We have provided some key investment and financial definitions aimed to help you navigate around our website as well as the financial world.
12b-1 fees- The percent of a mutual fund’s assets used to pay marketing and distribution expenses.
401(k) Plan – A deferred compensation plan set up by an employer so that employees can set aside money for retirement on pre-tax basis. Employers may match a percentage of the amount that employees contribute to the plan. Contributions by both employees and employers, as well as investment earnings and interest, are not taxed until the employee withdraws the money; if the employee withdraws the money before retirement age, he or she pays an early withdrawal penalty tax.
403(b) Plan - A tax-advantaged retirement savings plan available for public education organizations, some non-profit employers and self-employed ministers in the United States. It has tax treatment extremely similar to a 401(k) plan. Simply put, employee salary deferrals into a 403(b) plan are made before income tax is paid on it, and allowed to grow tax deferred until the money is taxed as income when taken out of the plan.
529 Plan – A tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary. The detailed behavior of 529 plans is determined by state legislation, and while most plans allow investors from out of state, there can be significant state tax advantages and other benefits, such as matching grant and scholarship opportunities, protection from creditors and exemption from state financial aid calculations, for investors who invest in 529 plans within their state of residence.
Adjusted gross income (AGI) - (in U.S. income-tax returns) the total of an individual's wages, salaries, interest, dividends, etc., minus allowable deductions.
Annuity – A contract with an insurance company by which one receives fixed payments or an investment for a lifetime or specified number of years.
Asset allocation - A term used to refer to how an investor distributes his investments among various classes of investment vehicles (e.g., stocks and bonds).
Basis Points - The smallest measure used for quoting yields in the bond market. It is commonly used to denote the change in a financial instrument, or the difference (spread) between two interest rates; although it may be used in any case where percentages are used, it is used for convenience when quantities in percentage points are small. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.
Beta - The measure of a fund’s or stock’s movement in relation to the overall market or to an alternative benchmark. A Beta of 1.5 means that a stock is expected to return approximately 1.5 times the market’s gain. If the market’s return is 10 percent, then a stock’s expected return would be 15 percent. Conversely, if the market drops 5 percent, a stock with a beta of 1.5 is expected to fall 7.5 percent.
Broker - An individual who is paid commission for executing customer orders. Acts as an intermediary between a buyer and a seller, usually charging a commission.
Capital gains - Profit that results from the sale or exchange of a capital asset over its purchase price.
Capital loss - Loss that results from the sale or exchange of a capital asset for less than its purchase price.
Certificate of Deposits (or CDs) - A time deposit; a financial product commonly offered to consumers by banks, thrift institutions, and credit unions.
Dealer – An entity that stands ready to buy a security for its own account for sale from its own account. Individual or firm acting as a principal, rather than an agent, in a securities transaction. Principals are market makers in securities, and trade their own account at their own risk.
Dividends - Payments made by a company to its shareholders
Dollar-cost averaging - Method of purchasing securities by investing a fixed amount of money at set intervals. The investor buys more shares when the price is low and fewer shares when the cost is high, thus reducing the overall cost. Instead of investing assets in a lump sum, the investor works his way into a position by slowly buying smaller amounts over a longer period of time. This spreads the cost basis out over several years, providing insulation against changes in market price.
Early withdrawal penalty prior to 59 ½ - A penalty paid by the holder of a fixed-term investment, such as a bank certificate of deposit, when he or she withdraws money before the agreed-upon maturity date.
Equity – Ownership interest in a firm or asset.
Fiduciary – One who must act solely for the benefit of another party, ignoring his own needs entirely.
Financial Industry Regulatory Authority (FINRA) - Is responsible for regulatory oversight of all securities firms that do business with the public; professional training, testing and licensing of registered persons; arbitration and mediation; market regulation by contract for The NASDAQ Stock Market and the American Stock Exchange LLC.
Fixed Income - Refers to any type of investment that yields a regular (or fixed) return.
Future value - The amount of cash at a specified date in the future that is equivalent in value to a specified sum today
Investment Advisor Representative – Investment advisors are professional financial analysts who study business trends and individual companies in depth. These advisors must attain set educational qualifications, must follow certain rules and regulations and they must be registered with the securities commission in their state or province.
Liquidity - The ability or ease with which assets can be converted into cash
Load Funds – A mutual fund that sells shares with a sales charge- typically 8 percent of the net amount indicated.
Management fees (mutual funds) - An investment advisory fee charged by the financial advisor to a fund typically on the basis of the fund’s average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.
Mutual fund - A professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
Net asset value (NAV) - The price of a share in a mutual fund, equal to the total value of the fund's securities divided by the number of shares outstanding.
Non-Qualified Plan - A retirement plan that does not meet the IRS requirements for favorable tax treatment
Present value - The amount of cash today that is equivalent to a payment (or stream of payments) to be received in the future
Private Placement – The sale of a bond or other security directly to a limited number of investors; Not registered with organizations such as the SEC because no public offering is involved.
Qualified Plan – A tax-deferred plan allowing employer and employee contributions that build up savings, which are paid out at retirement or on termination of employment. Tax is paid only when amounts are drawn from the trust
Registered Investment Advisor – SEC registered individual or firm that completes a course of education and work experience in the field and pays an annual membership fee.
Registered Representative – A person licensed to sell securities, registered with the SEC or the Commodity Futures Trading Commission, and employed by and soliciting business for a brokerage house or future commission merchant. (also known as a stockbroker)
Return on Investment (ROI) - Is the ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss.
Required Minimum Distributions (RDM) - The minimum amount that the IRS requires to be withdrawn each year from all tax-advantaged retirement plans starting in the calendar year following the year in which the plan holder reaches age seventy and a half.
Roth IRA – An Individual Retirement Account that provides tax-free growth. Roth IRA gives one the advantage of getting taxed only once, rather than twice (or more) as with a regularly-taxed investment account.
Securities & Exchange Commission (SEC) – A federal agency that regulates the U.S. financial market. The SEC also oversees the securities industry and promotes full disclosure in order to protect the investing public against malpractice in the securities market.
Simplified Employee Pension Individual Retirement Account (SEP IRA) - a variation of the Individual Retirement Account used in the United States. Even more so than the SIMPLE IRA, the SEP-IRA really is "simple." There are no real administration costs if you are self-employed and don not have any employees. If you do have employees, all employees must receive the same benefits under a SEP plan.
Savings Incentive Match Plan for Employees (SIMPLE IRA) – A salary deduction plan for retirement benefits provided by small businesses with no more than one hundred employees.
Securities Investor Protection Corporation (SIPC) - A nonprofit corporation that insures a certain amount of customers’ securities and cash held by member brokerage firms against the failure of those firms. It is funded by the brokerage industry.
Standard Deviation - A measure of the spread of values. The more spread apart the data is, the higher the standard deviation. It is applied to the annual rate of return of an investment to measure the investment’s volatility (risk).
Traditional IRA – A tax-deferred individual retirement account that allows limited annual contributions for each income earner. Contributions are fully deductible for all individuals who are not active participants in employer-sponsored plans or for plan participants with certain income wages.
Underwriter - A firm, usually an investment bank, that buys an issue of securities from a company and resells it to investors. In general, a party that guarantees the proceeds to the firm from a security sale, thereby in effect taking ownership of the securities before they are sold.
Underwriting (for insurance policies) - Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk.