, and small), while international, bond, specialty, and money market funds are classified in other ways.
CD (See certificate of deposit)
certificate dollars The outstanding dollar amount of issued certificates for a fund.
certificate of deposit (CD) An insured, interest-bearing deposit at a bank that requires the depositor to keep the money invested for a specific period of time. CDs can be traded on the secondary market.
Certified Financial Planner (CFP) An investment professional who has passed exams administered by the CFP Board of Standards on subjects such as taxes, securities, insurance, and estate planning.
Certified Public Accountant (CPA) An investment professional who is state licensed to practice public accounting.
CFA (See Chartered Financial Analyst)
CFP (See Certified Financial Planner)
change The difference in a security’s price from one period to another. During trading hours, “change” refers to the difference in price since the beginning of the day; after trading hours, it compares the closing price to the previous day’s close.
charitable remainder trust A trust that provides income and tax benefits to the grantor (or his/her beneficiary) for a fixed period, or for life. The balance is then distributed to a predesignated charity.
Chartered Financial Analyst (CFA) An investment professional who has met competency standards in economics, securities, portfolio management, and financial accounting as determined by the Institute of Chartered Financial Analysts.
check When a check is written to a payee and submitted for payment, the check writer’s bank will deduct the amount of the check from the associated account.
checking account An account at a bank against which checks can be drawn by the account depositor.
Class A shares Mutual fund shares that typically carry a sales fee on purchases (known as a front-end load), which is deducted from the initial investment. When you buy Class A shares with a front-end load, a portion of the dollars you pay is not invested. Class A shares may also carry asset-based sales charges, but generally these would be lower than similar charges imposed by other classes. (A mutual fund may offer discounts, called breakpoints, on its front-end load under certain circumstances.)
Class B shares Mutual fund shares that typically carry a back-end load, which is a fee assessed when an investor sells shares. (A back-end load may also be called a contingent deferred sales charge.) Class B shares usually do not impose a sales fee on purchases, or a front-end load. However, they typically impose higher asset-based sales charges than Class A shares. The back-end load typically declines over time and eventually disappears if the investor holds the shares long enough. Once the back-end load vanishes, Class B shares often “convert” into Class A shares. Upon converting, they feature the same lower asset-based sales charges as Class A shares.
Class C shares Mutual fund shares that typically carry a small back-end load—a fee assessed when shares are sold—but no front-end load, or sales fee on purchases. Class C shares typically impose higher asset-based sales charges than either Class A or Class B shares. (A back-end load is also known as a contingent deferred sales charge.) The back-end load typically applies to shares that are sold within a short time of purchase, usually one year. Since Class C shares generally do not convert into other share classes, their asset-based sales charges are not reduced over time.
closed-end fund A publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed, and traded like a stock on a stock exchange.
closing (real estate) The final exchange in the sale and purchase of real estate.
closing price The price for a mutual fund, calculated at the end of each business day, at which trades are executed (also known as the net asset value). “Closing price” can also refer to the final price at which a security is traded on a given day.
closing quotation The final bid and ask prices for an issue at the end of a business day. Because of the forces of supply and demand, a certain day’s closing quotation will not necessarily be the next day’s opening quotation.
CMA (See comprative market analysis)
CMO (See Collateralized Mortgage Obligation)
Collateralized Mortgage Obligation (CMO) A bond that is backed by a pool of mortgage pass-through securities or mortgage loans.
commercial paper A promissory note issued by a large company in need of short-term financing.
commingling Combining the assets distributed from a qualified plan or 403(b) plan with other IRA assets. By commingling assets from these different plans, the IRA account owner forfeits the ability to roll the money back into another qualified plan or 403(b) plan with a future employer.
commission A fee charged by a broker for executing a securities transaction.
commission-only compensation An arrangement in which a financial adviser’s sole compensation is received from commissions on investments purchased when the client implements the recommended financial plan.
commodities Unprocessed goods—such as grains, metals and minerals, or oil—that can be traded in large amounts on an exchange.
common-law employee An employee other than an owner, a business partner, or a shareholder of a corporation and their respective spouses. (Independent contractors are not employees.)
common stock A security that represents ownership in a corporation. Holders exercise control by electing a board of directors and voting on corporate policy. In the event of a company’s liquidation, common stockholders have lowest priority and receive assets only after bondholders, preferred stockholders, and other debt holders have been paid in full.
comparative market analysis (CMA) A prepared comparison of final sale prices for comparable properties in an area.
compliance department A department set up in most financial organizations to ensure that trading activity complies with regulatory requirements.
compounding The accrual of interest earned on an investment and its reinvested earnings.
compound interest or compound yield The interest earned on the original principal invested and also on the interest earned in previous periods.
conservative investment approach An investment approach that accepts potentially lower rewards in return for lower risks.
consumer debt Debt incurred on the purchase of goods.
consumer durables Products purchased by consumers that are expected to last at least 3 years; for example, automobiles, appliances, boats, and furniture. Consumer durables spending serves as an indicator of the strength of the economy since large purchases reflect consumer confidence.
consumer goods Products bought for personal or household use.
Consumer Price Index (CPI) A measure of the price change in consumer goods and services. The CPI is used to track the pace of inflation.
contingent deferred sales charge (CDSC) (See back-end load)
contrarian investing An investing technique that ignores market trends by buying securities that are considered by the investor to be undervalued and out of favor with other investors.
contribution Money placed in an individual retirement account (IRA), an employer-sponsored retirement plan, or other retirement plan for a particular tax year. Contributions may be deductible or nondeductible, depending on the type of account.
contribution allocation The mix of assets (stocks, bonds, and cash investments) in which the funds within a retirement plan account are invested.
conventional fixed rate mortgage A mortgage that carries a set interest rate and payments that do not change throughout the life (term) of the loan.
convertible security A corporate bond or preferred security that can be exchanged for shares of the issuer’s common stock at a prestated price or rate.
convexity A measure of a bond’s actual price change in response to an interest rate change, compared with the estimated price change based on duration alone. Convexity captures the degree to which a bond’s price deviates from the estimated bond price (as measured by duration) when interest rates change.
cooperative A business or organization that is owned and run jointly by its members, who share the profits and benefits.
corporate bond A bond issued by a corporation rather than by a government. The credit risk for a corporate bond is based on the appraised payment ability and willingness of the company that issued the bond.
corporate fiduciary A corporation in a position of trust and responsibility that is required to act for the benefit and best interests of the beneficiaries of a trust.
corporation (C Corporation) A form of organization in which shareholders form a separate legal entity to carry on a business. The shareholders are not personally responsible for the corporation’s liabilities and are free to transfer or sell their interests.
correction A relatively short-term drop in stock market prices, generally viewed as bringing overpriced stocks back to a level closer to companies’ actual values.
cost basis The original cost of an investment (adjusted for commissions or capital distributions). For tax purposes, the cost basis is subtracted from the investment’s value at the time of sale, minus fees and commissions, to determine any capital gain or loss.
cost basis reportable to IRS As required by legislation effective January 1, 2011, the cost basis—and gain or loss when shares are sold—that will be reported to the IRS on your Form 1099-B.
cost per share With the average cost accounting method, this term refers to the average cost per share of a security or mutual fund. For all other cost-basis methods, this term refers to the actual cost per share of a security or mutual fund.
country allocations The percentages of a fund’s net assets allocated to securities of various countries. These percentages serve as an indicator of a fund’s diversification and its vulnerability to fluctuations in foreign financial markets or currency exchange rates.
country diversification The percentages of a global or international portfolio’s assets invested in securities of various countries.
country risk The possibility that political events (a war, national elections), financial problems (rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will weaken a country’s economy and cause investments in that country to decline.
coupon/coupon rate The interest rate that a bond issuer promises to pay to the holder until the bond matures, expressed as an annual percentage of the bond’s “face” value.
CPA (See certified public accountant)
CPI (See Consumer Price Index)
credit The ability of a customer to obtain goods or services before payment, based on the rust that payment will be made in the future.
credit balance The amount of funds owed to a customer by an investment firm including, but not limited to, the proceeds generated from the sale of securities or payment of cash dividends.
credit card A small plastic card issued by a bank, business, etc. that allows the holder to purchase goods or services on credit.
credit counseling A process that involves offering education to consumers about how to avoid incurring debts that cannot be rapaid.
credit counselor A certified professional who assists borrowers with credit counseling.
credit inquiry A transaction whereby a bank or other financial institution views an individual’s credit report in connection with a loan or credit card application.
credit limit The maximum amount of credit a financial institution will extend to a credit.
credit quality A measure of a bond issuer’s ability to repay interest and principal in a timely manner.
credit rating A published ranking, based on a careful financial analysis, of a creditor’s ability to pay interest or principal owed on a debt.
credit report A report detailing a person’s financial history specifically related to their ability to repay borrowed money.
credit risk The possibility that a bond issuer will fail to repay interest and principal in a timely manner. Also called default risk.
credit score (see credit rating)
cumulative preferred stock Preferred stock for which dividends accumulate even if there are reasons for not paying the dividends on a regular schedule. A company in financial distress, for example, may suspend its payment of preferred stock dividends. Holders of cumulative preferred stock are entitled to any unpaid dividends when the company begins making payments again and before payments are made to holders of common stock.
cumulative total return The total return on a fund from a certain period of time up to the present.For example, if a fund’s net asset value (NAV) started at $10, and 3 years later, the NAV equals $15, the cumulative return would be 50% (as opposed to an average annual return of 14.47%). Cumulative returns are always calculated as of the end of each month.
current market value The dollar value of an asset, obtained by multiplying the number of shares owned by the price for a single share on the open market.
currency risk The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U.S. dollar against foreign currencies. Also called exchange rate risk.
current ratio A measurement of a company’s liquidity, determined by dividing available assets by liabilities.
current yield The ratio of annual interest to the current market price of the bond.
CUSIP number A unique nine-character alphanumeric code for each security approved for trading in the United States, supplied by the Committee on Uniform Securities Identification Procedures. Most brokers and securities firms use this number to identify securities.
custodian Either (1) a bank, agent, trust company, or other organization responsible for safeguarding financial assets or (2) the individual who oversees the mutual fund assets of a minor’s custodial account.
cyclical stock A stock whose performance is closely related to the general economy. The auto, chemical, paper, and steel industries are considered cyclical because their earnings tend to fall when the economy slows; food and drug stocks are considered to be noncyclical because demands for food and medical care continue regardless of the state of the economy.

D

daily valuation The determination of the value of an investment share each business day.
dated date The date from which the bondholder is entitled to receive interest. The bondholder may actually receive the bonds on a different date.
day order An order to buy or sell securities that, unless executed or canceled, will expire automatically at the end of the trading day on which it was placed. All orders are day orders unless otherwise specified.
day trade The purchase and sale of a security in the same day.
DBA (see “Doing Business As” Name)
dealer An individual or firm acting as a principal rather than a broker or agent; an individual or firm acting as a principal and ready to buy and sell for their own account.
death benefit (annuity) The payment the beneficiary will receive from the issuer of the annuity. Some annuities offer a choice of death benefit options. These options provide for various levels of payments to the beneficiary (and various levels of costs to the annuity owner).
debenture An unsecured debt obligation backed only by the general credit of the borrower.
debit balance The amount of funds owed to a lender. In a margin account, it is the amount owed to the broker-dealer who extended credit to the investor.
debt A liability required to be paid by a specific date.
debt financing The act of a business raising capital by borrowing.
debt-to-income ratio A personal finance calculation that measures an individual’s total debt payments to the income he or she generates.
declaration date The date the board of directors of a company or mutual fund announces the amount and date of its next dividend payment.
deductible contribution Pretax money paid into an IRA, an employer-sponsored retirement plan, or other type of retirement plan for a particular tax year.
deep discount bond A bond selling for a price much less than the face value, generally 80% of par.
default Failure to pay principal or interest when due.
defined benefit plan A retirement plan that promises to pay a certain amount, usually based on the number of years of service and on the average salary in the period before retirement. Employers generally bear all investment risk.
defined contribution plan A retirement plan offering a benefit that depends on the total contributions made by the employer and the employee, and on the investment returns earned by those contributions. Employees generally bear the investment risk.
deflation The opposite of inflation; a decline in the prices of goods and services.
delinquent In financial terms, a situation where a borrower is late or overdue on payments.
delisting The removal of a security from an exchange.
denomination The face amount or par value of a bond, which is the amount the issuer agrees to pay on the maturity date.
Depository Trust Company (DTC) Provides securities movements for NSCC’s net settlements, and settlement for institutional trades (which typically involve money and securities transfers between custodian banks and broker/dealers), as well as money market instruments.
depreciation A decrease in the value of an investment.
derivative A financial contract whose value is based on, or “derived” from, a traditional security (such as a stock or bond), an asset (such as a commodity), or a market index (such as the S&P 500 Index).
Direct Deposit Service A service that can automatically deposit all or part of any recurring payment—including paychecks, pensions, and Social Security payments—directly into financial accounts
direct deposit source An institution that automatically deposits funds in your financial account. A direct deposit source can be an employer, financial institution, or federal government agency (such as the U.S. Treasury for tax refunds or Social Security payments). The direct deposit source is sometimes referred to as the “sending institution.”
direct rollover Movement of tax-deferred retirement plan money from one qualified plan or custodian to another. No immediate tax liabilities or penalties are incurred, but there is an IRS reporting requirement.
discount The difference between a bond’s current market price and its face value, expressed in a dollar amount or as a percentage.
discount broker A brokerage that executes orders to buy and sell securities at commission rates lower than a full-service brokerage.
discount rate The interest rate charged by the Federal Reserve Board to member banks for loans.
disposable income Income remaining after the deduction of taxes and other mandatory charges. Also known as after-tax income.
distribution by coupon A breakdown of a portfolio’s securities according to coupon rate—the interest rate that an issuer promises to pay, expressed as an annual percentage of face value.
distribution by credit quality A breakdown of a portfolio’s securities according to credit rating.
distribution by issuer A breakdown of a portfolio’s holdings by type of issuer or type of instrument.
distribution by maturity Distribution by Effective Maturity (taxable bond funds and balanced funds except Tax-Managed Balanced)
Represents the percentage of fund assets in each maturity category. Average Effective Maturity methodology is used to determine the maturity category each holding is allocated to. Average Effective Maturity is defined as the length of time until a fixed income security held by a fund reaches maturity and is repaid, taking into consideration that an action such as a call or refunding may cause some bonds to be repaid before they mature.Distribution by Stated Maturity (municipal bond funds and Tax-Managed Balanced)
Represents the percentage of fund assets in each maturity category. Average Stated Maturity methodology is used to determine the maturity category each holding is allocated to. Average Stated Maturity is defined as the stated maturity date for each fixed income security held by the fund.
distributions Distributions may refer either to withdrawals from an account, or payments of dividends and/or capital gains by a mutual fund. Distributions from tax-advantaged accounts, such as retirement and college savings accounts, are subject to federal regulations.
distribution schedule The frequency (monthly, quarterly, semiannually, or annually) of a mutual fund’s scheduled distributions of dividends or capital gains.
distribution yield The fund’s current monthly income dividend per share, annualized (by dividing by the number of days in the month and multiplying by 365) as a percentage of the fund’s average NAV during the month.
diversification The strategy of investing in different asset classes and among the securities of many issuers in an attempt to lower overall investment risk.
dividend Either the distribution of the interest or income produced by a mutual fund’s holdings to the fund’s shareholders, or a payment of cash or stock from a company’s earnings to each stockholder.
Dividend Express® (See Distribution Transfer)
dividend income Distribution of earnings to shareholders that may be in the form of cash, stock, or property. Mutual fund dividends are paid out of income, usually on a quarterly basis, from interest generated by a fund’s investments. Also known as a dividend distribution.
dividend reinvestment The automatic reinvestment of shareholder dividends in more shares of the company’s stock.
dividend yield The annual rate of return on a share of stock, determined by dividing the annual dividend by its current share price. In a stock mutual fund, this figure represents the average dividend yield of the stocks held by the fund.
DJIA (See Dow Jones Industrial Average)
DNR (See do not reduce)
do not reduce (DNR) An instruction not to reduce the limit or stop price on a stock when it goes “ex-dividend” for a declared cash dividend. A stock goes ex-dividend between the announcement and payment of a dividend when its price typically falls by the amount of the dividend.
“Doing Business As” Name (DBA) The fictitious name under which a business is legally registered.
dollar-cost averaging A method of investing that entails purchasing a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices rise. Using dollar-cost averaging, you can avoid the risk of investing a lump-sum amount when prices are at their peak.
dollar price The unit in which the market quotes a fixed income security, usually stated as a percentage of the security’s face value.
donor-advised fund Any separately accounted-for fund maintained by a sponsoring charity where (a) the donor or a designee of the donor is given the opportunity to advise the charity regarding investments, grant recipients, and the amount and timing of grants; and (b) the sponsoring charity retains exclusive legal control over all decisions regarding investments, grant recipients, and the amount and timing of grants.
double-exemption bond A bond that is exempt from both state and federal income taxes.
Dow Jones Industrial Average (DJIA) The oldest and most widely quoted of all market indicators, the “Dow” represents the average of 30 actively traded blue chip stocks on the New York Stock Exchange (NYSE).
downgrade The lowering of a security’s rating.
downsize To reduce expenses.
down payment An initial payment made when something is bought on credit.
duration A measure of the sensitivity of bond—and bond mutual fund—prices to interest rate movements. For example, if a bond has a duration of two years, its price would fall about 2% when interest rates rose one percentage point. On the other hand, the bond’s price would rise by about 2% when interest rates fell by one percentage point.

E

early withdrawal penalty A penalty charged on money withdrawn early from certain types of accounts. For example, withdrawing assets from a tax-advantaged retirement plan before age 59½ or cashing in a certificate of deposit (CD) before its maturity may result in an early withdrawal penalty.
earned income Compensation earned from employment, which includes wages, salary, tips, and compensation.
earnings Revenue for a specified period of time, after related costs and expenses have been deducted.
earnings growth rate The average annual rate of growth in earnings over the past five years for the stocks in a portfolio.
earnings per share (EPS) A company’s earnings divided by the number of common shares outstanding.
EBITD margin A measurement of a company’s profitability, used to gauge the percentage of revenue used for operating expenses. EBITD (earnings before interest, taxes, and depreciation) is divided by total revenue and expressed as a percentage.
economic indicators Statistical data that reflect the direction of the U.S. economy, including such items as unemployment rate, inflation rate, factory utilization rate, and balance of trade.
education savings account A tax-advantaged savings account designed to provide for a child’s postsecondary education.
effective maturity The length of time until fixed income securities held by a fund reach maturity and are repaid, taking into consideration the possibility that the issuer may call the bond before its maturity date.
effective tax rate Amount of income tax paid divided by net taxable income before taxes, expressed as a percentage.
efficient market The theory—disputed by some experts—that stock prices reflect all market information that is known by all investors. Also states that investors cannot beat the market because it is impossible to determine future stock prices.
EIN (see Employer Identification Number)
Electronic Bank Transfer (EBT) A service that allows you to transfer money electronically between your financial account and your bank account.
electronic bill payment A service that allows you to view and pay your bills online instead of through the postal service.
employee contribution An employee’s own deposit to a company retirement plan.
Employee Stock Ownership Plan (ESOP) A qualified retirement plan that invests in the employer’s company stock on behalf of employees.
employer contribution Contributions to a retirement plan made by your employer. These may be made within your employer-sponsored retirement plan, or to a traditional or SEP-IRA.
Employer Identification Number (EIN) A nine-digit number assigned by the IRS that is used to identify what kinds of taxes a business owes.
endowment A gift of money or securities to an institution to be used for a certain purpose.
entrepreneur A person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.
EPS (See earnings per share)
EPS growth The growth rate of earnings per share, measured on a quarterly or annual basis.
equity In investing, ownership in a company. Often used as a synonym for stock.
equity financing The method of raising capital by selling company stock to investors.
equity fund A mutual fund that invests primarily in stocks.
equivalent taxable yield The yield needed from a taxable bond to give the same after-tax yield as a tax-exempt issue.
ERISA The primary federal law governing private pension plans. ERISA sets standards for funding and administering pension plans and governs investment practices. ERISA also established a federal program to guarantee benefits from defined benefit plans under the Pension Benefit Guaranty Corporation.
escheatment The process of turning over unclaimed or abandoned property to a state authority. Escheatment laws require mutual funds to turn over uncashed or returned check dollars and/or client account fund shares if the owner cannot be located within a time frame determined by each state.
escrowed to maturity A financial instrument held by a third party on behalf of the other two parties in a transaction. Funds are held by the third-party escrow service until a specified condition has been fulfilled.
escrowed to maturity Indication that a bond’s escrow account funds are adequate to pay off the bond.
estate When used in connection with probate proceedings, the term is used to define the total assets and liabilities of a decedent, including all property, real and personal.
estate planning The preparation of a plan to carry out an individual’s wishes as to the administration and disposition of his/her property before or after his/her death.
estate tax A tax imposed on assets being transferred to heirs after the death of the asset owner. An estate tax is levied on the deceased’s estate and not on the heir receiving property.
estimated tax Tax to be paid on income that is not subject to withholding tax, including investment income, alimony, rent, and capital gains.
Eurodollar obligations Certificates of deposit issued in U.S. dollars by foreign banks and foreign branches of U.S. banks.
excess accumulation The amount of a required minimum distribution that an IRA holder fails to remove from his or her IRA in a timely manner. Excess accumulations are subject to a 50% IRS penalty tax.
excess contribution The amount by which an IRA contribution exceeds the allowable limits. If an excess contribution is not properly corrected, a 6% IRS penalty applies.
exchange The movement of assets from one fund to another. Shares are sold from one fund, and the proceeds of that sale are immediately used to purchase shares of the second fund.
exchange privilege The shareholder’s ability to move money from one mutual fund to another within the same fund family, often without additional charge.
exchange-traded funds An investment with characteristics of both mutual funds and individual stocks. Many ETFs track an index, a commodity, or a basket of assets. Unlike mutual funds, ETFs can be traded throughout the day. ETFs often have lower expense ratios but must be purchased and sold through a broker, which means you may incur commissions.
exchange-traded note A senior, unsecured, unsubordinated debt security issued by a financial institution, backed only by the credit of the issuer. ETNs have a maturity date, but typically pay no periodic coupon interest and offer no principal protection. At maturity, an ETN investor receives a cash payment linked to the performance of the corresponding index, less fees. The tax treatment of ETNs is uncertain at this time and is being reviewed by the IRS. Investors should consult a tax professional for additional information.
excise tax A federal or state tax on the manufacture and sale of nonessential consumer goods such as alcohol and cigarettes.
ex-dividend date The date when a distribution of dividends and/or capital gains is deducted from the share price of a mutual fund or stock, and the security begins trading without the distribution. On the ex-dividend date, the share price drops by the amount of the distribution (plus or minus any market activity).
executor The person designated to carry out the directions and requests expressed in a will. The executor, who does not have to be a member of the decedent’s family, serves as a personal representative, administering the estate and distributing the estate’s assets.
expense ratio What it costs a mutual fund company to run a fund. The expense ratio is calculated annually and includes management fees, administrative fees, and any marketing and distribution fees. It doesn’t include loads or purchase or redemption fees, if any.
extraordinary call The early redemption of a revenue bond by the issuer due to elimination of the revenue source to pay the stated interest. This is exercised at the option of the bond issuer in extraordinary circumstances.

F

face amount A bond’s value at maturity. Also called par value.
fair market value The price an asset would receive if the buyer and the seller were equally interested.
Fannie Mae (See Federal National Mortgage Association)
federal funds Federal Reserve deposits that banks and other financial institutions “borrow” from one another to meet short-term cash needs. Fund managers must use federal funds to pay for the securities they buy.
federal funds rate The interest rate charged by banks to lend to other banks needing overnight loans; this figure is the best indicator of the direction of interest rates.
Federal Housing Administration (FHA) Loan A government-backed mortgage insured by the Federal Housing Administration.
Federal Home Loan Mortgage Corporation (FHLMC) A government organization designed to create and maintain a secondary market for conventional home mortgages. The FHLMC buys and pools mortgages from federally insured financial institutions and sells them as mortgage-backed securities called “Freddie Macs.”
Federal National Mortgage Association (FNMA) A government-sponsored private corporation authorized to purchase and sell mortgages and to facilitate the orderly operation of a secondary market for home mortgages.
Federal Open Market Committee (FOMC) The group that sets interest rate and credit policies for the Federal Reserve System and decides whether to increase or decrease interest rates through open-market operations consisting of buying or selling government securities.
Federal Reserve The central bank that regulates the supply of money and credit throughout the United States. The Fed’s seven-member board of governors, appointed by the President, has significant influence on U.S. monetary and economic policy.
Federal Reserve Board The governing board of the Federal Reserve System that is responsible for setting bank reserve requirements, the discount rate, credit availability, and monetary policies.
fee-based compensation An arrangement in which a financial advisor charges a set hourly rate, or an agreed upon percentage of assets under management, for a financial plan. In addition, when the plan is implemented, the advisor may also receive commission on some or all of the investment products purchased. Also known as fee-and-commission compensation.
FHLMC (See Federal Home Loan Mortgage Corporation)
FICO Score A person’s credit score as calculated with software from Fair Isaac Corporation (FICO).
fidelity bond Insurance coverage carried by brokerage firms to protect investors from losses due to employee dishonesty such as larceny and embezzlement.
fiduciary An individual, corporation, or association entrusted with the management, investment, or disposition of another’s property.
FIFO (See first in, first out)
fill or kill (FOK) An order to buy or sell a security which, if not executed immediately, is canceled.
Financial Industry Regulatory Authority (FINRA) The largest nongovernmental regulator for all securities firms doing business in the United States. FINRA was created in 2007 through the consolidation of the National Association of Securities Dealers and the New York Stock Exchange’s member regulation unit.
financial risk The risk that you will not have enough assets or resources to meet your future financial needs. This may be due to inflation, poor savings habits, or low investment returns.
financial sector securities Stocks and bonds issued by banks or by insurance, brokerage, REITS, savings and loan, and other financial companies.
financial statements The written record of the financial status of a mutual fund or company, usually published in its annual report. The financial statements generally include a balance sheet, income statement, and other financial information.
first call date The earliest date that a bond issuer can redeem a bond before its maturity date.
first in, first out (FIFO) A method for calculating taxable gain or loss when mutual fund shares are sold. The FIFO method assumes that the first shares sold were the first shares purchased.
fiscal year A 12-month accounting period.
fiscal year-end The end of a 12-month accounting period.
fixed annuity A contract issued by an insurance company that guarantees periodic interest payments on an investment. The interest rate doesn’t change while the contract is in effect.
fixed expenses For a household, fixed expenses are the set expenses paid every month whose prices do not flucutuate based on any extenuating circumstances.
fixed-income fund A mutual fund that seeks current income by investing in fixed-income securities such as bonds.
fixed-income securities Investments, such as bonds, that have specific interest rates.
flat A bond trading without accrued interest.
float The number of shares of a particular security available to be bought or sold by investors.
FNMA (See Federal National Mortgage Association)
FOK (See fill or kill (FOK))
FOMC (See Federal Open Market Committee)
foreclosure The process of taking possession of a mortgaged property as a result of the borrower’s failure to keep up mortgage payments.
foreign holdings The percentage of a portfolio’s investments represented by stocks or American Depository Receipts (ADRs) of companies based outside the United States.
forfeiture The participant’s loss of some or all funds in a retirement plan account because the client was not fully vested prior to termination of the account.
Form 1042-S Reports dividends, capital gains distributions, distributions from IRAs or qualified plans, nonresident alien withholding amounts, withholding tax rates, and foreign countries of residence for nonresident aliens only.
Form 1099-B Reports all sales, exchanges, and redemptions (including checkwriting activity) from taxable accounts.
Form 1099-DIV Reports dividends and capital gains distributions from taxable accounts.
Form 1099-INT Reports tax-exempt interest dividends (including specified private activity bond interest) from bond funds and money market funds.
Form 1099-Q Reports distributions, asset transfers, and fair market values for education savings accounts (ESAs).
Form 1099-R Reports distributions, excess contributions, conversions, recharacterizations, rollovers, and federal and state tax withholdings from retirement accounts.
Form 5498-ESA Reports contribution information, including asset transfers, for education savings accounts (ESAs).
Form 5500 A tax return for a qualified retirement plan that is filed by the plan administrator.
forward averaging A method of calculating taxes on a lump-sum distribution from a qualified retirement plan that enables you to pay less than your current tax rate.
forward currency contract An agreement to buy or sell a country’s currency at a specific price, usually 30, 60, or 90 days in the future. This guarantees an exchange rate on a given date.
forward P/E Ratio of price to earnings, based on estimates for next 4 quarters.
fractional shares Partial shares held by an investor. For mutual funds, fractional shares result when the total amount invested is not evenly divisible by the share price amount. For stocks, fractional shares can result through stock splits, dividend reinvestment plans (DRIPs), or similar corporate actions.
Freddie Mac Mortgage-backed securities issued by the Federal Home Loan Mortgage Corporation.
freeriding Buying and selling securities in a cash account without covering the initial purchase. Restrictions on investors who practice freeriding stem from Federal Reserve Board regulations.
frequent-trading policy A policy that generally prohibits a shareholder’s purchases or exchanges into a fund account for 60 calendar days after the investor has redeemed or exchanged out of that fund account.
front-end load A sales fee charged at the time of purchase by some mutual funds. The fee is deducted from the money put up by the investor. (In other words, when you buy shares with a front-end load, a portion of the dollars you pay is not invested.) A mutual fund may offer discounts, called breakpoints, on its front-end load if an investor:Wants to make a large purchase.
Already holds other mutual funds offered by the same fund family, whether individually or combined with a spouse or other qualifying person.
Commits to regularly purchasing the mutual fund’s shares.
A front-end load lowers the investor’s return by reducing the amount that is initially invested.
front-end ratio A ratio that indicates what portion of an individual’s income is used to make mortgage payments. Front-end ratio is calculated as an individual’s monthly housing expenses divided by his or her monthly gross income and is expressed as a percentage.
full faith and credit A pledge to pay interest and principal on a bond issued by the government.
full retirement age The age at which a working American is eligible to begin receiving full Social Security retirement benefits. Traditionally full retirement age is 65. However, the age has been increased in increments for those born in 1938 or later. For those born after 1959, full retirement age is 67.
fundamental analysis A method of examining a company’s financial statements and operations as a means of forecasting stock price movements.
fund assets The total value of a portfolio’s securities, cash, and other holdings, minus any outstanding debts.
fund family A group of mutual funds sponsored by the same organization, often offering exchange privileges between funds and combined account statements for multiple funds.
fund of funds A mutual fund that pursues its objective by investing in other mutual funds.
funds available The amount of money available to purchase securities for your brokerage account. This includes your money market balance, any unsettled activity, and margin cash available (if approved for margin). This amount is not adjusted for any open orders.
futures/futures contracts A contract to buy or sell specific amounts of a specific commodity (such as grain or foreign currency) for an agreed-upon price at a certain time in the future.

G

gain/loss The difference between the sales price of a capital asset, such as a mutual fund, stock, or bond, and the cost basis of the asset. If the sales price is higher than the cost basis, there is a capital gain. If the sales price is lower than the cost basis, there is a capital loss.
GDP (See Gross Domestic Product)
general obligation bond A municipal bond that is backed by the full faith and credit of the issuer. These bonds are of higher quality than bonds issued for specific projects but also provide lower returns.
GIC (See Guaranteed Investment Contract)
general partnership A business arrangement by which parnters conducting a business jointly have unlimited liability.
Ginnie Mae This term refers both to the Government National Mortgage Association and to the mortgage-backed securities issued by this agency. The timely payment of principal and interest for these securities is backed by the full faith and credit of the U.S. government.
global fund A mutual fund that invests in stocks of companies both in the United States and in foreign countries.
glide path The change over time in a target-date fund’s asset allocation mix.
GNMA (See Government National Mortgage Association)
good order A certificate that has the necessary endorsements and meets all requirements from the transfer agent so that the ownership can be transferred to a new party. Also called good delivery.
good-till-canceled order (GTC) An order to buy or sell that remains open for 60 days after the business day for which the order was placed or until the order is executed or canceled. If this day falls on a weekend or a holiday, the order will be canceled on the next business day, before the market opens.
government bonds Bonds issued by governments or government agencies.
government mortgage A government-backed mortgage loan.
Government National Mortgage Association (GNMA) An agency within the U.S. Department of Housing and Urban Development that buys mortgages from lending institutions and pools them to form securities, known as “Ginnie Maes,” which are then sold to investors.
government obligations Debts in the forms of T-bonds, bills, and notes that the government must repay.
grant A gift of money from the government or other institutions that does not have to be repaid at a later date.
Gross Domestic Product (GDP) The value of all goods and services provided by U.S. labor in a given year. One of the primary measures of the U.S. economy, the GDP is issued quarterly by the Department of Commerce. Formerly known as the Gross National Product (GNP).
gross income An individual’s total personal income before taking taxes or deductions into account. For a business, gross income is the company’s revenue minus cost of goods sold.
gross margin A measurement of a company’s profitability. Gross profits (sales revenue minus the original cost to the seller) are divided by net sales (sales revenue minus discounts and returns) and expressed as a percentage.
growth and income fund A mutual fund that seeks long-term growth of capital and current dividend income from stocks.
growth fund A mutual fund whose primary investment objective is growth of capital. It invests primarily in common stocks with growth potential.
growth investing A strategy for equity investing that emphasizes stocks with above-average price-to-book ratios and sales and earnings growth, but below-average dividend yields. It may be appropriate for investors seeking long-term growth (e.g., those accumulating assets for retirement).
growth stock fund A mutual fund that emphasizes stocks of companies believed to offer above-average prospects for capital growth due to their strong earnings and revenue potential. Growth stocks tend to offer relatively low dividend yields, because these companies prefer to reinvest earnings in research and development.
Guaranteed Investment Contract (GIC) An agreement between an insurance company and a corporate profit-sharing or pension plan that guarantees a specific rate of return over the time span of the agreement.
guaranteed minimum interest rate The lowest interest rate that can be in effect for a fixed annuity.

H

health savings accounts (HSAs) A type of investment account available to most employees who have health care coverage through a high-deductible health plan (HDHP). Individuals eligible for an HSA can make pre-tax or tax-deductible contributions to the account, and all earnings and interest are tax-exempt, even when withdrawn to pay for eligible medical expenses. Employers also may make tax-exempt contributions on behalf of their employees.
hedge A strategy in which one investment is used to offset the risk of another security.
HIFO (See highest in, first out)
high-grade bond A top-rated bond, usually triple-A, that carries relatively little risk.
high-yield bond A bond that is usually rated lower than BBB/Baa and considered speculative compared to an investment grade bond. Also called a junk bond.
high-yield fund A mutual fund that invests primarily in bonds with a credit rating of BB or lower. Because of the speculative nature of high-yield bonds, high-yield funds are subject to greater share price volatility and greater credit risk than other types of bond funds.
highest in, first out A method for calculating taxable gain or loss when mutual fund shares are sold. The HIFO method assumes that the first shares sold were purchased at the highest share price.
home equity The difference between a home’s fair market value and the outstanding balance on all liens on the property.
homeowners insurance Insurance that protects homeowners from both liability and property costs, such as damage and replacement.
house call A notice of the amount you must deposit to bring your margin account up to your brokerage service’s minimum maintenance requirement.
household People residing at the same address, with the same last name or with a known and shared financial relationship (e.g., joint account co-owners or the custodian and beneficiary of a custodial account).
house maintenance requirement Internally determined minimum levels of equity that must be maintained in a margin account.
housing starts An economic indicator measuring the number of new residential construction projects.
Hybrid Adjustable Rate Mortgage A mortgage that typically has an introductory period with a fixed interest rate until its reset date. After the reset date, the interest rate periodically adjusts to market conditions.

I

ICI (See Investment Company Institute)
immediate annuity An annuity that makes payments soon after an investor has made the initial investment.
inception date The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
income/income dividend Payment to mutual fund shareholders of interest or dividends generated by a fund’s investments.
income fund A mutual fund that seeks current income rather than growth of capital. Income funds typically invest in bonds and/or high-yielding stocks.
income risk The possibility that a portfolio’s dividends will decline as a result of falling interest rates. Income risk is generally greatest for money market instruments and short-term bonds, and least for long-term bonds.
income statement A financial statement that measures a company’s financial performance over a specific accounting period.
index An unmanaged group of securities whose overall performance is used as a benchmark. An index may be broad or focus on one sector or type of security.
indexed annuity An annuity that tracks a stock index.
index fund A type of mutual fund that seeks to track the performance of a particular market index by buying and holding all or a representative sample of the securities in the index, in the same proportions as their weightings in the index.
indexing A low-cost investment strategy that seeks to match, rather than outperform, the return and risk characteristics of an index, by holding all securities that make up the index or a statistically representative sample of the index. Also known as passive management.
individual retirement account (IRA) A type of retirement savings account. Two popular types of IRAs are the traditional IRA and Roth IRA. You may contribute to these IRAs only if you (or your spouse) have earned income. The main advantage of a traditional IRA is the opportunity to contribute pre-tax dollars. Roth IRAs are popular because, while contributions consist of after-tax dollars, the earnings on the account are tax-free, and you’re not required to distribute the assets during your lifetime. For both IRAs, distributions of untaxed assets (contributions and earnings for a traditional IRA; earnings for a Roth IRA) before age 59½ are generally subject to a 10% penalty tax.
individual 401(k) plan A retirement plan for self-employed individuals. This plan is available only to sole proprietors, partners in business, or shareholder employees who have no common-law employees. The only other participant allowed in this plan would be a spouse of the business owner if he or she works for the business. Business owners should not establish this plan if they have common-law employees, including their children.
inflation A general rise in the prices of goods and services.
inflation risk The possibility that increases in the cost of living will reduce or eliminate the returns on a particular investment.
initial interest rate The interest rate in effect for a newly purchased fixed annuity. This rate is in effect for a specific period of time.
initial offering price The charge to an investor for a new bond, generally expressed as a percentage of face value.
initial public offering (IPO) A corporation’s first offering of common stock to the public. FINRA regulates IPOs.
in-service withdrawal A participant-initiated withdrawal from an employer-sponsored retirement plan while the participant is still employed by the company.
insider trading The buying or selling of a security by someone who has access to material, nonpublic information about the security.
institutional trading The net of all trades placed by institutions in a specified time period.
interest (see interest rate)
interest-only mortgage A mortgage loan in which the borrower only pays the interest on the loan for a designated period of time.
interested party A third party (such as an employer) that receives copies of a shareholder’s brokerage confirmations and statements, sometimes for compliance reasons.
interest rate The amount or rate charged when money is borrowed. For example, when you invest in bonds, you receive interest payments from the bond’s issuer.
interest rate risk The possibility that a security or mutual fund will decline in value because of an increase in interest rates.
interest rate sensitivity A measure of how sensitive a bond fund’s price is to changes in interest rates.
Internal Revenue Code All federal tax laws that define tax liabilities for taxpayers.
Internal Revenue Service (IRS) The federal agency responsible for administering and enforcing the internal revenue laws.
international fund A mutual fund that invests in stocks of companies outside of the United States. Foreign markets present additional risks, including currency fluctuation and political instability. In the past, these risks have made prices of foreign stocks more volatile than those of U.S. stocks.
inverted yield curve Indication of short-term interest rates being higher than long-term rates. A lender would normally get a higher yield on long-term bond investments. An inverted yield curve may reflect an unhealthy economy with high inflation and low confidence levels.
investment advisor A person or organization that makes the day-to-day decisions regarding a portfolio’s investments. Also called a portfolio manager.
investment associate An investment brokerage client’s primary contact for self-managed accounts. An investment associate will also provide assistance to the investment manager for AMS-managed accounts.
investment company A corporation or trust that invests pooled shareholder dollars in securities appropriate to the organization’s objective. The most common type of investment company, a mutual fund, stands ready to buy back its shares at their current net asset value.
Investment Company Act of 1940 The federal law, enforced by the Securities and Exchange Commission (SEC), that regulates the activities of investment companies.
Investment Company Institute (ICI) A national industry group of investment companies, including mutual funds, founded in 1940.
investment grade A bond whose credit quality is considered to be among the highest by independent bond-rating agencies.
investment manager A brokerage client’s primary contact for all portfolio management and investment-related questions regarding AMS-managed accounts. Each investment manager has extensive education and training in managing investments.
investment objective The financial goal pursued by an investor or a mutual fund.
IPO (See initial public offering)
IRA (See individual retirement account)
IRS (See Internal Revenue Service)

J

joint-and-survivor annuity An annuity covering two people and paying benefits until the last survivor dies. Also called a joint life annuity.
joint venture A common enterprise undertaken jointly by two or more parties that otherwise retain their distinct identities.
joint tenants with right of survivorship A form of account registration in which two or more individuals share an undivided interest in an account. In the event of one tenant’s death, the surviving tenant (or tenants) automatically inherits the property without the necessity of court proceedings.
jumbo loan A loan that exceeds the conforming loan limit, and as a result carries higher interest rates and has stricter qualification requirements than a standard loan.
junk bond A bond with a credit rating of BB or lower. Also known as high-yield bonds because of the rewards offered to those who are willing to take on the additional risks of a lower-quality bond.

 

K

 

L

LLC (see limited liability company)
large-capitalization (“large-cap”) stocks The stocks of companies whose market value is more than $10 billion. Large-cap stocks tend to be issued by well-established corporations with long track records of steady earnings growth and reliable dividend payments.
last trade The most recent time and price at which a security traded.
last trade volume The number of shares a security traded for the last reported trade.
leading indicator A change in a measurable economic factor that shows before the economy starts to follow a specific trend.
legal structure (business) The chosen legal definition of a business.
liabilities Outstanding debts.
LIBOR (See London Interbank Offered Rate)
life expectancy The age to which an average person is expected to live, as calculated by actuaries.
life insurance Insurance that pays out a sum of money either on the death of the insured person or after a set period.
limited liability company (LLC) A hybrid legal structure for a business that provides the limited liability features of a corporation and the tax efficiences and operational flexibilities of a partnership.
limited partnership A form of organization consisting of a general partner who manages the project and partners who invest but have limited liability and are not involved in the day-to-day management. This type of investment can be private or public.
limit order An order to buy or sell a security at a specified price (limit price) or better. Execution is not guaranteed.
liquidate To convert investment holdings or assets into cash.
liquidity The degree of a security’s marketability; that is, how quickly the security can be sold at a fair price and converted to cash.
liquid net worth Cash or assets that can be converted into cash in a relatively short period of time.
listed security A stock or bond that is listed and traded over the major exchanges (NYSE, AMEX, and Nasdaq).
load A sales fee charged on the purchase or sale of some mutual fund shares. The load may be called a charge or commission. The fee may be a one-time charge at the time the investor buys the fund shares (front-end load) or sells the fund shares (back-end load), or may be an annual 12b-1 fee.
load fund A mutual fund that charges a sales fee on the purchase or sale of its shares. The load may be called a charge or commission. The fee may be a one-time charge at the time the investor buys the fund shares (front-end load) or sells the fund shares (back-end load), or may be an annual 12b-1 fee.
loan A sum of money that is borrowed from a bank or other financial institution and is expected to be paid back with interest.
London Interbank Offered Rate (LIBOR) The rate that the most creditworthy international banks, dealing in the London interbank market, charge each other for large loans.Countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland, and the United Kingdom.
longevity annuity An annuity that makes paymens later in life, usually with a stipulation that the investor reaches a certain age.
long market value The value of the positions held in a brokerage account based on the previous business day’s closing price, excluding options (unless otherwise stated). The figure includes stocks, mutual funds, and fixed income securities.
long position Ownership of a security, including stocks, bonds, certificates of deposit (CDs), mutual funds, and other investment vehicles.
long-term capital gain A profit on the sale of a security or mutual fund share that has been held for more than one year.
long-term care insurance Insurance coverage that covers long-term services and supports, such as expenses for nursing home care and in-home care.
long-term debt A financial obligation due to be repaid no sooner than one year in the future.
long-term equity Stock or index options that will not expire sooner than three years in the future.
longevity risk The risk that you will live longer than expected, with the result that you run out of money before you die.
look-through provision A provision that allows an individual trust beneficiary the option to use the life expectancy of the oldest trust beneficiary (as of the applicable deadline) for calculating RMDs.
lump-sum distribution A single payment that represents an employee’s interest in a qualified retirement plan. The payment must be prompted by retirement (or other separation from service), death, disability, or attaining age 59-1/2, and must be made within a single tax year to avoid the federal government’s 10% penalty tax.

M

MAGI (See modified adjusted gross income)
mailing address A mailing address is the address where you receive mail. It can be a street, P.O. box, rural route, or general delivery address. A street address is the actual, physical location of your residence or business. It can’t be a P.O. box or rural route address but can be a military APO or FPO.
manager The person or persons responsible for the overall investment decisions of a mutual fund.
manager risk The possibility that a fund’s portfolio manager may fail to execute a fund’s investment strategy effectively. As a result, the fund may fail to achieve its stated objective.
margin account A brokerage account that allows the investor to borrow a percentage of a security’s value from the broker in order to purchase that security. If the value of the stock drops substantially, the investor is required to deposit more cash in the account or sell a portion of the stock.
marginal tax rate The income tax rate at which the last dollar of an individual’s income is taxed. Under federal law, the individual pays a lower tax rate on his/her first dollar of income than on his/her last dollar. The marginal rate—the highest rate at which the individual’s income is taxed—is used to calculate taxes due on investment income.
margin call When you trade a security on margin, you must maintain a minimum percentage of equity in your brokerage account. If the value of your securities decreases, causing the percentage of equity to fall below the minimum, your broker may require you to deposit additional funds or sell securities. This requirement is known as a margin call.
margin debt The amount of money borrowed in order to purchase securities on margin in a brokerage account.
margin interest If you trade on margin in a brokerage account, your brokerage will charge interest on the total debit (borrowed) balance. Interest charges are calculated on a daily basis.
marital deduction A provision of federal estate tax law that, in the event of a spouse’s death, allows the transfer of an unlimited amount of assets to the surviving spouse without incurring estate tax.
market capitalization A determination of a company’s value, calculated by multiplying the total number of company stock shares outstanding by the price per share. Also called capitalization.
market maker A firm that facilitates trading in a security for itself or for customers by buying and selling shares of the security at prices it displays on the Nasdaq Stock Market.
market order An order to buy or sell a security at the best available price. Immediate execution is likely if the security is actively traded and market conditions permit. Execution price is not guaranteed and can vary during volatile markets.
market risk The possibility that stock or bond prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods of rising prices and periods of falling prices.
market-timing An investment strategy based on predicting market trends. The goal is to anticipate trends, buying before the market goes up and selling before the market goes down.
mark-to-the-market Adjusting the value of a security or portfolio of securities on the books to reflect current market prices.
maturity/maturity date The date when the issuer of a money market instrument or bond agrees to repay the principal, or face value, to the buyer.
maximize Using our Automatic Investment Plan (AIP) or Automatic Exchange Service (AES) account options, you can ensure that you contribute the maximum to your IRA permitted by the IRS each year. Simply choose “maximize” as the “amount type” when you set up your AIP or AES, and we’ll set your investment amount to equal the maximum annual contribution permitted based on your birth date. In years that your maximum increases, we’ll increase your contribution amount (notifying you the preceding November). And in the year you reach age 70½, we’ll automatically stop contributions to your traditional and SEP-IRAs, per IRS regulations.
median market cap An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Medicaid A U.S. government program of hospitalization insurance and voluntary medical insurance for persons of all ages within certain income thresholds.
Medicare A U.S. government program of hospitalization insurance and voluntary medical insurance for persons aged 65 and over and for certain disable persons under 65.
Medigap Insurance A private supplementary insurance for Medicare that covers expenses not covered by Medicare.
merger The combination of two or more companies.
mid-capitalization (“mid-cap”) stocks The stocks of companies whose market value is $2 billion to $10 billion.
military address An address on a client’s account which has an APO, FPO, or other military base designation.
minimum payment The minimum amount a credit card holder must pay each month. The minimum payment may either be a set value or a percentage of the holder’s statement or account balance.
minimum purchase requirement Certain mutual funds set a minimum dollar level at which fund shares may be purchased; additional requirements are maintained for subsequent investments as well.
modified adjusted gross income An amount that is used for determining a taxpayer’s IRA eligibility; it is generally the taxpayer’s adjusted gross income (shown on IRS Form 1040 or 1040A) calculated without any IRA deduction, foreign earned income exclusion, foreign housing exclusion, student loan interest deduction, exclusion of qualified savings bond interest from Form 8815, exclusion of employer-paid adoption expenses from Form 8839, or deduction for qualified tuition and related expenses. Please note that MAGI for IRA conversion purposes will also exclude any current year conversion amounts to determine eligibility. IRS Publication 590 should be used to assist with IRA calculations pertaining to various definitions of MAGI.
money market account A financial account that pays interest based on current interest rates in the money markets. A money market account typically pays a higher interest rate than a savings account but provides the account holder with limited check-writing ability.
money market fund A mutual fund that seeks income, liquidity, and a stable share price by investing in very short-term investments. Money market funds are suitable for the cash reserves portion of a portfolio, or for holding funds you’ll need soon.
money purchase pension plan A type of defined contribution plan in which employer contributions are based on a percentage of the employee’s pay.
Morningstar rating system A method of rating mutual funds devised by Morningstar Inc., an independent investment research firm. The system takes into account risk and past performance.
mortgage A temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt.
mortgage-backed security A type of investment security that is backed by a collection of mortgages. A mortgage “pool” is broken into shares, which are then sold to investors. The investors receive back the mortgage interest and principal payments.
municipal bond A debt obligation issued by a state or local government. Interest paid on municipal bonds is generally free from federal (and sometimes state and local) income taxes. Because of this, municipal bonds (also called “munis”) usually have lower yields than comparable taxable bonds.
municipal bond fund A mutual fund that invests in tax-exempt bonds issued by state, city, and/or local governments. The interest obtained from these bonds is passed through to shareholders and is generally free of federal (and sometimes state and local) income taxes.
mutual fund An investment vehicle that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time.

 

N

NASD (National Association of Securities Dealers) The National Association of Securities Dealers (NASD) was established in 1939 under the Securities and Exchange Act of 1934. Until 2007, when it consolidated with the New York Stock Exchange’s member regulation unit to create FINRA (the Financial Industry Regulatory Authority), NASD was the largest self-regulatory organization for the U.S. securities industry.
Nasdaq (National Association of Securities Dealers Automated Quotations) A computerized system that provides up-to-the-minute price quotations for securities traded over-the-counter as well as for many securities listed on the New York Stock Exchange.
net asset value (NAV) The market value of a mutual fund’s total assets, minus liabilities, divided by the number of shares outstanding. The value of a single share is called its share value or share price.
net income An individual’s income after deductions, credits, and taxes are factored into gross income. For a business, net income is a company’s total earnings or profit after taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes, and other expenses.
net price The total amount an investor pays for a bond.
net profit Investment gains after the deduction of all expenses.
net profit margin A measurement of a company’s profitability. Net income (total sales minus total expenses) is divided by net sales (sales revenue minus discounts and returns) and expressed as a percentage.
new issue A bond offered to the public for the first time.
New York Stock Exchange (NYSE) The oldest and largest stock exchange in the United States.
no-load fund A mutual fund that charges no sales commission or load.
nominal return The return on an investment before adjustment for inflation.
noncallable A security that cannot be called for redemption by or at the option of the issuer before its specified maturity date.
non-cumulative preferred A preferred stock that does not require the company to make up a dividend to the holders of the preferred stock if a payment is missed in a given period. The holders do not have a claim on the forgone dividends in the future.
nondeductible contribution A contribution to either a traditional IRA or Roth IRA. Income tax is due on the contribution in the tax year for which the contribution is made.
non-profit An organization that does not pay dividends to its investors, but instead uses profits to improve its services.
nonqualified plan A retirement plan that does not meet the IRS requirements for favorable tax treatment.
nonstandardized average annual total return Reflects return figures for variable annuity portfolios, including both capital appreciation and income dividends, that are not adjusted for the $25 annual fee charged only on contracts valued at less than $25,000. Otherwise, these figures reflect all fund-level and contract-level charges.

O

objective The financial goal pursued by an investor or a mutual fund.
odd lot The trading of securities for less than 100 shares (or an amount that is not a multiple of 100).
offering date The first day a security is offered for sale to the public.
offering price The price at which a new security is purchased; the lowest price available for a round lot of securities.
offshore fund A mutual fund whose headquarters is based outside the United States.
OFX (See Open Financial Exchange)
OID (See original issue discount)
open-end fund A mutual fund that has an unlimited number of shares available for purchase.
open order An order to buy or sell a stock that has not yet been executed or canceled.
opening price The price at which a security first trades at the opening of a trading day.
operating expenses The amount paid for asset maintenance or the cost of doing business. Earnings are distributed after operating expenses are deducted.
operating margin A measurement of a company’s profitability. Income is divided by revenue and expressed as a percentage. Also referred to as operating profit.
option A contract that gives an investor the right to buy or sell a stock, bond or other asset at a specific price during a specific timeframe.
or better A price qualifier used with limit orders to buy or sell securities. The broker should automatically transact the order at a price better than the specified price if a better price can be obtained.
original issue discount (OID) The amount below par at which new securities are sold when first offered for sale.
OTC (See over the counter)
outstanding shares Stock currently held by investors, including restricted shares owned by the company’s officers and insiders as well as those held by the public.
overdraft protection A checking account feature that allows you to write checks for more than your actual account balance. The amount of your overdraft protection is dependent upon the market value of your securities.
over the counter (OTC) Securities that aren’t listed and traded on an organized exchange. Many OTC stocks are traded through the OTC Bulletin Board (OTCBB) or Pink Sheets.
overvalued The perception that a security’s price is too high, given the company’s current value.

P

parity The price of common stock at which a convertible security can be exchanged for common stock of equal value.
partial redemption The partial return of an investor’s principal in a security. A partial redemption occurs when an issuer redeems a portion of a bond issue prior to the final maturity date.
participating preferred security Preferred security that entitles the holder to a share of a company’s profits in addition to the specified dividend rate. The extra payments are made after bondholders have received their interest payments, the fixed dividend payments have been made on preferred shares, and dividends have been paid to common stockholders.
partnership A single business owned by two or more owners that share in profits, lossess, debts, and liabilities.
par value (bond) A bond’s face amount ($1,000 for a typical corporate bond; government bonds are often higher) or the amount the issuer must repay when the bond reaches maturity. A par bond is one selling at its face value.
par value (stock) The nominal or face value of a security. The issuer agrees to pay this amount if the security is held to maturity.
passive management A low-cost investment strategy in which a mutual fund attempts to track—rather than outperform—a specific market benchmark or “index”; also known as indexing.
payable date The date when dividends or capital gains are paid to shareholders. The payable date also refers to the date on which a declared stock dividend or bond interest payment is scheduled to be paid.
payee A person or company you pay for goods or services.
payout period The time period during which withdrawals from a retirement account or annuity are paid.
payout ratio The portion of a company’s profits distributed to shareholders during a given period of time. Determined by dividing dividends by earnings.
penalty tax A federal tax that can be applied if a plan holder does not meet certain requirements when making withdrawals from a tax-advantaged retirement plan (for instance, if the plan holder has not reached age 59-1/2). This penalty tax is owed in addition to any income taxes due.
pending transaction Transactions that are in progress but have not been executed.
penny stock A stock that trades at a relatively low price and market capitalization, usually outside of the major market exchanges. These types of stocks are generally considered to be highly speculative and risky because of their lack of liquidity, large bid-ask spreads, small capitalization, and limited following and disclosure. They often trade over the counter through the OTC Bulletin Board (OTCBB) and Pink Sheets.
pension plan An arrangement under which an employer—and sometimes the employee—makes payments toward retirement, disability, or death benefits for employees who meet certain criteria. Types of pension plans include defined benefit plans, defined contribution plans, employee stock ownership plans, money purchase plans, profit-sharing plans, stock bonus plans, thrift plans, and target benefit plans.
P/E ratio (See price/earnings ratio)
PEG ratio The stock’s P/E is divided by the expected growth rate of the company’s earnings. The higher the PEG ratio, the more expensive the stock. A low PEG ratio may suggest an undervalued stock.
periodic payments A series of payments from an annuity, qualified retirement plan, or 403(b)(7) account made over a certain term of years. A payment from an IRA, even if over a period of years, is not considered a periodic payment for tax purposes.
perpetual preferred stock A preferred stock with no stated maturity date. Perpetual preferred stocks can be either cumulative or non-cumulative.
personal identification number Your personal identification number that is associated with your debit card.
per stirpes A method for distributing the assets of an individual who dies without a valid will.
PIN (See personal identification number)
Pink Sheets Daily publication of the National Quotation Bureau that gives the bid and asked prices of over-the-counter stocks not shown on the Nasdaq.
point A unit used to measure price changes of securities. A point represents a change of $1 in the market price for a stock and a 1% change in the face value of a bond. (Bond yields, however, often are quoted in smaller increments known as basis points, where 100 basis points equal 1% of yield.)
portfolio All the securities held by a mutual fund or the total investment holdings of an individual or an institution.
portfolio allocation by region The distribution, by geographic region, of a portfolio’s holdings.
portfolio asset allocation The distribution, by type of asset, of a portfolio’s holdings.
portfolio diversification The strategy of investing in different asset classes and among the securities of many issuers in an attempt to lower overall investment risk and to avoid the chance that a portfolio’s performance would be hurt by the poor performance of a single security, industry, or country.
portfolio manager A financial professional who is responsible for the day-to-day management of a mutual fund or other portfolio, including the selection of portfolio holdings.
portfolio transaction costs The expenses associated with buying and selling securities, including commissions, purchase and redemption fees, exchange fees, and other miscellaneous costs. In a mutual fund prospectus, these expenses would be listed separately from the fund’s expense ratio.
POS (See point of sale)
position An investor’s security holdings in an account or portfolio.
power of attorney A legal document that authorizes someone (an “agent”) to handle certain affairs on behalf of the person granting power of attorney (the “principal”). A limited power of attorney grants authority to act on behalf of the principal only in specific ways; a full power of attorney allows the agent to act as the principal in any circumstance.
PPI (See Producer Price Index)
preferred security Stock that takes precedence over common stock in the payment of expected dividends and in any liquidation of assets. Preferred security does not usually carry voting rights.
preferred stock (see preferred security)
preliminary prospectus An initial or unofficial prospectus prepared for distribution to investors in a new security issue prior to SEC approval of the issuer’s registration statement. Also known as a red herring prospectus because of the red ink on the cover of the document.
premature distribution A distribution from an IRA before the owner reaches age 59-1/2. Generally, a 10% penalty tax is owed on the distribution. Also known as an early distribution or an early withdrawal.
premium An amount to be paid for an insurance policy.
prepaid credit card A credit card with a pre-deposited balance.
prepayment risk The possibility that, as interest rates fall, homeowners will refinance their home mortgages, resulting in the prepayment of GNMA securities.
prerefunded date (bonds) The date a bond is called and refunded. Prerefunding is when a second bond (at a lower interest rate) pays off the initial bond on the call date. The initial bond’s repayment is guaranteed by the proceeds of the second bond issue.
pretax contribution An addition to an account made with funds from a worker’s paycheck before federal income taxes are deducted.
price For bonds, a pricing methodology by which a bond is traded at the dollar price specified, per $100. For example, buying a bond for $95.50 represents paying $955.00 for it.
price/book ratio The price per share of a stock divided by its book value (i.e., net worth) per share. For a portfolio, the ratio is the weighted average price/book ratio of the stocks it holds.
price/cash flow A stock’s capitalization (the number of outstanding shares multiplied by the price per share) divided by its cash flow (the difference between income and expenditures) for the most recent fiscal year.
price/earnings (P/E) ratio The share price of a stock divided by its per-share earnings over the past year. For a portfolio, the weighted average P/E ratio of the stocks in the portfolio. P/E is a good indicator of market expectations about a company’s prospects; the higher the P/E, the greater the expectations for a company’s future growth in earnings.
price per share The value of a single share of a security.
price/sales ratio The price per share of a stock divided by its sales per share. For a portfolio, the ratio is the weighted average price/sales ratio of the stocks it holds.
primary market The market for newly issued securities, where sales proceeds go to the issuer of the securities. After bonds are traded there, they are traded on the secondary market.
prime rate The interest rate that lenders charge their most creditworthy, or prime, customers. In the banking industry, this also refers to a rate set by major banks that usually becomes a national standard.
principal The amount of money originally put into an investment.
private placement The sale of securities to a relatively small number of select investors (as opposed to a public issue, in which securities are made available for sale on the open market) in order to raise capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies, and pension funds.
privately held corporation A company whose shares are not traded on an exchange.
probate A court procedure that validates, or invalidates, a will and legally settles the decedent’s estate. During probate, the executor or administrator of the estate collects the estate’s assets, liquidates liabilities, pays necessary taxes, and distributes property to heirs.
proceeds Money received by the seller of an asset. Net proceeds refers to the amount after the deduction of transaction charges such as commissions or exchange fees.
Producer Price Index (PPI) A measurement of wholesale prices released by the U.S. Bureau of Labor Statistics for foods, metals, lumber, oil, and gas, and other commodities, but not for the price of services. Economists look to this number to help predict changes in the Consumer Price Index (CPI) since upward or downward pressure on wholesale prices will eventually pass through to consumer prices.
profit margin A measurement of a company’s profitability. Net income divided by net sales expressed as a percentage.
profit-sharing plan A flexible arrangement between a corporation and its employees that lets staff share in company profits. The plan payout, usually based on a participant’s compensation and other factors such as corporate results, can vary annually. No minimum contribution to participant accounts is required.
prospectus A legal document filed with the Securities and Exchange Commission that includes details about an investment. It must be given to potential investors before they can open an account. A mutual fund prospectus has details about its investment objectives and policies, risks, costs, and past performance.
prototype plan A qualified retirement plan sponsored by a financial institution. It may be adopted by executing a written agreement. Also called a master pension plan, a prototype is generally more flexible than the IRS Form 5305 or 5305-A and may have special features added. Also refers to a document stating the general provisions of a qualified retirement plan.
proxy Written authorization by a shareholder giving someone else (such as fund or company management) authority to represent his/her vote at a shareholder meeting.
publicly held corporation A company whose shares are traded on an exchange.
public offering The sale of securities to general investors.
public offering price (POP) The price at which a mutual fund with a front-end load is purchased. The difference between the POP and the fund’s net asset value (NAV) represents the fund’s sales fee.
purchase fee A fee charged by some mutual funds when an investor buys shares. This fee is not a sales charge or load because it is paid directly to the fund to offset the costs of trading certain securities.
put bond A bond that can be redeemed at specified intervals before maturity at full face value.

Q

QDI (See qualified dividend income)
QDRO (See qualified domestic relations order)
Q-TIP (See qualified terminable interest property trust)
qualified dividend income (QDI) Generally includes dividends paid on common stock (including stock of qualified foreign corporations) and certain preferred security, subject to holding-period and hedging requirements. Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, tax rates on QDI were reduced to 5% through 2007 (0% in 2008) for those in the 10% and 15% brackets and to 15% through 2008 for taxpayers in higher tax brackets. The 18% (8% for those in lower brackets) maximum rate for qualified 5-year gains (assets owned more than five years) was repealed for sales on or after May 6, 2003, through 2008.
qualified domestic relations order (QDRO) A court order that gives a pension plan participant access to retirement assets to pay alimony or child support, or to divide marital property.
qualified retirement plan A retirement plan established by employers for their employees that meets the requirements of Internal Revenue Code Section 401(a) or 403(a) and is eligible for special tax considerations. The plan may provide for employer contributions, as in a pension or profit-sharing plan, as well as employee contributions. Employers can deduct plan contributions made on behalf of eligible employees on the business’s tax return as business expenses. Plan earnings are not taxed until withdrawn.
qualified terminable interest property trust A trust that allows a surviving spouse to receive income generated from the trust, but actual distribution of the trust’s property is made to other beneficiaries such as the grantor’s children.
qualified total distribution A payment representing an employee’s interest in a qualified retirement plan. The payment must be prompted by retirement (or other separation from service), death, disability, or attainment of age 59-1/2. Payment can be in installments as long as they are made within a single tax year.
quantitative analysis In securities, an assessment of specific measurable factors, such as cost of capital; value of assets; and projections of sales, costs, earnings, and profits. Combined with more subjective or qualitative considerations (such as management effectiveness), quantitative analysis can enhance investment decisions and portfolios.
quantity in dollar face value The value of a bond paid back at maturity.
quick ratio A measurement of a company’s liquidity. Available cash and other current assets are divided by liabilities. The result is typically used to determine whether the company is likely to be able to repay its debts.
quotation The price currently being bid (by a prospective buyer) or offered (by a potential seller) for a certain security. It usually refers to the highest bid and lowest ask (offer) price available.

R

rating A credit evaluation of a security provided by an independent rating agency.
real estate Property consisting of lan or buildings.
real estate investment trust (REIT) A publicly-traded company that invests in real estate and distributes almost all of its taxable income to shareholders. REITs often specialize in a particular kind of property. They can, for example, invest in real estate such as office buildings, shopping centers, or hotels; purchase real estate (an equity REIT); and provide loans to building developers (a mortgage REIT). REITs offer the opportunity for smaller investors to invest in real estate.
real return The actual return received on an investment after factoring in inflation. For example, if the nominal investment return for a particular period was 8% and inflation was 3%, the real return would be 5% (8%–3%).
reallocating Changing the funds in which future account contributions will be invested or moving existing account money into those new choices.
realized capital gain/loss An increase (or decrease) in the value of a security that is “real” because the security has been sold by the portfolio manager. The capital gains/losses are “realized” by the fund, and any distributions to the shareholder as a result of these realized gains is taxable during the tax year in which the security was sold.
rebalancing The process of realigning the weightings of a portfolio’s assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original or desired asset allocation.
recalculation method A method of calculating required minimum distributions from a retirement plan using life expectancy tables. Unisex data tables allow a plan holder to determine the applicable life expectancy each year a distribution is required.
recent price The price of the most recent trade in a particular security (unlike the closing price, which is the final transaction in a trading session).
recharacterization The reversal of an IRA contribution and treatment of that contribution as having been made to a different IRA type. You can also recharacterize assets that you previously converted to a Roth IRA. A recharacterization is treated for tax purposes as a distribution from the initial IRA and a contribution to the second IRA.
record date The date established by the issuer of a security for the purpose of determining the holders who are entitled to receive that security’s next distribution of dividends or capital gains.
redemption The return of an investor’s principal in a security. Bond redemption can occur at or before maturity; mutual fund shares are redeemed at net asset value when an investor’s holdings are liquidated.
redemption fee A fee charged by some mutual funds when investors sell shares. This differs from a back-end load because the money is paid back into the fund. Many funds only charge this fee when shares are bought and sold within a specific period of time, as an effort to discourage short-term trading.
redemption price The price at which a mutual fund’s shares are redeemed, or bought back, by the fund, determined by deducting any applicable charges from the net asset value (NAV) per share. Also called the bid, call, or sell price.
red-herring prospectus See preliminary prospectus.
refinancing Replacing an older loan with a new loan offering better terms.
regional stock exchanges National securities exchanges outside of New York City and registered with the SEC.
registered investment adviser (RIA) An investment professional who is registered—but not endorsed—by the Securities and Exchange Commission (SEC) who may recommend certain types of investment products.
registered representative An employee of a brokerage firm who has acquired a background in the securities business, has passed a series of tests, and is licensed by the Securities and Exchange Commission (SEC), the New York Stock Exchange (NYSE), and FINRA.
registration The name of the person(s) or entities that legally own an account.
regular way trade The normal industry standard for settlement for a particular security. For example, stock is T+3, and a government security is T+1.
Regulation T A Federal Reserve Board regulation that governs customer cash accounts and the amount of credit brokerage firms and dealers may extend to customers for the purchase of securities. It also imposes payment rules on certain securities transactions.
reinvestment Use of investment income to buy additional securities. Many mutual fund companies and investment services offer the automatic reinvestment of dividends and capital gains distributions as an option to investors.
reinvestment date The date on which an investment’s dividend or capital gains income is reinvested, if requested by the shareholder, to purchase additional shares. Also known as the ex-dividend date.
reinvestment risk The risk that interest rates will fall and future interest payments will be reinvested at a lower rate.
REIT (See real estate investment trust)
repurchase agreement An arrangement by which the seller of an asset agrees, at the time of the sale, to buy the asset back at a specific price and, typically, on a given date.
required beginning date (RBD) April 1 of the year after an IRA owner reaches age 70½. In general, this is first date an IRA account owner begins taking required minimum distributions (RMDs).
required minimum distribution (RMD) Under federal tax law, most owners of IRAs (except Roth IRAs) and employer-sponsored retirement plan accounts must withdraw part of their tax-deferred savings each year, starting at age 70½ (or after inheriting an account). If you withdraw less than the required minimum distribution, you may owe a 50% penalty tax on the difference.
reset date The point in time when the initial fixed rate on a hybrid adjustable rate mortgage changes to an adjustable rate.
retail Individual, non-institutional investors.
retirement Retirement is a cultural phenomenon in most industrialized countries that occurs when a person chooses to leave the workforce and qualifies for or starts receiving benefits provided by the government and/or past employers.
retirement account A tax-deferred account aimed at preserving money for an individual’s retirement.
return The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss.
return of capital A distribution that is not paid out of earnings and profits. It is a return of the investor’s principal.
return on assets A measurement of a company’s profitability. Earnings are divided by assets and expressed as a percentage.
return on equity An amount, expressed as a percentage, earned on a company’s common stock investment for a specific time frame. This figure tells shareholders how effectively their money is being utilized.
return on investments A measurement of a company’s profitability. Income is divided by the combined value of outstanding stock and long-term debt and expressed as a percentage.
revenue Cash received from the sale of goods and services that is credited to an income statement.
revenue bond A bond issued to finance a project or enterprise; the bond issuer pledges the revenues from the project to the bondholders.
revenue growth The growth rate of revenue (cash from the sale of goods and services) measured on a quarterly or annual basis.
reverse mortgage A home loan that provides cash payment based on home equity. Homeowners typically defer payment on the loan until they dide, sell, or move out of the home.
reverse split A reduction in the number of a corporation’s outstanding shares, often initiated to raise the price of the shares when the company thinks it’s too low to attract investors. The stock price per share will increase; however, the proportionate equity in the company will remain the same. For example, XYZ Company has 10 million shares outstanding, selling at $10 per share. XYZ declares a reverse split, 1 for 10. The company now has 1 million shares outstanding, selling for $100 per share. No monetary gain or loss results from a reverse split.
rewards card A credit card that offers the user a rebate, cash back, or reward points that can be used to purchased goods and services in exchange for using the credit card.
RHS (Rural Housing Service) Loan A government-guaranteed mortgage loan for low- and moderate-income families buying single-family homes in rural areas.
RIA (See registered investment adviser)
risk The potential to lose money (principal and any earnings) or not to make money on an investment.
risk-adjusted return A measure of how much risk a fund assumed to earn its returns. Usually given as a number or a rating. The more return per unit of risk, the better.
risk-return trade-off The tendency for potential risk to vary directly with potential return, so that the more risk involved, the greater the potential return and vice versa.
risk tolerance An investor’s ability or willingness to endure declines in the prices of investments while waiting for them to increase in value.
RMD (See required minimum distribution)
rollover A transfer in which all or a portion of the assets in an employer-sponsored retirement plan are moved into an individual retirement account (IRA) or other eligible plan, generally keeping the tax benefits intact.
rollover IRA An individual retirement account (IRA) into which have been transferred assets from an employer-sponsored retirement plan. In most cases, this preserves the preferential tax treatment of these assets.
Roth 401(k) An employer-sponsored investment savings account that is funded with after-tax money.
Roth IRA A type of IRA that lets an investor save up to a certain amount of after-tax dollars each year. The earnings in the account grow tax-free, and distributions taken after age 59½ (if the account has been open at least 5 years) are exempt from taxes.
Roth IRA conversion The act of transferring assets from a traditional IRA into a Roth IRA. Because Roth IRAs are funded with after-tax dollars, the assets being converted are subject to income tax.
round lot The typically accepted unit of trading at a particular exchange (also known as an even lot or normal trading unit). A round lot of stock is usually 100 shares (10 for inactive issues). For bonds, it’s usually a par value of $1,000 or $5,000.
R-squared A number assigned to show the comparison of a portfolio’s performance to the returns of the market, a benchmark, or index. A high R-squared (85 to 100) shows the fund’s performance is in line with its index.
Rule of 72 The formula used to estimate how long it would take to double an investment based on a given rate of return compounded over time. The formula is 72 divided by the expected rate or return. For example, in 9 years, $100 will double at 8% (72/8 = 9).

S

S&P 500 Index (Standard & Poor’s 500 Index) An index of the 500 largest-capitalized stocks in the United States that is widely recognized and considered a gauge of overall U.S. stock returns.
S Corporation A corporation that elets to be treated as a pass-through entity for tax purposes.
salary reduction agreement An arrangement in which an employer deposits a portion of an employee’s salary into a tax-advantaged retirement plan, such as a 401(k) plan. Typically, an employee can specify a salary percentage, some or all of which may be pretax dollars, and the employer will match part or all of the employee contribution.
sales charge A fee for buying an investment.
SARSEP (See Salary Reduction Simplified Employee Pension Plan)
savings account A bank account that earns interest.
Savings Incentive Match Plan for Employees (SIMPLE) 401(k) plan A SIMPLE IRA is an employer-sponsored retirement savings plan for small businesses that don’t otherwise offer a qualified retirement plan. An investor contributes pre-tax dollars that grow tax-deferred until withdrawal.
Schedule P A tax form used to accompany a filed Form 5500 return. Schedule P is signed by the plan trustee.
secondary market A market where investors purchase securities or assets from other investors, rather than from the issuing companies. The national exchanges, such as the New York Stock Exchange and Nasdaq, are secondary markets.
sector A group of stocks, often related to a particular industry, that have certain shared characteristics.
sector diversification The percentage of a portfolio’s stocks from companies in each of the major industry groups.
sector fund A mutual fund that concentrates on a relatively narrow market sector. These funds can experience higher share-price volatility than diversified funds because they are subject to risks specific to a given sector.
secured credit card A type of credit card that is backed by a savings account used as collateral on the credit available with the card.
securities Stocks, bonds, money market instruments, and other investment vehicles.
securities account agreement A document that explains the terms and conditions of establishing and maintaining an account with the broker-dealer.
Securities and Exchange Commission (SEC) The agency of the federal government that regulates mutual funds, registered investment advisers, the stock and bond markets, and broker-dealers. The SEC was established by the Securities Exchange Act of 1934.
Securities Investor Protection Corporation (SIPC) A nonprofit corporation established by the federal government that provides limited insurance, in certain circumstances, for securities and cash held in a brokerage account. The coverage applies only when brokerage assets are missing or are otherwise at risk because of the firm’s failure. It does not protect you from investment losses, and your brokerage firm must be a member of the SIPC program for you to be covered.
seed money Money allocated to initiate a project.
self-managed account If you have contracted with your investment broker to provide professional asset management for some of your accounts, then any account that is excluded from your asset management agreement would be considered self-managed.
sell To place a sale of a security currently owned.
sell short To sell shares of a security that the seller doesn’t own—in other words, to complete a sale by delivering shares borrowed by or for the seller. Such sales are made in anticipation of a decline in the price of the security, which enables the seller to cover the sale with a future purchase at a lower price and therefore a profit.
SEP (See Simplified Employee Pension Plan)
serial bond A bond with stated maturity dates spread over several consecutive years.
settlement The conclusion of a securities transaction, when the broker-dealer either pays for purchased securities or delivers sold securities.
settlement date The date by which a broker must receive either cash or securities to satisfy the terms of a security transaction.
share A unit of ownership in a mutual fund or, for stocks, a corporation.
share class A mutual fund may offer more than one “class” of shares to investors. Each class represents a similar interest in the mutual fund’s portfolio, but is offered at a different price. Fees and expenses will vary according to class; therefore, investment returns will differ.
shareholder An owner of shares in a mutual fund or corporation.
Sharpe ratio A measure of risk-adjusted return. To calculate a Sharpe ratio, an asset’s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) is divided by the asset’s standard deviation.
short market value The worth of short positions, including equities and options, held in an account.
short sale The sale of a security that the seller doesn’t own—in other words, a sale completed by the delivery of shares borrowed by or for the seller. Such sales are made in anticipation of a decline in the price of the security, which enables the seller to cover the sale with a future purchase at a lower price and therefore a profit.
short-term capital gain A profit on the sale of a security or mutual fund share that has been held for one year or less. A short-term capital gain is taxed as ordinary income.
short-term debt Debt with a maturity of less than 1 year.
short-term reserves Investments in interest-bearing bank deposits, money market instruments, U.S. Treasury bills, and short-term bonds.
signature guarantee The authentication of a signature in the form of a stamp, seal, or written confirmation by a bank or member of a domestic stock exchange (or other acceptable guarantor). A notary public cannot provide a signature guarantee. Requiring a signature guarantee is a common practice when transferring or redeeming shares or changing the ownership of an account.
simple interest The interest calculated on the original principal amount.
SIMPLE IRA A Savings Incentive Match Plan for Employees individual retirement account (SIMPLE IRA) is an employer-sponsored retirement savings plan for small businesses that do not offer any other qualified retirement plan. Contributions are made with pre-tax dollars and grow tax-deferred until withdrawal, and employees can choose from among a range of plan investments. Withdrawals before age 59½ may be subject to penalty taxes. The SIMPLE IRA is a popular choice among small-business owners because it is extremely simple to set up and maintain.
Simplified Employee Pension Plan (SEP) An account in a SEP, an employer-sponsored retirement savings plan for self-employed individuals and employees of small businesses. Both the employer and employee may contribute to the account, and the employee can choose from among various plan investments. Tax-deductible contributions for employers and employees, flexibility in the timing of contributions, and ease of setup and maintenance make the plan a popular choice among small-business owners.
single life annuity An annuity covering one person. A straight life annuity provides payments until death, while a life annuity with a guaranteed period provides payments until death or continues payments to a beneficiary for a guaranteed term, such as ten years.
sinking fund A separate account, established by a bond issuer, into which the issuer deposits payments to be used to redeem issued bonds.
sinking fund date The date on which a sinking fund is payable.
sinking fund price The price at which a sinking fund is payable.
size The number of shares available to be bought or sold by investors.
small business By government legal definition, a business under certain thresholds including number of employees, sales, assets, and/or net profits.
small-capitalization (“small-cap”) fund A mutual fund that invests primarily in stocks of companies whose market value is less than $2 billion. Small-cap stocks historically have been more volatile than large-cap stocks and often perform differently than the overall market.
small-capitalization (“small-cap”) stocks The stocks of companies whose market value is less than $2 billion. To encourage growth, small-cap companies typically use profits for expansion rather than for paying dividends. They tend to grow faster and have more volatile share prices than large-cap companies.
Snowball Method A debt reduction strategy whereby the borrower pays off the debts with the lowest interest rates in sequential order.
sole proprietorship A business that legally has no separate existence from its owner.
source The origin of money being contributed to a retirement plan account; this can include pretax payroll deductions, contributions made by an employer, and after-tax contributions (if allowed by the rules of the plan).
special assessment bond A bond secured by a special tax or other source of revenue, such as a gasoline tax.
specialist A member of a stock exchange who facilitates the trading of a particular stock in order to maintain a balanced market. The specialist’s duties include holding an inventory of the stock, posting the bid and ask prices, managing limit orders, and executing trades.
specific identification An accounting method used to determine cost basis that allows the investor to choose which shares to sell.
split To increase the number of shares available without changing shareholders’ equity in order to make a corporation’s shares more affordable to more investors.
spousal IRA An individual retirement account established for a nonworking spouse. A married couple with only one spouse working outside the home may, subject to certain household income limits, make up to the maximum allowable contributions to both a regular IRA and a spousal IRA, even if the spouse is not employed.
spouse A married person. Federal law determines any tax benefit for spouses. The word may have different meanings under state law than under federal law.
spread For stocks and bonds, the difference between the bid price and the ask price.
stability The relative steadiness or safety of a security or fund compared to the market as a whole. For example, money market funds and other short-term investments offer more stability than funds that invest in growth stocks.
Stack Method A debt reduction strategy whereby the borrower pays off the debts with the highest interest rates in sequential order.
standard deviation A measure of the degree to which a fund’s return varies from its previous returns or from the average of all similar funds. The larger the standard deviation, the greater the likelihood (and risk) that a security’s performance will fluctuate from the average return.
standardized average annual total return Reflects return figures for variable annuity portfolios, including both capital appreciation and income dividends, that are adjusted for any annual fee. These figures reflect all fund-level and contract-level charges.
state tax-exempt income fund A mutual fund that seeks current income exempt from federal and a specific state’s income taxes.
statement balance The amount of new debt incurred on a credit card during the statement period.
Statement of Additional Information (SAI) A document provided as a supplement to a mutual fund prospectus. It contains more detailed information about fund policies, operations, and risks. Also known as a Part B prospectus.
stepdown note A loan rate that is set to decline at certain periods.
stepped coupon A bond with a coupon rate that increases periodically until final maturity.
stock A security that represents part ownership, or equity, in a corporation. Each share of stock is a proportional stake in the corporation’s assets and profits, some of which could be paid out as dividends.
stockbroker A licensed individual who executes orders to buy or sell a security and who usually gets a commission for doing so.
stock certificate A document certifying shareholder ownership in a corporation.
stock exchange A market facility for the trading of securities by members (usually brokers, dealers, and traders). An example is the New York Stock Exchange (NYSE), which is the oldest and largest exchange in the United States.
stock fund A mutual fund having holdings consisting mainly of stocks.
stock price percentage change This value, expressed as a percentage, compares the most recent stock price to the stock’s 52–week high or low price.
stock split An increase in the number of a corporation’s outstanding shares, often initiated to make shares affordable to more investors. The stock price per share will decrease; however, the proportionate equity in the company will remain the same. For example, ABC Company has 10 million shares outstanding, selling at $9 per share. ABC declares a 3-for-1 split. The company now has 30 million shares outstanding, selling at $3 per share. No monetary gain or loss results from a stock split.
stop-limit order An order to buy or sell a security at a limit price or better once a transaction reaches a specified price (the stop price). The limit price should be at or below the stop price for sells and at or above the stop price for buys. It’s possible for the stop price to activate without the order executing in fast-moving market conditions.
stop order An order that triggers a market order once a transaction reaches a specified price (the stop price). This order may execute at a price significantly different from the stop price depending on market conditions.
strategy The general or specific approach to investing that an individual, institution, or fund manager employs.
street address A mailing address is the address where you receive mail. It can be a street, P.O. box, rural route, or general delivery address. A street address is the actual, physical location of your residence or business. It can’t be a P.O. box or rural route address but can be a military APO or FPO.
street name Brokerage term for stocks held in the name of the owner’s broker or other nominee to facilitate share transfers at the time of sale.
student credit card A credit card built specifically for students (most often college students), who typically have very little credit history.
suballocation The process of apportioning your assets within an asset class. For example, within the bond asset class, bonds can be further classified based on their duration or maturity.
subsequent interest rate The interest rate in effect for a fixed annuity after the initial interest rate has expired.
substantially equal periodic payments (SEPP) A method of distribution from retirement plan assets that under certain conditions is not subject to the IRS’s 10% premature withdrawal penalty for those under age 59½.
successor trustee Acting authority of a trust in the event that the original trustee dies or resigns.
summary plan description (SPD) A document that explains the fundamental features of an employer’s defined benefit or defined contribution plan, including eligibility requirements, contribution formulas, vesting schedules, benefit calculations, and distribution options. ERISA requires that the SPD be easy to understand and that each participant receives a copy within 90 days of his/her joining the plan.
summary prospectus A short-form prospectus that mutual funds may supply to investors, provided the long-form prospectus and additional information are made available online or in paper upon request.
surrender charge A fee that may be charged on withdrawals or surrenders from an annuity before annuity payments have begun.
swap agreement An arrangement between two parties to exchange one security for another, to change the mix of a portfolio or the maturities of the bonds it includes, or to alter another aspect of a portfolio or financial arrangement, such as interest-rate payments or currencies.
symbol Identification letter(s) assigned to a security for trading purposes. Bonds that are listed and traded on the major exchanges have symbols similar to stocks. Also called ticker symbol.

T

target asset allocation In a balanced fund, the mix of stocks, bonds, and cash that the fund is expected to hold. Also, the investment mix that an investor chooses for his or her own goals and circumstances. As time goes by, it may be necessary to rebalance a portfolio back to its target allocation.
target-date fund A fund designed to provide varying degrees of long-term appreciation and capital preservation based on an investor’s age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also known as a life-cycle fund.
target investment mix The mix of stocks, bonds, and cash that an investor considers appropriate for his or her own goals and circumstances. As time goes by, it may be necessary to rebalance a portfolio back to its target mix.
target-risk fund A fund that maintains a predetermined asset mix and generally uses words such as “conservative,” “moderate,” or “aggressive” in its name to indicate the fund’s risk level. Often used interchangeably with “lifestyle fund.”
taxable bond A bond whose interest is taxable on the federal and possibly the state level.
taxable equivalent yield The before-tax yield an investor would have to earn from a higher-paying but taxable investment to equal the yield from a tax-exempt investment. It varies based on the investor’s tax bracket.
taxable year The 12-month period used by an individual to report income for income tax purposes. For most individuals, their tax year is the calendar year.
tax deferral Delaying the payment of income taxes on income. For example, owners of traditional IRAs do not pay income taxes on the interest, dividends, or capital gains accumulating in their retirement accounts until they begin making withdrawals.
tax-deferred income Earnings on investments in accounts that are not subject to taxation until a withdrawal is made. Many types of employer-sponsored retirement plans, IRAs, and college savings accounts allow investors to defer taxes on income.
tax-deferred retirement plan Any retirement plan in which earnings are not currently taxable.
tax deduction A reduction of an individual or business’ income subject to tax due to various types of expenses incurred by the taxpayer.
tax-exempt bond A bond, usually issued by municipal, county, or state governments, whose interest payments are not subject to federal and, in some cases, state and local income tax.
tax-exempt income Interest earnings that are not subject to federal and, in some cases, state and local income taxes. Municipal bonds, for example, offer tax-exempt income.
tax-exempt income fund A mutual fund that seeks income that is exempt from federal and, in some cases, state and local income taxes.
tax-sheltered An investment exempt from federal and, in some cases, state or local income taxes.
tax-sheltered annuity A type of retirement plan under Section 403(b) of the Internal Revenue Code that permits employees of public educational organizations or tax-exempt organizations to make before-tax contributions via a salary reduction agreement to a tax-sheltered retirement plan. Employers are allowed to make direct contributions on behalf of employees.
tax year An annual accounting period for keeping records and reporting income and expenses.
TED spread (See Treasury over Eurodollar spread)
tenants in common A form of account registration in which two or more individuals own a certain proportion of an account. Each tenant’s proportion is distributable as part of the deceased’s estate, so that if one of the account holders dies, his/her heirs are entitled to the proportional share of the account.
ten largest holdings The percentage of a portfolio’s total net assets or equity holdings in its ten largest securities positions. As this percentage rises, a portfolio’s returns are likely to be more volatile because they are more dependent on the fortunes of a few companies.
term bond A large municipal bond issue with all the bonds maturing on a single date, usually requiring a mandatory sinking fund.
termination distribution The distribution of a participant’s retirement plan account when he or she ceases employment with the sponsoring employer. The participant should refer to his or her company’s plan document for specific termination distribution options.
terms and conditions General and specific arrangements, provisions, requirements, rules, specifications, and standards that form an integral part of an agreement or contract.
Thrift Savings Plan (TSP) A defined-contribution retirement plan for federal government employees, including members of the armed services.
tick Indication of upward or downward movement in a security’s price.
ticker symbol An abbreviation assigned to a security for trading purposes. A security’s ticker symbol is often used in newspapers and price-quotation services. Also called a trading symbol or stock symbol.
time horizon The amount of time, usually expressed in years, that an investor expects to hold an investment.
total debt The sum of all financial obligations one company, individual, or government entity owes to others.
total debt/equity Total debt (the sum of all financial obligations owed to others) divided by total equity (the value of all common stock in a particular company held by investors).
total equity The value of all common stock in a particular company currently held by investors.
total return A percentage change, over a specified period, in a mutual fund’s net asset value, with the ending net asset value adjusted to account for the reinvestment of all distributions of dividends and capital gains.
total return for calendar year The profit or loss realized by an investment at the end of a specified calendar year, stated as the percentage gained or lost per dollar invested on January 1.
T-plus-three (T+3) The third business day following a regular way trade of a security in which the seller must deliver the security and the buyer must deliver the money for settlement. Also called settlement date.
trade date The actual date on which shares are purchased or sold. For most mutual funds, the transaction price is determined by the closing net asset value on that date. This date also determines the eligibility for dividends.
trading Buying or selling a stock, bond, or other financial commodity or option. A broker or agent often facilitates this process, serving as an intermediary.
trading price The price at which a security is currently selling.
trading range The upper and lower trading price of a security over a given period of time.
traditional IRA A tax-deferred individual retirement account. Contributions are fully deductible for all individuals who are not active participants in employer-sponsored plans or for plan participants within certain income ranges.
trailing P/E Ratio of price to earnings, based on the 4 most recent quarters.
transactable balance The amount in a variable annuity portfolio that you’re likely to have available to exchange from, estimated using the latest closing price. Although this figure includes all pending transactions, each exchange will actually be processed using the next business day’s closing price. (See also Price.)
transaction The execution of a trading order. Once a buyer and seller agree on a price, they are obligated to complete the transaction.
transaction fee A fee charged by some mutual funds when investors buy or sell shares. Funds may charge purchase fees to offset the costs of securities trades. They may charge redemption fees as an effort to discourage short-term trading.
transfer A transfer can refer either to the movement of assets from one account to a new or different existing account, or to the changing of an asset’s ownership.
transfer agent A financial service organization, such as a commercial bank or an individual employed by a corporation or mutual fund, that maintains records and handles problems relating to the transfer, issue, purchase, sale, or conversion of securities. The transfer agent also may be responsible for mailing notices and reports to stockholders, paying dividends, and maintaining the accounting records of the corporation.
transportation sector securities Stocks and bonds issued by railroad, trucking, and air freight companies.
Treasury bill (T-bill) A short-term discounted security issued by the U.S. government, with a maturity of 1 year or less.
Treasury bond (T-bond) A long-term security issued by the U.S. government, with a maturity of 10 years or more.
Treasury note (T-note) An intermediate-term security issued by the U.S. government, having a maturity of 1 to 10 years.
Treasury security A negotiable debt obligation issued by the U.S. government for a specific amount and maturity. Income from Treasury securities is exempt from state and local tax but not from federal income tax. Treasury securities include Treasury bills (T-bills), Treasury notes (T-notes), and Treasury bonds (T-bonds).
Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) Treasury zero coupon program offering securities sold at a discount and redeemed for their full face value at maturity.
triple tax-exempt fund A municipal bond mutual fund whose dividends and interest are exempt from federal, state, and local income taxes for residents of the issuing state or municipality.
trust A legal arrangement through which property, such as investments or real estate, is held by a trustee on behalf of a beneficiary. Trusts are often used as part of a plan to minimize or eliminate estate taxes.
trustee The party named in a trust or plan who is authorized to hold the assets of the trust or plan for the benefit of the beneficiaries or participants.
TSP (see Thrift Savings Plan)
turnover rate An indication of trading activity during the past year. Portfolios with high turnover rates incur higher transaction costs and are more likely to distribute capital gains (which are taxable to nonretirement accounts).

U

UGMA (See Uniform Gifts to Minors Act)
UIT (See unit investment trust)
uncollected Uncollected money results when a purchase is made using a check, but the check hasn’t cleared at the issuing bank.
undervalued security A security selling below its market value or liquidation value.
unified tax credit A federal tax credit that decreases tax liability, dollar for dollar, on lifetime gifts and asset transfers at death.
Uniform Gifts to Minors Act (UGMA) A law adopted by many states that provides a simple way to give irrevocable monetary gifts to children via a custodial account, without having to establish a formal trust. UGMA accounts are managed by a custodian who acts on behalf of a minor child, but earnings may be taxed at the child’s rate. The assets must be turned over to the minor at the age of majority (also called age of termination), usually 18 to 21, depending on the state.
Uniform Transfers to Minors Act (UTMA) Adopted by all states and similar to the Uniform Gifts to Minors Act, this law allows the irrevocable transfer of nonmonetary property (which can include real estate, fine art, patents, and royalty rights) to a minor via a simple custodial account. The UTMA either supplements or replaces the UGMA, depending on the state.
unit investment trust (UIT) An SEC-registered investment company that purchases a fixed, unmanaged portfolio of income-producing securities and then sells shares in the trust to investors, usually in units of at least $1,000. Usually sold by an intermediary such as a broker.
unit trust In the United Kingdom and other foreign markets, an open-end mutual fund.
unit value The value of one unit of a portfolio. A portfolio’s unit price is determined by the value of the portfolio’s total assets, minus liabilities and fees, divided by the number of units outstanding.
unlimited marital deduction An Internal Revenue Service provision that allows an individual to transfer an unlimited amount of assets to a spouse, during life or at death, without incurring federal estate or gift tax.
unrealized capital gain/loss An increase (or decrease) in the value of a security that is not “real” because the security has not been sold. Once a security is sold by the portfolio manager, the capital gains/losses are “realized” by the fund, and any payment to the shareholder is taxable during the tax year in which the security was sold.
unsecured credit card A credit card that does not require the user to have a security deposit for the credit limit. Unsecured credit cards are the most common type of credit card.
unsettled activity The net value of transactions in your brokerage account that have not settled.
US Treasury bond (see Treasury Bond)
utility sector securities Stocks and bonds issued by electric, gas, and water utility companies.
UTMA (See Uniform Transfers to Minors Act)

V

VA (Department of Veteran Affairs) Loan A mortgage loan guaranteed by the federal government with favorable terms for active military personnel, veterans, and their families.
valuation The estimated worth of an asset such as a security. A valuation makes it easier to decide if an asset would make a good investment at a given purchase price. The price/earnings ratio is an example of a stock valuation.
value Value reflects the most recent number of shares and the most recent share price. Pending transactions are not included.
value stock fund A mutual fund that emphasizes stocks of companies whose growth opportunities are generally regarded as subpar by the market. Value stock companies often pay regular dividend income to shareholders and sell at relatively low prices in relation to their earnings or book value.
variable annuity A contract issued by an insurance company that agrees to make payments to the investor based on the contract’s value, which varies based on its underlying investments. An income annuity offers a stream of payments in return for a lump-sum investment and the possibility to receive variable payments.
variable expenses Expenses that may vary in cost from month to month.
variable-return investments Investments for which the return is not fixed. This term includes stock and bond funds—as well as investments that seek to preserve principal, like money market funds and stable value funds—but a particular return is not guaranteed.
venture capital Money provided by investors to startup firms and small businesses with perceived long-term growth potential.
vesting Nonforfeitable ownership (or partial ownership) by an employee of the retirement account balances or benefits contributed on his or her behalf by an employer. The Tax Reform Act of 1986 and revised Economic Growth and Tax Relief Reconciliation Act of 2001 established minimum vesting rights for employees based on their years of service—full vesting in 3 years or 20% vesting per year starting by the end of the second year.
volatility The degree of fluctuation in the value of a security, mutual fund, or index, volatility is often expressed as a mathematical measure such as a standard deviation or beta. The greater a fund’s volatility, the wider the fluctuations between its high and low prices.
volume The amount (expressed in shares or dollars) of a security that trades hands during a specific period.

W

W-2 A standard tax form prepared by an employer for an employee showing the total wages paid to an employee and the taxes withheld during the calendar year.
W-8 status One of four IRS forms used to certify one’s foreign status. If a client account has W-8 status, the account owner must file Form W-8 with the IRS; otherwise, all redemptions will be subject to 31% withholding.
warrant An entitlement to purchase a certain amount of common stock at a set price (usually higher than the current price) during an extended period of time. Usually issued with a fixed-income security to enhance its marketability, a warrant can be transferred, traded, or exercised by the holder.
wash sale rule The IRS regulation that prohibits a taxpayer from claiming a loss on the sale of an investment if that same investment is purchased within 30 days before or after the sale.
whole life insurance Life insurance payable to beneficiaries at the death of the insured. These policies build up cash value that is tax-deferred and can be borrowed against in the form of a policy loan.
will An instrument by which a person makes a disposition of his or her real and personal property, to take effect after his or her death.
wire A type of electronic money transfer between banks. A wire transfer is generally the fastest way to move funds.
withdrawal Money taken out of an account by the account owner. A withdrawal from a tax-advantaged account may be subject to taxes and, if certain conditions are not met, penalties.
withholding Taking federal or state tax from an IRA distribution. Federal income tax must be deducted from distributions unless the recipient elects otherwise. Some states require state income tax withholding whenever federal tax is withheld. The payer of distributions is responsible for withholding the tax.

X

Y

Yankee dollars/bonds Debt obligations, such as bonds or certificates of deposit bearing U.S. dollar denominations, issued in the United States by foreign banks and corporations.
yearly total returns The returns of the fund each year, from the last business day of the previous year until the close of the last business day of the current year.For example, the yearly returns for 2008 would be calculated based on a fund’s price from the close of business on December 31, 2007, to the close of business on December 31, 2008.
year-to-date total returns The change in price of the fund from the close on the last business day of the previous calendar year to the previous night’s close.For example, if the price of a fund was $20 on December 31, the last business day of the previous year, and currently the fund is priced at $21, the fund would be up 5% year-to-date.
yield A yield for non-money market funds that’s based on a formula mandated by the Securities and Exchange Commission. It approximates the yield an investor would receive in a year by assuming that bonds in the portfolio are held to maturity, all income reinvested, and all fees and expenses factored in.
yield curve A line plotted on a graph that depicts the yields of bonds of varying maturities, from short-term to long-term. The line or “curve” shows the relationship between short- and long-term interest rates.
yield to call Rate of return an investor receives if a security is held to its call date.
yield to maturity The rate of return an investor would receive if a security is held to its maturity date.

Z

zero coupon bond A bond sold at a deep discount from its face value and which makes no periodic payments of interest. The return on the bond is the difference between its discounted price and the full face value of the bond, which is paid to the bondholder on a specified maturity date.